1. ENTREPRENEURIAL MARKETING
METHODOLOGY
LEGAL
CAPITAL
By:
MBA, Sajad Nazari
nazary_sajjad@yahoo.com
1

2. The Pathways to New Ventures for Entrepreneurs
Acquiring an
Existing Venture
Creating the
New Venture
Obtaining a
Franchise
Pathways to New
Ventures
2

3. Creating New Ventures
Approaches to
Creating a New
Venture
New-New
Approach
New-Old
Approach
3

4. Emerging Opportunities
Green Products
Organic foods
Organic fibers/textiles
Alternative Energy
Solar
Biofuel
Fuel cells
Energy conservation
Health Care
Healthy food
School and govt.-
sponsored programs
Exercise
Yoga
Niche gyms
Children
Nonmedical
Pre-assisted living
Assisted living transition
services
Niche Consumables
Wine
Chocolate
Burgers
Coffee houses
Exotic salads
Home Automation and
Media Storage
Lighting control
Security systems
Energy management
Comfort management
Entertainment systems
Networked kitchen
appliances
Emerging Internet Opportunities Emerging Technology Opportunities
Mobile Advertising
Cell phones
PDAs
Concierge Services
Niche Social Networks
Seniors
Music fans
Groups of local users
Pet owners
Dating groups
Virtual Economies
Online auctions
Educational Tutoring
Human Resources Services
Matchmaking
Virtual HR
Online Staffing
Nanotechnology
Wireless Technology
Trends Creating Business Opportunities
4

5. Sources of New Business IdeasAmong Men and Women
5

6. Examination of the Financial Picture
• Upside gain and downside loss expectations
• The profits the business can make and the losses it can suffer.
• How much money will the enterprise take in if all goes well?
• How much will it gross if operations run as expected?
• How much will it lose if operations do not work out well?
• Risk vs. reward analysis
• Points out the importance of getting an adequate return on the
amount of money risked.
6

7. Acquisition of a Business Venture
Acquiring a
Business Venture
Asking Key Questions
Examination
of
Opportunities
Evaluation of
the Venture
Personal
Preferences
7

8. Advantages of Acquiring an Ongoing Venture
Buying an
Ongoing
Venture
Purchasing at a
Good Price
Reduced Time
and Effort
Less Fear about
Successful Future
Operation
8

9. Evaluation of the Selected Venture
Factors Affecting
Sale of the
Venture
Assets of the
Venture
Profits, Sales, and
Operating Ratios
The Business
Environment
9

10. Key Questions to Ask
• Why is this business being sold?
• What is the physical condition of the business?
• What is the condition of the inventory?
• What is the state of the firm’s other assets?
• How many employees will remain?
• What type of competition does the business face?
• What does the firm’s financial picture look like?
10

11. Negotiating the Deal
Factors Affecting
Negotiations
Alternatives
Time Pressure
Information
11

12. 1. Have a seller retain a minority interest in the business.
2. Never rely on oral statements.
3. Have an accountant examine the books and check the
cash flow.
4. Investigate, investigate, investigate!
5. Interview the employees.
6. Find out the real reason the company is for sale.
―Do’s and Don’ts of Buying a Business‖
12

13. Franchising: The Hybrid
• Franchising
• Any arrangement in which the owner of a trademark, trade name,
or copyright has licensed others to use it in selling goods or
services.
• Franchisee
• A purchaser of a franchise
• Franchisor
• The seller of the franchise
13

14. How a Franchise Works
• Franchisee Obligations:
1. Make a financial investment in the operation.
2. Obtain and maintain a standardized inventory and/or
equipment package usually purchased from the franchisor.
3. Maintain a specified quality of performance.
4. Follow a franchise fee as well as a percentage of the gross
revenues.
5. Engage in a continuing business relationship.
14

15. How a Franchise Works (cont’d)
• Franchisor Provides:
1. The company name that provides drawing power.
2. Identifying symbols, logos, designs, and facilities.
3. Professional management training for each independent
unit’s staff.
4. Sale of merchandise necessary for the unit’s operation,
equipment to run the operation, and the food or materials
needed for the final product.
5. Financial assistance, if needed.
6. Continuing aid and guidance to ensure that everything is
done in accordance with the contract.
15

