Entrepreneurship

Management
Abhishek Kumar Jain
Do you know him?
 Grew up in a household of 60 members sharing
a common kitchen under one roof

Was all set to join the MNC his father made

him rethink his decision, and convinced him to
Case No 1 – From set up his own business in a 300 sq. ft office
space
byaaj batte ka Started a small financial agency at the age of
business to a self 23. It was engaged in the bill discounting
made billionaire business with borrowed capital from friends
and family
banker In 1986, he received investment from his friend
Anand Mahindra

In 2003 his NBFC received a banking license

from the Reserve Bank of India (RBI)
What about
him?
Case No. 2 – “Skill it, kill it” film

In 1981, he established his first business, documentary

which was in cable television production

In the late 1980s, he moved on to create a children’s channel

toothbrush company called Laser Diversified into
areas including advertisement
In 1990, along with two co-founders, he built production
an entertainment and media conglomerate,
UTV Software Communications
airline entertainment

Recently forayed into EdTech

dubbing for all foreign
animation studios
Do you know
her?
Case No. 3 - “Choose what you love
because you will have to do it a lot
intensity, commitment, passion, and MBA of IIM Ahmedabad
hard work for a pretty long time for it
to reach the finishing line.”
- Falguni Nayar
Former investment banker,
quit her banking career at the
age of 49 when she was the
Managing Director, Kotak
Mahindra Group that went
Founded Nykaa,
public in 2021
Do you know
him?
Now?
 Case No. 3 - The man who fought (and still fighting) to break a Taboo
Arunachalam Muruganantham
• A school dropout from Coimbatore, Muruganantham
decided to challenge a 'taboo'.
• His mission was to provide sanitary napkins at minimal
cost to poor women across the country, especially in rural
areas.
• It took him two years and three months to discover what
sanitary pads are made of.
• Almost after four-and-a-half years, he successfully created
a low-cost machine for the production of sanitary pads.
• Out of 943 entries in a competition for a national
innovation award, his machine came first.
• Today, he is successfully running a napkin business,
Jayashree Industries, with 2003 units across India,
including the Andaman and Nicobar Islands. More than
21,000 women employees work in his venture.

Source - https://economictimes.indiatimes.com/news/politics-and-nation/meet-arunachalam-muruganantham-the-man-who-wore-a-
sanitary-pad-to-break-a-taboo/game-changer/slideshow/58340287.cms
 Muruganantham’s Model
Builds a viable and sustainable enterprise that
can be run efficiently by the stakeholders at the
grassroots.

Delivers an essential commodity – the sanitary

napkin – to poor women at affordable rates
without compromising on the raw material used

Reduces the players involved in the supply chain

– the third person to handle the product (from its
inception) is the consumer.

Thereby makes optimal use of the micro-credit

generated by a community

Content Source - Source - http://newinventions.in (Jayaashree Industries website)

Unit I – Basic
Concepts
 1. Definition

Entrepreneurship
• According to Oxford Dictionary
“The activity of setting up a business or businesses, taking on
financial risks in the hope of profit.”
Entrepreneur
• According to Joseph Schumpeter (1965)
– “Entrepreneurs are individuals who exploit market opportunity
through technical and/or organizational innovation”
• According to Merriam-Webster
– “Entrepreneur is the one who organizes, manages, and assumes
the risks of a business or enterprise”
• According to Peter Drucker
– “Entrepreneur always searches for change, responds to it, and
exploits it as an opportunity”
 1) Prior Experience
• Corridor Principle – Akin to ‘skin in the
game’
Personal 2) Cognitive Factors
Characteristics
of the • Entrepreneurial alertness
Entrepreneur 3) Social networks
(1/2)
• Solo entrepreneurs
• Network entrepreneurs
• Strong-tie entrepreneurs
• Weak-tie entrepreneurs

Creativity
Personal Characteristics of the Entrepreneur (2/2)
Five Steps to Generating Creative Ideas

• background, • Recognition of the Details of the product

experience, and opportunity (Gap or the business
knowledge filling) concept

• ‘Mulling things over’

