Term
| What do all businesses get paid to do? |
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Definition
o Solve a problem
o Meet an unmet need |
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Term
| What comes with the greater the business opportunity (problem)? |
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Definition
o The more competitive it will be to capitalize on the business opportunity
o The higher the risk of failure
o The more money it will take to succeed |
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Term
| Venture Capitalist Definition |
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Definition
| A professional investor who deploys 3rd party funds into relatively early-stage companies with both high potential and a relatively high degree of risk |
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Term
| 4 reasons banks don't invest in startups |
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Definition
o Banks are not in the business of losing money (4 out of 5 companies fail within the first 5 years)
o Start-ups have limited assets to pledge to the bank
o Banks are not set up to take equity in companies
o Usury laws prevent banks from charging high enough interest rate to compensate for loans that go bad |
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Term
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Definition
| Capital that is borrowed and repaid within a specified period of time. Debt comes with a fee (in the form of interest) and is usually secured by the assets in the company |
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Term
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Definition
| Capital used to acquire ownership in the company. Investors hope to sell their ownership in the future at a price much higher than what they originally paid |
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Term
| Points to consider about VCs |
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Definition
o They cannot see the future
o They are often wrong more than they are right
o They invest in what they know (you may simply be presenting to the wrong VCs) |
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Term
| 3 Rules when it comes to VCs |
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Definition
1. Money chases companies that have a large growing base of customers/users
2. Money making is not just a good thing, it’s a great thing
3. VCs follow the leaders in their industry |
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Term
| 4 Hurdles of acquiring Venture Capital |
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Definition
1. Big Enough Market to drive back large returns to the VCs
2. The market timing has to be right
3. Defensible Position
4. Management |
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Term
| What % of start-ups will generate less than $10mm in revenue annually? |
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Definition
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Term
| What % of startups will generate revenue in the 100s of millions? |
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Definition
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Term
| How many startups in the marketplace will VCs fund? |
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Definition
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Term
| What 3 questions do VCs ask to determine if a market is big enough? |
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Definition
• Whats the pain point being addressed?
• How many people have the pain?
• What are the existing options to address the pain? |
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Term
| What types of markets do VCs prefer to invest in? |
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Definition
| Large and growing markets with lots of competitors as opposed to more niche markets with less competitors |
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Term
| Challenges of being too early in the market |
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Definition
• It’s expensive to both sell and educate the market
• Will have to keep up with innovation within the space
• May have to raise a lot of money to stay afloat while the market develops |
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Term
| Challenges of being too late to the market |
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Definition
• Product has become a commodity
• Competing against well funded, entrenched companies
• Fewer exit opportunities |
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Term
| What are the two most common types of defensible position |
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Definition
Intellectual Property
- Patents and trademarks |
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Term
| What does the concept of defensible position revolve around? |
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Definition
| Trying to get as close to a monopoly as possible so you can control pricing (and margins) and you can control supply |
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Term
| What is the challenge with Intellectual Property? |
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Definition
| You have to defend your IP in the courts |
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Term
| 3 market based strategies to develop a defensible position |
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Definition
• High Switch Costs: Its painful for a customer to leave one service for another (ExactTarget)
• Customer Experience: Customers don’t want to leave you because you provide a great experience (difficult to scale) (Nordstrom)
• Proprietary Technology or System: You are able to deliver a product/service more efficiently than competitors (Dell) |
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Term
| What are some questions VCs ask about a management team? |
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Definition
• Are they smart;
• Are they nimble (will change quickly w/ market);
• Are they experienced (past successes/failures)
• Do they have integrity? |
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Term
| Aspects of management that can hurt you |
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Definition
• Being arrogant
• Being a single founder
• Being unprepared (not knowing everything about the business)
• A bad reputation |
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Term
| Points to consider regarding monetization strategies |
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Definition
o It may change over time (need to be nimble)
o There are multiple strategies to monetize a product or service
o Multiple revenue streams is better than a single revenue stream |
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Term
| Points to consider regarding startup financials |
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Definition
o Financials are designed to provide a “high level view” of the financial return
o Financials for startups are based on unsubstantiated assumptions
o If done correctly, it should provide an early capitalization roadmap |
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