16. Franchising
• Advantages
• Training and guidance
• Brand-name appeal
• A proven track record
• Financial assistance
• Disadvantages
• Franchise fees
• Franchisor control
• Unfulfilled promises of
franchisor
16

17. 1. The basic franchising fee
2. Insurance
3. Opening product inventory
4. Remodeling and leasehold improvements.
5. Utility charges
6. Payroll
7. Debt service
8. Bookkeeping and accounting fees
9. Legal and professional fees
10. State and local licenses, permits, and certificates
The Cost of Franchising
17

18. Franchise Law
• The Uniform Franchise Offering Circular
(UFOC)
• Is divided into 23 items that provide different
segments of information for prospective
franchisees.
• Was developed to provide guidance in
complying with the Franchise Disclosure Rule
that requires franchisors to make full presale
disclosure about their franchises.
18

19. -
The Decision to Purchase a Franchise: Process Model
19

20. Evaluating the Franchise Opportunity
Seeking
Professional Help
Investigating the
Franchisor
Finding Reliable
Information
The Franchise
Opportunity Decision
20

21. Legal Challenges for Entrepreneurial Ventures
21

22. Legal Challenges for the Entrepreneurial Venture
Growth and
Continuity of the
Venture
Legal
Concepts
Inception of the
Venture
The Ongoing
Venture
22

23. Major Legal Concepts and Entrepreneurial Ventures
• I. Inception of an Entrepreneurial Venture
• A. Laws governing intellectual property
• 1. Patents
• 2. Copyrights
• 3. Trademarks
• B. Forms of business organization
• 1. Sole proprietorship
• 2. Partnership
• 3. Corporation
• 4. Franchise
• C. Tax considerations
• D. Capital formation
• E. Liability questions
23

24. Major Legal Concepts and Entrepreneurial Ventures
• II. Ongoing Venture: Business Development and
Transactions
• A. Personnel Law
• 1. Hiring and firing policies
• 2. Equal Employment Opportunity Commission
• 3. Collective bargaining
• B. Contract Law
• 1. Legal contracts
• 2. Sales contracts
• 3. Leases
24

25. Major Legal Concepts and Entrepreneurial Ventures
• III. Growth and Continuity of an Entrepreneurial Venture
• A. Tax considerations
• 1. Federal, state, and local
• 2. Payroll
• 3. Incentives
• B. Governmental regulations
• 1. Zoning (property)
• 2. Administrative agencies (regulatory)
• 3. Consumer law
• C. Continuity of ownership rights
• 1. Property laws and ownership
• 2. Wills, trusts, and ownership
• 3. Bankruptcy
25

26. Intellectual Property Protection: Patents
• Patent
• Provides the owner with exclusive rights to hold, transfer, and
license the production and sale of the product or process as an
intellectual property right.
• Design patents last for 14 years; all others last for 20 years.
• What Items Qualify for Patent Protection?
• Processes, machines, products, plants, compositions of elements
(chemical compounds), and improvements on already existing
items.
26

27. Securing a Patent
• Rule 1: Pursue patents that are broad, are
commercially significant, and offer a
strong position.
• Rule 2: Prepare a patent plan in detail.
• Rule 3: Have your actions relate to your original
patent plan.
• Rule 4: Establish an infringement budget.
• Rule 5: Evaluate the patent plan strategically.
27

28. Intellectual Property Protection: Patents
• Patent Application
1. Specification: the text of a patent and may include any
accompanying illustrations.
a. An introduction explaining why the invention will be useful.
b. A description of prior art considered similar to the invention.
c. A summary of the essence of the technology/invention, its
differences from prior art and requisite features.
d. A description of the invention, including anything remotely relevant,
reference to variations, and number bounds.
e. Examples and/or experimental results, in full detail.
2. Claims: a series of short paragraphs, each of which identifies a
particular feature or combination of features that is protected by
the patent.
28