• Viability, feasibility
phase
and sustainability
• Think about a problem
The Opportunity Recognition Process
 Nature
• Innovation
– “An entrepreneur is basically an
innovator who introduces something
new into the economy” (Gupta &
Srinivasan 2016)
• A function of high achievement
– Setting high standards will motivate an
individual to be achievement oriented
• Organization building function
– A crucial skill for every entrepreneur is
to harness new ideas of different
innovators
– Delegation is the key
• A function of managerial skills and
leadership
• Gap filling function
– With innovative ideas, entrepreneur
can present the knowledge about
something that was unknown in the
past
• Dynamic function
 4. Roles of Entrepreneurs
by Henry Mintzberg
• Leader Role
• Liaison Role
• Monitor Role
• Information
Disseminator Role
• Spokesman Role
• Disturbance handler
• Negotiator
• Social Roles
• Economic Roles
• Technical Roles
 5. Types of Entrepreneurs
Basis - Entrepreneurial Modes
• Aggressive in experimentation
Innovating
• Introduce new technology, new product or a
Entrepreneurs new market

• Ready to adopt successful innovations © www.biography.com

Adoptive or • These entrepreneurs are practically
imitative important to developing and deprived
entrepreneurs economies (because they can keep the price
lower)
• Very cautious and skeptical about practicing
a change
Fabian • No desire to adopt new methods
entrepreneurs • Their dealings are determined by custom, © LA Times
tradition etc
• These entrepreneurs are rigid to change the
methods of operation even if they incur
Drone losses
entrepreneurs • They are laggards (a person who makes slow
progress and falls behind others)
 5. Types of Entrepreneurs
Some more categories

Individual and • Individuals dominate the small sector

• Whereas, once they go for expansion
Institutional they need to institutionalize the
entrepreneur entrepreneurship

Entrepreneurs • Inherited from the family

by inheritance • Still controlled by family
 The professionalization of a family business typically comprises
three phases.
Phase 1 - New Ways, Same
Company.

• a few new recruits at various levels Phase 2 - Two Worlds

• a few new processes, typically in HR.
• But the company’s operations and
• Company hires external talent for
culture remain largely unchanged. important positions and
• Critical new business processes are
defined.
• But it grapples with the need to reconcile
Phase 3 - A High-Performing Enterprise the old and the new.

• The company retains its distinctiveness

• Top talent is in place throughout the
Source: “A Founder’s Guide to Professionalizing a Family
organization Business”, BCG Analysis
• The organization uses processes and https://www.bcg.com/publications/2017/family-business-
systems to deal with scale effectively people-organization-founders-guide-professionalizing-family-
business.aspx
 Journey of Haldiram
1. Established in 1937 in the form of a small
retail Sweet & Namkeen shop in Bikaner,
Rajasthan
2. Later, it shifted its base to Nagpur in 1970
3. Started a factory to manufacture Sweets
and Namkeen (Snacks) which was not
trend for the product segment
4. This was followed by a chain of retail
outlets & showrooms
5. Sweets and namkeens were presented in
more durable and commercially viable
packaging.
6. Adherence to the International norms
(HACCP) of Quality & Safety
Consistent growth
 How Entrepreneurs think?
• Effectuation
– Concept defined by Prof. Saras Saraswathy
– A process that starts with what one has (who they are, what they know, and whom they
know) and selects among possible outcomes.
Whereas
– Causal process - A process that starts with a desired outcome and focuses on the means to
generate that outcome.
 Entrepreneurs start with what they have
and who they are

Entrepreneurs limit risk by understanding

what they can afford to lose at each step
Things to
learn from Entrepreneurs create their own market
opportunity

Effectuation
Entrepreneurs trust people

Failure increases the odds of individual

success
 Effectuation at Infosys
1. Narayan Murthy borrowed $250
from his wife Sudha to start the
company. (source – www.bbc.com)
2. Nandan Nilekani, N S Raghavan, S
Gopalakrishnan, S D Shibulal, K
Dinesh and Ashok Arora. (Image source
– CiteHR)
3. Infosys got its first joint venture
partners in Kurt Salmon Associates
but it collapsed in 1989 Source – CiteHR
4. Introduces Employee Stock Options
(ESOP) program
(source – www.infosys.com)
Cognitive adaptability
• Describes the extent to which entrepreneurs are
dynamic, flexible, self regulating, Engaged in the
process of generating multiple decision frameworks
focused on sensing and processing changes in their
environment. Then acting on them.

