ver-arching attributes
of entrepreneurial setting
-Failure
-Resource scarcity
-Value creation - how much value?
-Valuation by means of negotiation
-Asymmetric information
-Decision making under uncertainty
*Markets
*Assets
*Company stage (i.e., accomplishments)
*Founder reputation
...
Over-arching attributes
of entrepreneurial setting - ANSWER- -Failure
-Resource scarcity
-Value creation - how much value?
-Valuation by means of negotiation
-Asymmetric information
-Decision making under uncertainty
*Markets
*Assets
*Company stage (i.e., accomplishments)
*Founder reputation
Information asymmetry problems - ANSWER- -Entrepreneurs have information
about
their business that investors don't have.
This creates several problems:
-Investors must make decisions based on little
actual evidence
-Entrepreneurs and investors disagree on value
of new venture
-Entrepreneurs can take advantage of investors
-Adverse selection
-Investors want collateral
"Capital question" - ANSWER- -How much money do I need?
-Where should I get that money?
-What arrangements do I need to obtain that capital?
Startup Capital - ANSWER- -All costs incurred to get the business off
the ground
, -Determine the capital you need
-Determine what you'll do with the capital
once you get it
How much do you need?
-60% of all new ventures require less than
$5,000 of capital to get started
-Only 3% require more than $100,000
Two categories of funding a startup - ANSWER- -Debt
-Equity
Debt - ANSWER- -financial obligation
to return capital
provided plus a
scheduled amount
of interest
ex.
-bank loan
-credit card draft
-Debt guaranteed by the entrepreneur's
personal assets or earning power
-Asset-based financing
-Secured by third-party grants (SBA Loan)
-Supplier credit
Equity - ANSWER- a portion of ownership
received in an
organization in return
for money provided
-Stocks issued
-Most VC funding
New ventures tend to be financed by
equity because - ANSWER- -New ventures have no way to make
scheduled interest payments until they
have positive cash flow
-Debt financing at a fixed rate encourages
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