29. Continued on
following slide
The Patent Process: FromApplication toAllowance and Issue
29

30. Continued on
following slide
The Patent Process: FromApplication toAllowance and Issue (cont’d)
30

31. The Patent Process:FromApplication toAllowance and Issue (cont’d)
31

32. Intellectual Property Protection: Copyrights
• Copyright
• Provides exclusive rights to creative individuals for the protection of
their literary or artistic productions.
• Duration: life of the author plus 70 years.
• The copyright owner has the rights to:
• Reproduce the work
• Prepare derivative works based on it
• Distribute copies of the work by sale or otherwise
• Perform the work publicly
• Display the work publicly
• Sell or transfer individual rights
32

33. Intellectual Property Protection: Copyrights
• Copyright Protection
• The material must be in a tangible form so it can be communicated
or reproduced.
• It also must be the author’s own work and thus the product of his or
her skill or judgment.
• Formal registration of a copyright is with the Copyright Office of the
Library of Congress.
33

34. Copyrights (cont’d)
• Fair Use Doctrine
• Reproduction of a copyright work for purposes such as criticism,
comment, news reporting, teaching (including multiple copies for
classroom use), scholarship, or research is not an infringement of
copyright.
• Protected Ideas?
• The Copyright Act specifically excludes copyright protection for any
―idea, procedure, process, system, method of operation, concept,
principle, or discovery, regardless of the form in which it is
described, explained, illustrated, or embodied.‖
34

35. Intellectual Property Protection: Trademarks
• Trademark
• A distinctive name, mark, symbol, or motto identified with a
company’s product(s) and registered at the Patent and Trademark
Office
• Advantages of Trademark Registration
• Nationwide constructive notice of the owner’s right to use the mark
• Bureau of Customs protection against importers using the mark
• Incontestability of the mark after five years
35

36. Intellectual Property Protection: Trademarks
• Trademark Duration
• Current registrations are good for 10 years with the possibility for
continuous renewal every 10 years.
• A trademark may be invalidated in four specific ways:
• Cancellation proceedings
• Cleaning-out procedure
• Abandonment
• Generic meaning
36

37. Trademarks (cont’d)
• Avoiding the Trademark Pitfalls
• Rule 1: Never select a corporate name or a mark without first
doing a trademark search.
• Rule 2: If your attorney says you have a potential problem with a
mark, trust his or her judgment.
• Rule 3: Seek a coined or a fanciful name or mark before you
settle for a descriptive or a highly suggestive one.
• Rule 4: Whenever marketing or other considerations dictate the
use of a name or a mark that is highly suggestive of the
product, select a distinctive logotype for the descriptive or
suggestive words.
• Rule 5: Avoid abbreviations and acronyms wherever possible,
and when no alternative is acceptable, select a distinctive
logotype in which the abbreviation or acronym appears.
37

38. Trade Secrets
• Trade Secret
• Business processes and information that cannot be patented,
copyrighted, or trademarked but makes an individual company
unique and has value to a competitor could be a trade secret.
• Information Is Considered a Trade Secret:
• If it is not known by the competition.
• If the business would lose its advantage if the competition were to
obtain it.
• If the owner has taken reasonable steps to protect the secret from
disclosure.
38

39. Trade Secrets
• Examples of Trade Secrets:
• Customer lists
• Strategic plans
• Research and development
• Pricing information
• Marketing techniques
• Production techniques
39

40. Trademark Protection on the Internet
• Cyberlaw
• The emerging body of law governing cyberspace.
• Domain Names (Internet Addresses)
• The principles of trademark law apply to domain names
(Cybersquatters).
• Unauthorized use of another’s mark in a domain name
may constitute trademark infringement.
40

41. Identifying Legal Structures
• A legal structure that will best suits the demands of the
venture addresses:
• Changing tax laws
• Liability situations
• The availability of capital
• The complexity of business formation.
• Three primary legal forms of organization
• Sole proprietorship
• Partnership
• Corporation
41

42. Sole Proprietorships
• Sole Proprietorship
• A business that is owned and operated by one person. The
enterprise has no existence apart from its owner.
• To establish a sole proprietorship, a person merely needs to obtain
whatever local and state licenses are necessary to begin
operations.
42