Entrepreneurial heuristics
• Heuristics refers to the mental shortcuts that people
take to enable them to make sense of vast amount
of data quickly, although often at the expense of
accuracy. (Payne, Bettman & Johnson in Maxwell,
Jefferey, & Levesque, 2011)

Learning from business failure

Recovery and learning process

Entrepreneurship Ecosystem by Isenberg
Unit II
Generating business
idea and tapping
opportunities
 IDENTIFYING AND
RECOGNIZING
OPPORTUNITIES

• Opportunity is a
favorable set of
circumstances that
creates a need for a
new product, service,
or business
• An opportunity has
Four Essential
Qualities
Three Ways to Identify
an Opportunity
 I) Observing Trends
• Two caveats to keep in mind when
looking at trends
– it’s important to distinguish
between trends and fads. New
businesses typically do not have the
resources to ramp up fast enough to
take advantage of a fad.
– even though we discuss each trend
individually, they are interconnected
and should be considered
simultaneously when brainstorming
new business ideas.
Environment
al Trends
Suggesting
Business or
Product
Opportunity
Gaps
II) Solving a
Problem
Have you
heard about
Java Jacket?
Medical Tourism
Finding gaps in the
marketplace
Example:
• Large retailers
• Economies of scale
 A market demand

An organizational need

Sources of A customer request

(customization)
Business
A technological advancement
Idea
A legal requirement

A social need
 Market
Demand
• Tea vs. Coffee in India
It is now more than 100 million
 Organizational
need

Which product
do these
features point
towards?
Customization

Technological Advancement
Legal requirement

Social need
Let us look at some
minute details
 Sources for Project Ideas
1. Analysis of industries’ performance
2. Analysis of inputs and outputs of industries
Perspective
Perspective
 Sources for Project Ideas
3. Analysis of imports and exports
4. Change in the Government Policies
Sources for Project Ideas

5. Suggestions of financial institutions and

development agencies

Preference would be given to startups creating

innovative solutions in sectors such as social
impact, waste management, water management,
financial inclusion, education, agriculture, food
processing, biotechnology, healthcare, energy,
mobility, defence, space, railways, oil and gas,
textiles, etc.
Source: https://seedfund.startupindia.gov.in/about (Feb 6, 22)
 Sources for Project Ideas

6. Survey of
local
resources
 Sources for Project Ideas
7. Analysis of economic and social trends
8. New technologies
 Sources for Project Ideas
9. Emulating consumption patterns
10. Restoring life to sick units
 Sources for Project Ideas
11. Analysis of unsatisfied needs of customers
12. International and national trade fairs and industry exhibitions
 Sources for Project Ideas
13. Stimulate creativity for generating new product ideas
14. Chance factor

3M’s unique 15% Culture encourages employees

to set aside a portion of their work time to
proactively cultivate and pursue innovative ideas
that excite them.
• 3M provides resources, funding, extra help if any
employee convinces the main board about the
project
• Arthur Fry, while attending a Technical Council
Meeting came across a weak adhesive, which would
not dry
• He used this adhesive on Post It Notes
• Initially he gave these notes to fellow employees for
free
• When demand went up within the company, he
reduced its supply and persuaded his superiors to
officially back the product
 Design Thinking
and
Entrepreneurship
 Design Thinking and Business
Source – HBS Online Education

Clarify Ideate Develop Implement

observing a situation brainstorming Develop potential
without bias potential solutions solutions using the
user-centric element ideate based on ideas you generate

empathizing with patterns or Test & experiment

those affected by a observations Be ready to return to
problem collected in the clarify the ideation or
phase clarification stage
asking them
questions about their based on your results
pain points
create a problem
statement or question
Designing Oral B
Electric Brush
Option 1
• tracking brushing frequency
• observing gum sensitivity
• playing music
Option 2
• easier to charge
• convenient for users to
order replacement heads
Identifying and
Understanding
Customer
 • To succeed a new firm must know who its
customers are and how to reach them
Concept • A firm uses a three-step process to determine
who its customers are Crafting a unique
Segmenting the
Selecting a Market positioning
Market
strategy
What groups of Which specific What position will
customers in my group of my firm occupy in
market are similar customers have I the minds of my
enough that the decided to target? customers (and
same product or potential
service will appeal customers) that
to all of them? will differentiate it
from all my
competitors?
 Introduction
Target marketing requires marketers to take
three major steps:
1. Identify and profile distinct groups of
buyers who might require separate
products or marketing mixes (market
segmentation)
2. Select one or more market segments
to enter (market targeting)
3. Establish and communicate the
products’ key distinctive benefits in
the market (market positioning)
 MARKET SEGMENTATION

