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Chapter
Summary
Entrepreneurs can estimate the capital required for their new business by reviewing the financial projections they prepare using the methods detailed in Chapter 17. In examining the projections and the cash flow statement, it becomes clear what capital will be needed and when. The entrepreneurs can provide some of the required capital, and friends and family can help by investing in the new business. Most businesses that expect to grow to a significant scale will need outside capital investments from professional investors. Typically, several stages of investment will be required over the life of the business. Many firms use an initial public offering (IPO) to raise additional growth capital and to offer early investors a means of harvesting the value created in an emerging firm. |
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Amazon.com: Going Public
Amazon.com, an early pioneer in electronic commerce, prepares its initial public offering in the face of turbulent market conditions. Joy Covey, Amazon.com's CFO and the case protagonist, discusses the risks and opportunities of going public and the nature of electronic commerce business models in comparison to traditional land-based retail models. This case presents an opportunity to discuss the public offering process and the inter-relationship between a young company's financing strategy and business strategy.
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The Band of Angels
Describes the activities of "The Band of Angels," a well-organized but independent group of wealthy entrepreneurs. Details the principles and processes used by the band, as well as offering two perspectives from entrepreneurs who have been financed. Teaching Purpose: To develop an understanding of this important source of start-up financing.
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Hotmail
Describes the efforts of Sabeer Bhatia, co-founder and CEO of Hotmail, to finance and grow this business, which is based on free web-based email. Describes early, successful efforts at raising several rounds of venture capital and presents choices around a next stage of financing. Teaching Purpose: Describes the challenges of financing an early stage Internet business with an unproven business model. |
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John Hirschtick's New Venture
This case follows Jon through his new venture, Solidworks, a computer aided drafting company, Jon must decide whether Solidworks needs all the money upfront in a single round of capital or if the company should take the money in stages in order to obtain more favorable terms from the investors. |
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Yahoo! 1995: First Round Financing
This case examines the challenges that Yahoo! founders Jerry
Yang and David Filo faced in analysing and choosing a first-round financing
option. With the possibility of either selling Yahoo! outright, partnering with
a corporate sponsor or starting an independent business, Jerry and Dave have to
consider not only the established culture and needs of their novel fledging
webportal, but their own personal entrepreneurial goals and vision for Yahoo!.
The pressure is also on them to make a critical decision, as Mike Moritz of
Sequoia Capital offers them deal with a 24 hour deadline. |
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Heidi Roizen: Raising Venture Capital Today
Have venture capital, but jave it at the right time and use it judiciously. Roizen talks about the Barbell syndrom - you can raise the first and the last round but not the rounds in between. It is very difficult to raise the middel rounds and therefore treat the money like the gold that it is. |
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Elon Musk: What is the Right Time to Sell?
PayyPal had a number of offers but they undervalued the companies and so they went public to get an objective valuation of the company. eBay had made a good offer after the IPO. Another reason to sell to eBay was the long term risk of losing to the eBay payment platform. |
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Frank Levinson: How Does Going Public Change You and Your Company?
Inevitably, when a company goes public, there's an enormous amount of change that takes place. While the IPO may be an indication of financial success, the true measure is within the company, and maintaining a level of normalcy and maintaing the company's original culture.
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The Basic Venture Capital Formula
Briefly summarizes the process that venture capitalists use to analyze high-risk, long-term investments. Contains information on methods that can be used to calculate valuation, share price, percent ownership, implied valuation, dilution, and option pools. |
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