43. Sole Proprietorships (cont’d)
• Advantages
• Ease of formation
• Sole ownership of profits
• Decision making and
control vested in one
owner
• Flexibility
• Relative freedom from
governmental control
• Freedom from corporate
business taxes
• Disadvantages
• Unlimited liability
• Lack of continuity
• Less available capital
• Relative difficulty
obtaining long-term
financing
• Relatively limited
viewpoint and
experience
43

44. Partnerships
• Partnership
• An association of two or more persons acting as co-owners of a
business for profit.
• The Revised Uniform Partnership Act (RUPA) acts the guide for
legal requirements in forming partnerships.
• Articles of Partnership
• Clearly outline the financial and managerial contributions of the
partners and carefully delineate the roles in the partnership
relationship.
44

45. Articles of Partnership Items
• Name, purpose, domicile
• Duration of agreement
• Character of partners (general or
limited, active or silent)
• Contributions by partners (at
inception, at later date)
• Division of profits and losses
• Draws or salaries
• Rights of continuing partner(s)
• Death of a partner (dissolution and
windup)
• Release of debts
• Business expenses (method of
handling)
• Separate debts
• Authority (individual partner’s
authority on business conduct)
• Books, records, and method of
accounting
• Sale of partnership interest
• Arbitration
• Settlement of disputes
• Additions, alterations, or
modifications of partnership
• Required and prohibited acts
• Absence and disability
• Employee management
45

46. Partnerships (cont’d)
• Advantages
• Ease of formation
• Direct rewards
• Growth and performance
facilitated
• Flexibility
• Relative freedom from
governmental control
and regulation
• Possible tax advantage
• Disadvantages
• Unlimited liability of at
least one partner
• Lack of continuity
• Relative difficulty
obtaining large sums of
capital
• Bound by the acts of just
one partner
• Difficulty of disposing of
partnership interest
46

47. Corporations
• Corporation
• ―An artificial being, invisible, intangible, and existing only in
contemplation of the law‖.
–Supreme Court Justice John Marshall
• As such, a corporation is a separate legal entity apart from the
individuals who own it.
• Forming a Corporation
• Subscriptions for capital stock must be taken and a tentative
organization created.
• Approval (a charter) must be obtained from the secretary of state in
the state in which the corporation is to be formed.
47

48. Corporations (cont’d)
• Advantages
• Limited liability
• Transfer of ownership
• Unlimited life
• Relative ease of
securing capital in large
amounts
• Increased ability and
expertise
• Disadvantages
• Activity restrictions
• Lack of representation
• Regulation
• Organizing expenses
• Double taxation
48

49. Specific Forms of Partnerships and Corporations (cont’d)
• S Corporation
• Takes its name from Subchapter S of the Internal Revenue Code.
• Is commonly known as a ―tax option corporation‖—it is taxed
similarly to a partnership.
• Avoids the imposition of income taxes at the corporate level yet
retain the benefits of a corporate form (especially the limited
liability).
49

50. Guidelines for S Corporations
• The corporation must be a domestic corporation.
• The corporation must not be a member of an affiliated
group of corporations.
• The shareholders of the corporation must be individuals,
estates, or certain trusts.
• Corporations, partnerships, and nonqualifying trusts
cannot be shareholders.
• The corporation must have 100 or fewer shareholders.
• Only one class of stock, although not all shareholders
may have the same voting rights.
• No shareholder may be a nonresident alien.
50

51. Specific Forms of Partnerships and Corporations
• Limited Partnerships
• Have two or more partners without responsibility for management
and without liability for losses beyond their investment with the right
to share in the profits.
• Formed under The Uniform Limited Partnership Act (ULPA).
• Limited Liability Partnership (LLP)
• Allows professionals the tax benefits of a partnership while
avoiding personal liability for the malpractice of other partners.
51

52. Specific Forms of Partnerships and Corporations (cont’d)
• Limited Liability Limited Partnership (LLLP)
• has elected limited liability status for all of its partners, including
general partners.
• Limited Liability Company (LLC)
• A hybrid form of business enterprise that offers the limited liability of
a corporation but the tax advantages of a partnership.
• Disadvantage is that LLC statutes differ from state to state, and
thus any firm engaged in multi-state operations may face
difficulties.
52