• Market segmentation aims to increase a

company’s precision marketing.
– In contrast, sellers that use mass “one size fits all”
marketing engage but
– E.g. Henry Ford epitomized this strategy Is it possible in this
when he offered the Model T Ford “in any era?
color, as long as it is black.”
– Coca-Cola also used mass marketing when
it sold only one kind of Coke in a 6.5-ounce
bottle
 Levels of Market Segmentation (1/2)

1. Segment Marketing
– A market segment consists of a large identifiable group
within a market, with similar wants, purchasing power,
geographical location, buying attitudes, or buying
habits.
• For example, an automaker may identify four broad
segments in the car market: buyers who are primarily
seeking (1) basic transportation, (2) high performance,
(3) luxury, or (4) safety.
– Key Aspect- Segment marketing allows a firm to create
a more fine-tuned product or service offering and
price it appropriately for the target audience.
2. Niche Marketing
– A niche is a more narrowly defined group, typically a
small market whose needs are not being well served
– Denoting or relating to products, services, or interests
that appeal to a small, specialized section of the
population.
 Levels of Market Segmentation (2/2)

3. Local Marketing
– marketing programs that are tailored to the needs and wants of local
customer groups
4. Individual Marketing
– segments of one
– customized marketing
– one-to-one marketing
 Geographic Segmentation
• nations, states, regions, counties, cities, or
neighborhoods
Demographic Segmentation
• Age and life cycle stage
• Life stage
• Gender
• Income
Bases on • Generation

segmentation • Race and culture

Psychographic Segmentation
• on the basis of psychological/personality traits,
lifestyle, or values
Behavioral Segmentation
• on the basis of their knowledge of, attitude
toward, use of, or response to a product
 Patterns of Market Segmentation
• Homogeneous preferences
– a market in which all of the consumers have roughly the same
preference
• Diffused preferences
– consumer preferences may be scattered throughout the space,
indicating great variance in consumer preferences
• Clustered preferences
– The market might reveal distinct preference clusters
 Positioning

Definition:
• Customers’ image or
perception of a
particular brand or
company, relative to
their perceptions of
others in the same
category.

4-72
 Factors to consider:
• Competition — look for a gap or niche.
Selecting a • Customers — seek product attributes.
• Company image — what is the current
position image?
• Target market — have the needs of the
target market changed? Do we need
repositioning?
• The marketing mix — does it support
the selected position?

4-73
 Durability and Tangibility
• Nondurable goods – soft drinks, shampoo
• Durable goods – Furniture, Car
• Service – Insurance, Hotel

Consumer Goods Classification

Product
Classification • Convenience goods – people buy and consume such products frequently
• Staples are convenience goods that consumers purchase regularly like
Newspaper
• Impulse goods are purchased without any planning like Chocolates
• Emergency goods are purchased when the need is urgent like any drug
• Shopping goods – a shopper compares with the alternatives available in the
market
• Specialty goods – a luxury car, limited edition
• Unsought goods – customer is not much aware about the utility of such
products
 Value • What end users?
• What channels?
Proposition What
customers?
Source:
https://www.isc.hbs.edu/strategy/creating-a-
successful-strategy/Pages/unique-value-
proposition.aspx

What relative
Which needs?
price?

• Which products? • Premium?

• Which features? • Parity?
• Which services? • Discount?
Business
Model
 Key Aspects (1/2)
• In everyday language, a model
is a plan that’s used to make 1. There is no standard business model
or describe something 2. It’s dangerous to copy business model
• a business model is a firm’s of a successful venture and expect
plan or diagram for how it similar results
competes, uses its resources, 3. Modify across time
structures its relationships, 4. The reason for this is that competitors
interfaces with customers, and can eventually learn how to duplicate
creates value to sustain itself the benefits a particular firm is able to
on the basis of the profits it create through its business model
earns
Dell vs. HP
 Key Elements of an effective Business Model
Core Strategic Partnership Customer
strategy Resources network interface

