Startup Financing - E-Commerce - Lecture Slides, Slides of Fundamentals of E-Commerce

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Creating a Winning E-Business

Getting Your E-Business

Off The Ground

Global E-Commerce

Learning Objectives

Describe the financing issues associated withan e-business startup.

Discuss the role of informal investors in an e-business startup.

Identify issues important to venture capitalinvestors.

Pitch an e-business idea to investors.

Discuss the advantages and disadvantages ofbusiness incubators.

Startup Financing (continued)

Friends and family members

Know and trust entrepreneur

Stand by during tough times - Invest in entrepreneur rather than business idea - Downside is potential risk to relationships - Business misunderstandings - Business failure

Startup Financing (continued) Informal Investors Advantages Disadvantages Friends and family members
^ Deal with family andfriend investors just as youwould any investor.
^ Require legaldocumentation for anyinvestment transaction.
^ Confirm that family andfriend investors understandthe risks involved with astartup and can afford tolose their investment.
^ Next to self-funding, maybe the easiest way to fundstartup expenses.
^ Investors know and trustthe entrepreneur.
^ Investors are likely to besupportive during hardtimes.
^ Investment is in theentrepreneur and his or herabilities, not the newbusiness idea.
^ Possible strain on personalrelationships because ofbusinessmisunderstandings.
^ Potential loss of investmentby those who may be leastable to afford the loss.

Startup Financing (continued) Informal Investors Advantages Disadvantages Angel investors Wealthy individuals whoenjoy the excitement ofinvesting in new businessideas.Typically invest in the newbusiness idea, not theentrepreneur and his or herabilities.Primarily interested in howa new business idea fills amarketplace need Typically offer the firstsignificant funding for astartup.May offer business advice,mentoring, or access toother investors. E-business idea may berequired to pass a veryrigorous screening process.Some angel investors focuson a single industry, such astechnology.Individual angel investorstypically invest relativelysmall amounts in severalnew businesses.

Startup Financing (continued)

CASE STUDY (

Of Angels and E-Mail p. 115)

How did Sendmail get its start?

Do you think it was difficult or easy to get angelinvestors to look at the Sendmail e-business idea?Why? - Why do you think the Sendmail e-business ideawas attractive to the members of Band of Angelsand the co-founders of Sun Microsystems?

Startup Financing (continued)

Venture capitalist investors (VCs) (continued)

Take many forms

Traditional partnerships - Government-sponsored investment companies - Corporate funding programs by high-tech companies

Startup Financing (continued)

Venture capitalist investors (VCs) (continued)

E-business startup VC funding examples

Draper Fisher Jurvetson (DFJ) and Hotmail - Kleiner Perkins Caufield & Byers and Google - Small Business Investment Companies (SBIC)and America Online

Startup Financing (continued)

CASE STUDY (

Rackspace Managed Hosting p.

Who invested “sweat equity” in the business?
What role did Weston and Miller play inRackspace’s startup funding?
In what order was startup funding secured forRackspace? Is this order typical or atypical for astartup business?
At what point was it no longer necessary tosecure equity funding for Rackspace?

Pitching Your E-Business

To Investors

First meeting with investors is a sales meeting

Bring a pitch document

Short marketing document based on ExecutiveSummary portion of business plan

Highlights market need - Shows how startup meets that need - Indicates potential profits - Shows how management team can make it happen

Pitching Your E-Business

To Investors

(continued)

During the pitch meeting

Be on time
Be prepared
Be enthusiastic
Bring all necessary equipment and documents
Use a pitch document (a brief marketing documentbased on the executive summary portion of the e-business plan) to direct the meeting.
Differentiate yourself and management team fromyour competitors
Create the feeling that your e-business idea is a viable,exciting investor opportunity

Pitching Your E-Business

To Investors

(continued)

CASE STUDY (Zipping Along to an IPOp. 121-^ 123)^

What is the e-business idea behind ZipRealty? Whywould this e-business idea be attractive to angelinvestors and VCs?
What are the major lessons to be learned from theearly experiences that Kucirek, Mini, and otherZipRealty management team members had at theirpitch meeting?

Business Incubators (continued)

Non-profit organizations or commercialbusinesses

Offer a quick “leg up” for entrepreneurs needingadministrative and support services

Provide access to knowledgeable professionals,advisors, potential investors - Cost to entrepreneur - Fees for services - Loss of equity

Business Incubators (continued)

Advantages

“One-stop solution” for many startup problems

Easy access to professional advice - Venue for interacting with other startups

Disadvantages

May be hefty fees for services

Giving up share of ownership equity to others