53. 1. A limited partnership or LLLP may be created only in accordance with a statute.
2. A limited partnership or LLLP has two types of partners: general partners and
limited partners. It must have one or more of each type.
3. All partners, limited and general, share the profits of the business.
4. Each limited partner has liability limited to his capital contribution to the business.
Each general partner of a limited partnership has unlimited liability for the obligations
of the business. A general partner in an LLLP, however, has liability limited to his
capital contribution.
5. Each general partner has a right to manage the business, and she is an agent of the
limited partnership or LLLP. A limited partner has no right to manage the business or
to act as its agent, but he does have the right to vote on fundamental matters. A
limited partner they manage the business, yet retain limited liability for partnership
obligations.
6. General partners, as agents, are fiduciaries of the business. Limited partners are
not fiduciaries.
7. A partner’s rights in a limited partnership or LLLP are not freely transferable. A
transferee of a general or limited partnership interest in not a partner, but is entitled
only to the transferring partner’s share of capital and profits.
8. The death or other withdrawal of a partner does not dissolve a limited partnership or
LLLP, unless there is no surviving general partner.
9. Usually, a limited partnership or LLLP is taxed like a partnership.
Principal Characteristics of Limited Partnerships and LLLPs
53

54. Understanding Bankruptcy
• Bankruptcy
• When a venture’s financial obligations are greater than its assets
and it is unable to meet its obligations.
• The Bankruptcy Act
• A federal law that provides for specific procedures for handling
insolvent debtors—those who are unable to pay debts as they
become due.
• Ensures that the property of the debtor is distributed fairly to the
creditors.
• Protects creditors from having debtors unreasonably diminish their
assets.
• Protects debtors from extreme demands by creditors.
54

55. The search for entrepreneurial capital
55

56. Source: ―Successful Angel Investing,‖ Indiana Venture Center, March 2008.
Who Is Funding Entrepreneurial Start-Up Companies?
56

57. Debt Versus Equity
• Debt Financing
• Secured financing of a new venture that involves a payback of the
funds plus a fee (interest for the use of the money).
• Equity Financing
• Involves the sale (exchange) of some of the ownership interest in
the venture in return for an unsecured investment in the firm.
57

58. Debt Financing
• Commercial Banks
• Make 1-5 year intermediate-term loans secured by collateral
(receivables, inventories, or other assets).
• Questions in securing a loan:
• What do you plan to do with the money?
• How much do you need?
• When do you need it?
• How long will you need it?
• How will you repay the loan?
58

59. Debt Financing (cont’d)
• Advantages
• No relinquishment of
ownership is required.
• More borrowing allows
for potentially greater
return on equity.
• During periods of low
interest rates, the
opportunity cost is
justified since the cost of
borrowing is low.
• Disadvantages
• Regular (monthly)
interest payments are
required.
• Continual cash-flow
problems can be
intensified because of
payback responsibility.
• Heavy use of debt can
inhibit growth and
development.
59

60. Business Type Financed Financing Term
Debt
Source
Start-Up
Firm
Existing
Firm
Short
Term
Intermediate
Term
Long
Term
Trade credit Yes Yes Yes No No
Commercial
banks
Sometimes, but
only if strong
capital or
collateral exists
Yes Frequently Sometimes Seldom
Finance
companies
Seldom Yes Most frequent Yes Seldom
Factors Seldom Yes Most frequent Seldom No
Leasing
companies
Seldom Yes No Most frequent Occasionally
Mutual savings
banks and
savings-and-loan
associations
Seldom Real estate
ventures only
No No Real estate
ventures only
Insurance
companies
Rarely Yes No No Yes
Common Debt Sources
60

61. Other Debt Financing Sources
• Trade Credit
• Credit given by suppliers who sell goods on account.
• Accounts Receivable Financing
• Short-term financing that involves either the pledge of receivables
as collateral for a loan or the sale of receivables at a discounted
value (factoring).
• Finance Companies
• Asset-based lenders that lend money against assets such as
receivables, inventory, and equipment.
61