Mission and Core Target

Suppliers
vision competencies customer

Product and Strategic Fulfilment and

Partners
market scope assets support

Basis of Other key Pricing

differentiation relationships structure
 Reducing Risks

Building
Risk into the Delaying Improving the
Transferring risk
Business production
to other parties
quality of their
Model commitments information
Source: “How to Build Risk
into Your Business Model”,
https://hbr.org/2011/05/ho
w-to-build-risk-into-your-
business-model
Prototype
Prototype
“The first example of something, such as a machine or other
industrial product, from which all later forms are developed.”
• A product prototype is the first physical manifestation of a
new product, often in a crude or preliminary form.
• The idea is to solicit feedback and then iterate.
• A service prototype is a representation of what the service
will be like and how it will be experienced by the customer.
• A virtual prototype is a computer-generated 3-D image of
a product or service idea.
• It displays the idea as a 3-D model that can be viewed
from all sides and rotated 360 degrees.
 • Learning
• “Will it work?”
• “How well does it meet
• Common names for
What Are the customer needs?” comprehensive physical
• Communication prototypes
Prototypes • Prototypes enrich • Testbed
Used For? communication with top • Alpha
Source: Product Design management, vendors, • Beta
and Development, Ulrich & partners, extended team • Preproduction prototypes.
Eppinger members, customers,
and investors
• Integration
• components and
subsystems of the
product work together as
expected
 • Analytical Prototypes Are Generally More Flexible Than
Physical Prototypes
Principles of • Physical Prototypes Are Required to Detect Unanticipated
Phenomena
Prototyping
• A Prototype May Reduce the Risk of Costly Iterations
• A Prototype May Expedite Other Development Steps
Prototype
“The first example of something, such as a machine or other
industrial product, from which all later forms are developed.”
• A product prototype is the first physical manifestation of a
new product, often in a crude or preliminary form.
• The idea is to solicit feedback and then iterate.
• A service prototype is a representation of what the service
will be like and how it will be experienced by the customer.
• A virtual prototype is a computer-generated 3-D image of
a product or service idea.
• It displays the idea as a 3-D model that can be viewed
from all sides and rotated 360 degrees.
 • Learning
• “Will it work?”
• “How well does it meet
• Common names for
What Are the customer needs?” comprehensive physical
• Communication prototypes
Prototypes • Prototypes enrich • Testbed
Used For? communication with top • Alpha
Source: Product Design management, vendors, • Beta
and Development, Ulrich & partners, extended team • Preproduction prototypes.
Eppinger members, customers,
and investors
• Integration
• components and
subsystems of the
product work together as
expected
 • Analytical Prototypes Are Generally More Flexible Than
Physical Prototypes
Principles of • Physical Prototypes Are Required to Detect Unanticipated
Phenomena
Prototyping
• A Prototype May Reduce the Risk of Costly Iterations
• A Prototype May Expedite Other Development Steps
Minimum
Viable Product
(MVP)
 Minimum • “Smallest possible version of a
Viable product that can be used to run a
Product meaningful experiment to test key
hypotheses and determine
(MVP) whether to continue investment”
• Term coined by
• Version of a new product
Frank Robinson • Allows a team to collect the
• Popularized by Eric maximum amount of validated
Ries, founder of learning about customers with the
Lean Startup least effort
Methodology
Examples of MVP
 MVP
and
Build-Measure-Learn Loop

• Reis advocates that a company should

commence building as quickly as
possible
• When a company makes changes to the
MVP, based on what they have learned “The goal of Build-Measure-Learn is not
about customers it is known as to build a final product to ship or even to
PIVOTING build a prototype of a product, but to
• Process of learning and pivoting that maximize learning through incremental
validation of a ‘product-market fit’ (PMF) and iterative engineering.” Steve Blank
is achieved
 Why MVP?
Validate Validate product idea hypotheses with real-life data.

Reduce Reduce time-to-market for new feature releases.

Deliver Deliver value to your early adopters quickly.

