ENTREPRENEURSHIP FOR SCIENTISTS AND ENGINEERS
CHAPTER 11
FUNDING THE TECHNOLOGY START–UP
LEARNING OBJECTIVES
After studying this chapter, students should be able to
2. Discuss the cost of raising capital
4. Describe the sources of seed and start-up capital
5. Discuss the unique funding challenges of biotechnology
CHAPTER OVERVIEW
New ventures face the difficult challenge of gathering the many resources they require. At the
same time, resource providers understand the risk of start-ups and, therefore, are often
reluctant to provide those resources, especially at a price the entrepreneur can afford. Seed
capital is often required to finish product development and it generally comes in the form of
CHAPTER OUTLINE
2. The cost of raising capital
a. Bootstrapping the start-up
3. Government funding sources
Entrepreneurship for Scientists and Engineers
4. Seed capital
a. Friendly money
5. Start-up funding
6. Funding biotechnology
a. Seed stage
7. Summary
END OF CHAPTER QUESTIONS
1. Suppose you want to launch a radical innovation. You have a working prototype and have
begun to test the early adopter market. It will take a lot of capital to “cross the chasm” to
mainstream adoption. What would your financial strategy be?
The amount of money needed and the cost of capital at any point in time is a function of the
stage of the venture. During product development, the risks are generally related to the
Entrepreneurship for Scientists and Engineers
2. Compare the roles and goals of angel investors with those of venture capitalists.
Angel investors generally fill the gap between friendly money and venture capital up to
about $1 million. Angel investors are private individuals, usually ex-entrepreneurs, who
want to participate in the venture, so they are not passive investors, for the most part.
3. What are the unique issues related to biotech start-ups that make them different from
other high-tech ventures in the start-up stage?
One of the unique issues related to biotech start-ups is the extraordinarily long research and
development period, about 7 to 9 years for a new drug, up to 5 years for a medical device.
4. What role does the government play in the commercialization of new technology?
Most radically new technology begins as basic research funded by government agencies.
5. How can strategic partners be used to speed up the process of innovation and
commercialization?
Strategic partners can provide an infusion of capital or in-kind expertise and capability.
Although cash from strategic partners is generally in smaller amounts, it can be the cement
Entrepreneurship for Scientists and Engineers
CASE STUDY SUGGESTIONS
The Alibaba case study offers an opportunity to discuss several concepts from the chapter.
• Bootstrapping a start-up. Jack Ma started his first venture with borrowed money; then he
quickly took investor money from China Telecom, which taught him the important lesson
that if you take money too early, you lose control of your business.
ACTIVITY
Creating a Start–up Funding Strategy
Put the students into small teams and then give the entire class the same business concept. It
should be a concept that has the potential for multiple stages of funding including outside
Sample Business Concept
HeadBlade Co. LLC provides a state-of-the-art way for men to easily and safely shave their
heads. Customers control the blade with their own hands, preventing unwanted cuts.
HeadBlade is delivered direct to the consumer through the company’s Internet site.
Some things students should think about