62. Other Debt Financing Sources (cont’d)
• Equity Instruments
• Give investors a share of the ownership.
• Loan with warrants provide the investor with the right to buy stock at a
fixed price at some future date.
• Convertible debentures are unsecured loans that can be converted
into stock.
• Preferred stock is equity that gives investors a preferred place among
the creditors in the event the venture is dissolved.
• Common stock is the most basic form of ownership and is often are
sold through public or private offerings.
62

63. Equity Financing
• Equity Financing
• Money invested in the venture with no legal obligation for
entrepreneurs to repay the principal amount or pay interest on it.
• Funding sources: public offering and private placement
• Public Offering
• ―Going public‖ refers to a corporation’s raising capital through the
sale of securities on the stock markets.
• Initial Public Offerings (IPOs): new issues of common stock
63

64. Public Offerings
• Advantages
• Size of capital amount
• Liquidity
• Value
• Image
• Disadvantages
• Costs
• Disclosure
• Requirements
• Shareholder pressure
64

65. Investors
• ―Sophisticated‖ Investors
• Wealthy individuals who invest regularly in new and early- and late-
stage ventures and are knowledgeable about the technical and
commercial opportunities and risks of the business in which they
invest.
65

66. The Venture Capital Market
• Venture Capitalists
• Are valuable and powerful source of equity funding for new
ventures that provide:
• Capital for start-ups and expansion
• Market research and strategy
• Management-consulting, audits and evaluation
• Contacts—customers, suppliers, and businesspeople
• Assistance in negotiating technical agreements
• Help in establishing management and accounting controls
• Help in employee recruitment and employee agreements
• Help in risk management and with insurance programs
• Counseling and guidance in complying with government regulations
66

67. Stage Amount Deals
Expansion $10.8 billion 1,235
Later Stage $12.2 billion 1,168
Early Stage $5.2 billion 995
Start up/ Seed $1.2 billion 415
**data from 2007
Venture Capital Investments Comparison by Stages
67

68. Recent Developments in Venture Capital
More-Experienced
Venture Investors
Emergence of
Feeder Funds
Decrease in Small
Start-up
Investments
More Sophisticated
Legal Environment
More-Specialized
Venture Funds
68

69. Investment Agreement Provisions
• Choice of securities
• Preferred stock, common stock, convertible debt, and so forth
• Control issues
• Who maintains voting power
• Evaluation issues and financial covenants
• Ability to proceed with mergers and acquisitions
• Remedies for breach of contract
• Rescission of the contract or monetary damages
69

70. Dispelling Venture Capital Myths
• Myth 1: Venture capital firms want to own control of your
company and tell you how to run the business.
• Myth 2: Venture capitalists are satisfied with a
reasonable return on investment.
• Myth 3: Venture capitalists are quick to invest.
• Myth 4: Venture capitalists are interested in backing new
ideas or high-technology inventions—
management is a secondary consideration.
• Myth 5: Venture capitalists need only basic summary
information before they make an investment.
70

71. Venture Capitalists and Business Plans
Proposal
Size
Investment
Recovery
Competitive
Advantage
Company
Management
Financial
Projections
71

72. Factors in Successful Funding of Ventures
Success in Seeking
Funding
(Demand Side)
Characteristics of
the Enterprise
Characteristics
of the
Request
Sources of
Advice
Characteristics of
the Entrepreneurs
72

73. Level 4
Fully developed product/service
Established market
Satisfied users
4/1 4/2 4/3 4/4
Level 3
Fully developed product/service
Few users as of yet
Market assumed
3/1 3/2 3/3 3/4
Level 2
Operable pilot or prototype
Not yet developed for production
Market assumed
2/1 2/2 2/3 2/4
Level 1
Product/service idea
Not yet operable
Market assumed
1/1 1/2 1/3 1/4
Level 1
Individual founder/
entrepreneur
Level 2
Two founders
Other personnel not
yet identified
Level 3
Partial management
team—members
identified to join
company when
funding received
Level 4
Fully staffed,
experienced
management team
Riskiest
Riskiest
Status of Management
StatusofProduct/Service
VentureCapitalist System of Evaluating Product/Serviceand Management
73