Test your product/market fit before building a full-fledged
Test product.
Collect viable data on user behavior to shape future product
Collect initiatives and go-to-market strategy.
Grow Grow a pre-launch user base.
Eliminate waste — save money and time that would otherwise
Eliminate be spent on fruitless ideas.
Entrepreneurial
Financing
 The Importance of Getting
Financing or Funding

The Nature of the Funding Why Most New Ventures

and Financing Process Need Funding
Few people deal with the process of There are three reasons most new
raising investment capital until they need ventures need to raise money
to raise capital for their own firm.
during their early life.
• As a result, many entrepreneurs go
about the task of raising capital • The three reasons are shown on
haphazardly because they lack the following slide.
experience in this area.
Why Most New Ventures Need
Financing or Funding

10-
97
 1. Ideation (Pre-seed stage)
• 1.1. Bootstrapping/ Self-financing
• 1.2. Friends and Family
• 1.3. Business plan/ Pitching events

Stages of 2. Validation (Seed stage)

• 2.1. Incubators
Startups and
• 2.2. Government loan schemes
Sources of • 2.3. Angel Investors
Funding • 2.4. Crowdfunding
(Source – www.startupindia.gov.in)
3. Early Traction (Series A stage)
• 3.1. Venture Capital Funds
• 3.2. Banks/ Non-banking Financial Companies (NBFCs)
• 3.3. Venture Debt Funds

4. Scaling (Series B, C, D, & E)

• 4.1. Venture Capital Funds
• 4.2. Private Equity/ Investment Firms
 • About the stage
• entrepreneur has an idea and is
1. Ideation working on bringing it to life
• the amount of funds needed is
usually small
1.1. Bootstrapping/ Self-financing • very limited and mostly informal
channels available for raising
• avoid the need for external financing or funds
funding through creativity, ingenuity,
thriftiness, cost-cutting, or any means
necessary
• relying on your savings and revenue to
operate and expand

1.2. Friends and Family

1.3. Business plan/ Pitching events

 Examples of Bootstrapping Methods

Buy used instead of Coordinate purchases Lease equipment

new equipment. with other businesses. instead of buying.

Obtain payments in
Minimize personal Avoid unnecessary
advance from
expenses. expenses.
customers.

Buy items cheaply but Share office space or

prudently via options employees with other Hire interns.
such as eBay. businesses.

10-100
 2. Validation (Seed Stage)
2.1. Incubators
• About the stage
• organizations set up with the specific • A startup has a prototype ready and
goal of assisting entrepreneur needs to validate the potential
demand of the startup’s
2.2. Government loan schemes product/service
• E.g. Stand Up India (SIDBI), Dairy
• This is called conducting a ‘Proof of
Entrepreneurship Development Scheme Concept (POC)
(NABARD) • A startup will need to
• conduct field trials
2.3. Angel Investors • test the product on a few
potential customers
2.4. Crowdfunding
• onboard mentors
• build a formal team
Illustration – Incubator
SINE (IIT Bombay)
• Incubation benefits
– Infrastructure
• Plug & Play Workplace
• Lab facilities
– Capital
 Angel
Investors
• Individuals who invest their
personal capital directly in start-
ups
• Prefer to get involved in the early
stage of a company
• May also arrive after the initial
round of funding, that mostly
comes from the founders
themselves
 Angel investors connect with young, developing
companies through word of mouth, through
business and industry seminars or conventions,
through referrals from professional investment
Investment organizations, from online business forums or
Process for via local events like chamber of commerce
Angel Investing meetings.

Source - What Are

Angel Investors? by If there’s mutual interest, the angel investor will
Brian O'Connell, conduct due diligence on the young company
Benjamin Curry, by talking to the founders, reviewing business
Forbes investment documents and gauging the
industry the company is targeting.
 Once a verbal agreement between an angel is
in place, a term sheet or contract is drawn up,
with agreements on the investment terms,
payouts or equity percentages, investor rights
Investment and protections, governance and control
Process for parameters and an eventual exit strategy for
Angel Investing the angel investor.

Source - What Are

Angel Investors? by
Once the contract is finalized an actual legal
Brian O'Connell, agreement is created and signed, the deal is
Benjamin Curry, officially closed and the investment funds are
Forbes released for the company’s use.
 3. Early Traction • About the stage
• 3.1. Venture Capital Funds • startup’s products or
services have been
• professionally managed investment funds launched in the market
that invest exclusively in high-growth
startups. • Key performance
indicators such as
• VCs take startup equity in return for their customer base,
investments and actively engage in the revenue, app
mentorship of their investee startups downloads, etc.
• 3.2. Banks/ Non-banking Financial Companies become important at
(NBFCs) this stage
• Can be raised from banks and NBFCs at this
stage as the startup can show market traction
and revenue to validate its ability to finance
interest payment obligations
• 3.3. Venture Debt Funds
• private investment funds that invest money
in startups primarily in the form of debt.
 Venture Capital

