CHAPTER 15
Funding a Startup Venture
SUMMARY AND AUTHOR’S NOTE
Finding money for a new venture or a growing one is always a topic of great interest to students.
If the first question they typically ask is “Where will I find an idea for a business?” the second is
certainly “Where will I find the money to get started?” My goal is that students come away from
a discussion of entrepreneurial capital with an understanding that money is not the driver of a
successful venture. A successful venture is built on a compelling value proposition, a business
CHAPTER OBJECTIVES
After reading this chapter, students will be able to:
• Develop a resource strategy.
• Understand the importance of a financial plan.
CHAPTER OUTLINE
OPENING CASE: Nothing Happens Until Someone Sells Something
I. Startup Resource Strategy—determining the resources needed to launch a new venture
Chapter 165: Funding a Start-up Venture 63
II. The Financial Plan—strategic plan for funding startup and growth
a. Growth Stage Identification—identifying the stages of growth and the funding
GLOBAL INSIGHTS—Think Small to Grow Big in Istanbul
III. Funding Startups Through Bootstrapping—techniques for getting by on as few
resources as possible
a. Get Traction as Quickly as Possible—launch as quickly as possible
IV. Funding with Equity—sources of equity financing
a. Friends and Family—tactics on accepting money from family and friends
b. Private Investors—Angels—private source for capital
V. Financing with Debt—choosing a debt instrument to finance startup
a. Commercial Banks—generally take on loans with low risk
VI. Other Non-Dilutive Funding Sources—sources of funding where the return is not based
on ownership
a. Strategic Alliances—a partnership with another business
RELEVANT CASE STUDIES
Case 2 MySpace
Case 7 1-800-Autopsy
ANSWERS TO QUESTIONS ON KEY ISSUES
1. How does bootstrap financing fit into the strategic plan of a new venture?
64 Chapter 165: Funding a Start-up Venture
2. What is the role of angels as a source of new venture funding?
Angels are typically former entrepreneurs who make up the informal risk-capital market.
3. Contrast funding with equity and funding with debt or non-dilutive sources.
When someone invests money in a venture, it is normally done to gain an ownership share
4. Why are commercial banks not usually a reliable source of new venture financing?
Commercial banks are highly regulated and do not like to take risks. Therefore, they like to
5. What are the benefits of a private offering as compared to a public offering?
Often a private offering is used first, because to complete it, a growing venture is not
SUGGESTIONS FOR EXPERIENCING ENTREPRENEURSHIP
1. Make a list of all the sources of friendly money, including your personal resources, that you
can tap to start a new business. How much startup money could you reasonably raise?
Students should consider at what points their particular venture is likely to require capital
Chapter 165: Funding a Start-up Venture 65
2. Interview an angel and a banker to learn what his or her expectations are when reviewing
business plans for new ventures. In a two-page report, compare their criteria for choosing
to fund or not fund the new business.
Interviewing both an angel and a banker enables the student to compare and contrast the
SUPPLEMENTARY LECTURE MATERIAL
The Money May be Coming to You
It has been a tradition in the venture capital community to invest in companies that are located
within a couple hours’ drive from the VC’s office. So if you lived in Bozeman, Montana, in
Rapid City, South Dakota, or even in the sunshine state of Florida, the nation’s fourth most
populous state, you were out of luck for finding outside capital to launch your venture. You had
to be able to fund it through your personal resources or face moving your company to the Silicon
Valley region of California or the suburbs of Boston. But times are changing. Enterprising VC
firms are now looking for superior ideas in places where they won’t have as much competition
from their counterparts. And they’re looking because there isn’t enough “good deal flow” in the
region where they’re located.