ENTREPRENEURSHIP FOR SCIENTISTS AND ENGINEERS
CHAPTER 12
FUNDING GROWTH
LEARNING OBJECTIVES
After studying this chapter, students should be able to
2. Discuss the role and nature of venture capital funding
4. Describe the initial public offering and its advantages and disadvantages
CHAPTER OVERVIEW
Growth is one of the most exciting times in the life of a new venture, but it significantly strains
the venture’s resources and generally requires infusions of capital from outside sources if the
growth is rapid. Entrepreneurs raise capital by securing debt or selling equity stakes in their
CHAPTER OUTLINE
1. Financial Strategy for Growth
2. VC Funding
a. VC screening process
3. The private offering
Entrepreneurship for Scientists and Engineers
b. Direct public offering: Regulation A
5. Summary
END OF CHAPTER QUESTIONS
1. When growing a company, why would an entrepreneur choose debt over equity?
An entrepreneur might chose debt as a growth vehicle to avoid giving up control of their
2. What elements should an effective financing strategy contain?
• Vision of where the company will be in five years
3. What is meant by control rights and how do venture capitalists exercise them?
Venture capitalists protect their investment during high risk stages through control rights,
which specify the allocation of control over the company and its decisions. Typically, VCs
4. What effect does the timing of funding have on a growing venture’s success? Why?
Timing is everything. VCs typically stage an investment and tie funding to milestones to
Entrepreneurship for Scientists and Engineers
5. What important tasks must take place prior to undertaking an IPO?
To undertake an IPO, the entrepreneur must have a compelling need to raise a significant
amount of capital for a specific purpose. The company anticipating an IPO must
CASE STUDY SUGGESTIONS
The case study “From Riches to Rags and Back” deals with several concepts presented in this
chapter.
• Going public is not a sure thing and it’s not always a good thing. Many entrepreneurs fail to
prepare adequately to do a public offering. They don’t factor in the amount of time to get
the company ready to go through the process and the amount of money, often several
hundred thousand dollars.
ACTIVITY
Why This Company Failed
Put students into small groups and ask each group to find a company that either took venture
capital or went public and then failed. Ask the groups to apply what they have learned about