30 Questions
What is one benefit of starting a business on a small scale?
It allows for testing the viability of the business idea
Why is it challenging for entrepreneurs to figure out how much starting capital they need?
Entrepreneurs' plans often change
What is 'bootstrap financing' as described in the text?
Utilizing creativity to maximize existing resources
Why is it important for entrepreneurs to get the needed money when they need it?
To ensure smooth execution of business plans
What role does an MVP play in the early stages of a business?
It helps in keeping fixed costs low
Why do entrepreneurs need to come up with new plans if they can't get the money they need?
To pivot and adapt to the financial constraints
What is the main source of funding that comes from friends and family to support an entrepreneur?
Love money
What is the purpose of collateral in debt financing?
To decrease the risk for the lender
What advantage does debt financing offer in terms of ownership and control?
Borrowers give up minimal ownership and control
What is a common reason why companies choose debt financing instead of equity financing?
To make investments that earn more than the cost of the loan
How do equity investors typically expect to be rewarded for their investment?
By sharing ownership and dividends
What distinguishes angel investors from venture capitalists?
Angel investors are less restricted but conduct due diligence
What key advantage does equity financing offer concerning payback requirements?
Equity financing allows companies to avoid regular payback schedules
How does equity financing differ from debt financing in terms of collateral pledging?
Collateral is not required in equity financing
"Young companies can avoid the burden of regular monthly expenses" is associated with which type of financing?
Equity financing
What is a distinguishing feature between debt and equity investors concerning returns on investment?
Equity investors aim for competitive returns based on risk levels.
What is one advantage of starting a business on a small scale?
It helps test if the business model is viable on a larger scale
Why is it important for entrepreneurs to get the needed money when they need it?
To reduce the chances of business failure
What is the purpose of collateral in debt financing?
To secure the debt with assets in case of default
How does equity financing differ from debt financing in terms of collateral pledging?
Debt financing requires giving up ownership stakes as collateral, while equity financing does not.
Why is it challenging for entrepreneurs to figure out how much starting capital they need?
Entrepreneurs often face uncertainties and changing circumstances.
'Bootstrap financing' involves entrepreneurs using their creativity to:
Stretch existing resources to cover needs until attracting outside investors
What is the main source of 'Love Money' as described in the text?
Friends and family
What is the primary reason why borrowers pledge collateral in debt financing?
To protect lenders in case of default
Why is debt financing considered advantageous in terms of ownership and control?
Entrepreneurs retain ownership without giving up control
What distinguishes angel investors from venture capitalists based on the text?
Angel investors invest individually or in networks
What advantage does equity financing offer concerning payback requirements?
No need for regular cash flow paybacks
'Debt financing allows companies to be smart with money' is primarily related to what aspect mentioned in the text?
$20,000 investment making 20% more money
What is the primary purpose of collateral in debt financing according to the text?
To protect lenders in case of default
'Equity financing doesn't involve pledging collateral' highlights what key advantage mentioned in the text?
Flexibility in decision-making
Study Notes
Evaluating Business Ideas
- To determine if an idea is good, ask: "Why now, why me?" and "Why will it continue to succeed once others know about it?"
- Consider: "What's an area where I could go into business without being a test for bigger companies?"
Starting Small and Failing Cheaply
- Start with a Minimum Viable Product (MVP) to test the market with low fixed costs and high variable costs
- Example: Hand labeling drink bottles initially to avoid investing in massive machinery
- Having a successful business on a small scale is a good indicator of its potential for large-scale success
Starting Capital
- Entrepreneurs need money to start their business, but it's challenging to determine how much and when it's needed
- Bootstrap financing: Using personal resources, including money and time, to make the business attractive to outside investors
- Types of starting capital:
- Personal money: Entrepreneurs invest their own funds
- Love money: Funding from friends and family
- Grants and start-up prize money: Government or agency grants and competition prizes
Debt Financing
- Cost: Interest paid by the borrower
- Reward: Interest earned by the investor
- Collateral: Pledged to protect the investor in case of default
- Advantages:
- Ownership and control: No need to give up control with debt financing
- Certainty in payments: Predictable monthly payments help businesses plan their budget
- Trading on equity: Borrowing to make investments that earn more than the loan cost
Equity Financing
- Cost: Giving up some control over the business
- Reward: Potential returns include dividends and selling ownership for more than the initial investment
- Investor protection: Shareholders have influence in decision-making, matching their share of ownership
- Advantages:
- No regular payback: No need for regular cash flow paybacks
- No collateral pledging: Company assets remain unencumbered and not at risk
- Angel investors: Wealthy individuals investing in new ventures for ownership, with the option to invest through ownership or convertible debt
This quiz discusses the criteria for evaluating business ideas, including why an idea would succeed now, the uniqueness factor, and strategies for starting on a small scale. Explore this quiz to understand how to assess the potential success of your business ideas.
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