74. Criteria for Evaluating New-Venture Proposals
• Major Categories of Venture Capitalist Screening Criteria:
• Entrepreneur’s personality
• Entrepreneur’s experience
• Product or service characteristics
• Market characteristics
• Financial considerations
• Nature of the venture team
74

75. Venture Capital Firm Requirements
• Must fit within lending guidelines of venture firm
for stage and size of investment
• Proposed business must be within geographic
area of interest
• Prefer proposals recommended by someone
known to venture capitalist
• Proposed industry must be kind of industry
invested in by venture firm
Nature of the Proposed Business
• Projected growth should be relatively large within
five years of investment
Economic Environment of Proposed Industry
• Industry must be capable of long-term growth
and profitability
• Economic environment should be favorable to a
new entrant
Proposed Business Strategy
• Selection of distribution channel(s) must be
feasible
• Product must demonstrate defendable
competitive position
Financial Information on the Proposed
Business
• Financial projections should be realistic
Proposal Characteristics
• Must have full information
• Should be a reasonable length, be easy to
scan, have an executive summary, and be
professionally presented
• Proposal must contain a balanced
presentation
• Use graphics and large print to emphasize
key points
Entrepreneur/Team Characteristics
• Must have relevant experience
• Should have a balanced management team
in place
• Management must be willing to work with
venture partners
• Entrepreneur who has successfully started
previous business given special
consideration
Venture Capitalists’ Screening Criteria
75

76. Venture Capitalist Evaluation Process
• Stage 1: Initial Screening
• This is a quick review of the basic venture to see if it meets the
venture capitalist’s particular interests.
• Stage 2: Evaluation of the Business Plan
• This is where a detailed reading of the plan is done in order to
evaluate the factors mentioned earlier.
• Stage 3: Oral Presentation
• The entrepreneur verbally presents the plan to the venture
capitalist.
• Stage 4: Final Evaluation
• After analyzing the plan and visiting with suppliers, customers,
consultants, and others, the venture capitalist makes a final
decision.
76

77. TEAM MUST:
• Be able to adapt
• Know the competition
• Be able to manage rapid growth
• Be able to manage an industry leader
• Have relevant background and industry experience
• Show financial commitment to firm, not just sweat equity
• Be strong with a proven track record in the industry
unless the company is a start-up or seed investment
PRODUCT MUST:
• Be real and work
• Be unique
• Be proprietary
• Meet a well-defined need in the marketplace
• Demonstrate potential for product expansion, to avoid
being a one-product company
• Emphasize usability
• Solve a problem or improve a process significantly
• Be for mass production with potential for cost reduction
MARKET MUST:
• Have current customers and the potential for many more
• Grow rapidly (25% to 45% per year)
• Have a potential market size in excess of $250 million
• Show where and how you are competing in the
marketplace
• Have potential to become a market leader
• Outline any barriers to entry
BUSINESS PLAN MUST:
• Tell the full story, not just one chapter
• Promote a company, not just a product
• Be compelling
• Show the potential for rapid growth and knowledge of
your industry, especially competition and market vision
• Include milestones for measuring performance
• Show how you plan to beat or exceed those milestones
• Address all of the key areas
• Detail projections and assumptions; be realistic
• Serve as a sales document
• Include a strong and well-written executive summary
• Show excitement and color
• Show superior rate of return (a minimum of 30% to 40%
per year) with a clear exit strategy
Essential Elements for a Successful Presentation to a
Venture Capitalist
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78. Informal Risk Capital
• Business Angel Financing
• Wealthy individuals in the United States are looking for investment
opportunities.
• They are referred to as ―business angels‖ or informal
risk capitalists.
• Types of Angel Investors
• Corporate angels
• Entrepreneurial angels
• Enthusiast angles
• Micromanagement angels
• Professional angels
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79. Main Differences Business Angels Venture Capitalists
Personal Entrepreneurs Investors
Firms funded Small, early-stage Large, mature
Due diligence done Minimal Extensive
Location of investment Of concern Not important
Contract used Simple Comprehensive
Monitoring after investment Active, hands-on Strategic
Exiting the firm Of lesser concern Highly important
Rate of return Of lesser concern Highly important
Main Differences Between BusinessAngels and
Venture Capitalists
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80. Thank you
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