➢ Venture capital means

funds made available
for startup firms and small
businesses with
exceptional growth potential

➢ Venture capital is money

provided by professionals
who alongside management
invest in young, rapidly
growing companies that
have the potential to
develop into significant
economic contributors.
 Venture Capitalists generally:

Finance • Finance new and rapidly growing companies

Purchase • Purchase equity securities

Assist in • Assist in the development of new products or

services

Add • Add value to the company through active

participation.
 Long time horizon

Lack of liquidity

Characteristics High risk

Equity participation

Participation in management
4. Scaling (Series B, C, D, & E)
4.1. Venture Capital About the stage
Funds • startup has generated significant
market traction
• funding for late-stage startups

4.2. Private Equity/

Investment Firms

• Funds for fast-growing late-stage startups who

have maintained a consistent growth record
Preparing to Raise Debt or Equity Financing
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• Step 1 Determine precisely how much money the company needs
– analyzing documented cash flow statements
– projections for needed capital expenditures
• Step 2 Determine the most appropriate type of financing or funding
– Equity financing means exchanging partial ownership of a firm usually in
the form of stock for funding in return.
– Angel investors
– Venture capital
• Equity funding is not a loan—the money that is received is not paid
back.
• Instead, equity investors become partial owners of the firm
– Debt financing - common sources of debt financing are commercial
banks
• In general, banks lend money that must be repaid with interest
• bankers are interested in minimizing risk, properly collateralizing
loans, and repayment, as opposed to return on investment and
capital gains
• The ideal candidate for a bank loan is a firm with a strong cash flow,
low leverage, audited financial statements, good management, and a
healthy balance sheet.
 There are three steps to developing a strategy for
engaging potential investors or bankers
1. The lead entrepreneurs in a new venture
Step 3 should prepare an elevator speech (or pitch)—
Developing a a brief, carefully constructed statement that
strategy for outlines the merits of a business opportunity.
2. Developing a strategy for engaging potential
engaging investors or bankers is more deliberate and
potential requires identifying and contacting the best
investors or prospects.
bankers 3. Engaging potential investors or bankers is to be
prepared to provide the investor or banker a
completed business plan and make a
presentation of the plan if requested
Entrepreneurial
Team
 • Founder or founders of a venture
– Key Employees
CREATING – Management Professionals
A NEW- – Board of advisers
VENTURE – Board of directors
TEAM – Lenders and investors
– Other professionals
 • Common mistakes made in putting together a new-
venture team
– Placing unqualified friends or family members in
management positions.
– Assuming that previous success in other
industries automatically translates to your
The industry.
– Presenting a “one man team” philosophy—
Founder or meaning that one person (or a small group of
people) is wearing all hats with no plans to
Founders bolster the team.
– Hiring top managers without sharing ownership
in the firm.
– Not disclosing or talking dismissively of
management team skill or competency gaps.
– Vague or unclear plans for filling the skill or
competency gaps that clearly exist.
 • Key Issues
–Size of the founding team
The –Qualities of the founders
Founder • Firm started by a team
• Education
or
• prior entrepreneurial experience
Founders
• Relevant industry experience
• Broad social and professional
networking
 The Roles of the Board of
Directors
• Inside director
– is a person who is also an officer of
the firm
• Outside director
– is someone who is not employed by
the firm
Responsibilities
(1) appoint the firm’s officers (the key
managers),
(2) declare dividends, and
(3) oversee the affairs of the corporation.
• Provide Guidance
• Lend Legitimacy
– bring instant credibility to the firm
 Board of Advisers
• advisory board is a panel of experts who
are asked by a firm’s managers to provide
counsel and advice on an ongoing basis
• an advisory board possesses no legal
responsibility for the firm and gives
nonbinding advice
• A board of advisers can be established for
general purposes or can be set up to
address a specific issue or need
– customer advisory boards
 lenders and investors have
a vested interest in the
companies they finance,
Lenders and
Investors
Therefore, these individuals
to become very involved in
helping the firms they fund
 • Consultants
– individual who gives
professional or expert
Other advice
Professionals – General business
consultant who can
conduct in-depth analyses
on behalf of a firm