Podcast
Questions and Answers
When calculating initial start-up costs, which of the following should be taken into account?
When calculating initial start-up costs, which of the following should be taken into account?
- Signage cost
- Office furniture and equipment
- Licenses and permits
- All of the above (correct)
New ventures typically generate enough income to cover all up-front costs right from the start.
New ventures typically generate enough income to cover all up-front costs right from the start.
False (B)
Besides up-front costs, what other type of expenses are crucial to budget for when starting a business?
Besides up-front costs, what other type of expenses are crucial to budget for when starting a business?
recurring expenses
Many entrepreneurship guides advise new ventures to start ______ and dream big.
Many entrepreneurship guides advise new ventures to start ______ and dream big.
Which of the following is an example of monthly recurring expenses?
Which of the following is an example of monthly recurring expenses?
A contingency fund is unnecessary when calculating initial start-up costs if the budget is already very tight.
A contingency fund is unnecessary when calculating initial start-up costs if the budget is already very tight.
What is the benefit of starting a business on a smaller scale, according to entrepreneurial advice?
What is the benefit of starting a business on a smaller scale, according to entrepreneurial advice?
Which expense is a component of a new business's 'Production and Operation' costs?
Which expense is a component of a new business's 'Production and Operation' costs?
What do venture capitalists typically receive in exchange for their cash investment in a company?
What do venture capitalists typically receive in exchange for their cash investment in a company?
Debt financing involves only the payback of the original funds without any additional charges or interest.
Debt financing involves only the payback of the original funds without any additional charges or interest.
Besides financial investment, how else do venture capitalists actively engage with the businesses they invest in?
Besides financial investment, how else do venture capitalists actively engage with the businesses they invest in?
_______ can extend credit to businesses in the form of delayed payments, assisting with short-term financing needs.
_______ can extend credit to businesses in the form of delayed payments, assisting with short-term financing needs.
Match the financing source with its description:
Match the financing source with its description:
Which of the following best describes 'bootstrapping' in the context of start-up businesses?
Which of the following best describes 'bootstrapping' in the context of start-up businesses?
Equity financing involves borrowing money that must be repaid with interest, without giving up any ownership in the company.
Equity financing involves borrowing money that must be repaid with interest, without giving up any ownership in the company.
What is the primary advantage of equity financing for a new business compared to debt financing?
What is the primary advantage of equity financing for a new business compared to debt financing?
A(n) ______ is the first sale of stock by a private company to the public.
A(n) ______ is the first sale of stock by a private company to the public.
Match the following sources of capital with their description:
Match the following sources of capital with their description:
Which of the following is a characteristic of business angels?
Which of the following is a characteristic of business angels?
A company can launch an IPO (Initial Public Offering) at any stage of its development, regardless of its financial viability or future prospects.
A company can launch an IPO (Initial Public Offering) at any stage of its development, regardless of its financial viability or future prospects.
What is the main trade-off an entrepreneur faces when choosing equity financing over debt financing?
What is the main trade-off an entrepreneur faces when choosing equity financing over debt financing?
Forgone or delayed compensation, as well as reduced or free rent, are examples of ______ used in bootstrapping.
Forgone or delayed compensation, as well as reduced or free rent, are examples of ______ used in bootstrapping.
Which of the following best describes the role of venture capital firms?
Which of the following best describes the role of venture capital firms?
Which characteristic best describes a typical recipient of microcredit from institutions such as CARD, LPDF and TSPI?
Which characteristic best describes a typical recipient of microcredit from institutions such as CARD, LPDF and TSPI?
Growth equity funds exclusively invest in companies located in developed markets.
Growth equity funds exclusively invest in companies located in developed markets.
In growth equity investments, what is the significance of understanding the motivations of the majority shareholders?
In growth equity investments, what is the significance of understanding the motivations of the majority shareholders?
Growth equity investments fill the space between venture capital and ________ investing.
Growth equity investments fill the space between venture capital and ________ investing.
Which of the following is a primary characteristic of growth equity investments?
Which of the following is a primary characteristic of growth equity investments?
Match the following microcredit institutions with their descriptions:
Match the following microcredit institutions with their descriptions:
Why have growth equity investments gained momentum in developed markets following the global financial crisis?
Why have growth equity investments gained momentum in developed markets following the global financial crisis?
In growth equity investments, maintaining the existing management team is generally preferred.
In growth equity investments, maintaining the existing management team is generally preferred.
A minority equity position gives a PE investor complete control over a company's operational decision-making.
A minority equity position gives a PE investor complete control over a company's operational decision-making.
What is a critical requirement for a successful growth equity investment partnership, given the minority stake taken by the investor?
What is a critical requirement for a successful growth equity investment partnership, given the minority stake taken by the investor?
Growth equity investments aim to advance a company to a new stage of ______.
Growth equity investments aim to advance a company to a new stage of ______.
In an ideal growth equity scenario, what type of relationship should exist between owners, existing management, and new investors?
In an ideal growth equity scenario, what type of relationship should exist between owners, existing management, and new investors?
Why is understanding the culture and approach to business important for both the PE firm and the target company in growth equity deals?
Why is understanding the culture and approach to business important for both the PE firm and the target company in growth equity deals?
Growth equity investments always result in the PE firm acquiring more than 50% of a company’s equity.
Growth equity investments always result in the PE firm acquiring more than 50% of a company’s equity.
Besides capital, what other benefit can a growth equity investment bring to a company, allowing it to scale?
Besides capital, what other benefit can a growth equity investment bring to a company, allowing it to scale?
Match the following concepts with their relevance to growth equity investments:
Match the following concepts with their relevance to growth equity investments:
Which of the following best describes the primary focus of growth equity funds?
Which of the following best describes the primary focus of growth equity funds?
Growth equity investments typically result in the original owners and founders losing control of the company's board and day-to-day operations.
Growth equity investments typically result in the original owners and founders losing control of the company's board and day-to-day operations.
Identify two primary purposes for which a growth equity fund's capital is typically used at a portfolio company.
Identify two primary purposes for which a growth equity fund's capital is typically used at a portfolio company.
Engaging with a growth equity fund marks the transition from a start-up to a _______, sustainable business.
Engaging with a growth equity fund marks the transition from a start-up to a _______, sustainable business.
Match the following characteristics with the type of business they best describe:
Match the following characteristics with the type of business they best describe:
A mature SME seeking growth equity investment typically possesses which of the following characteristics?
A mature SME seeking growth equity investment typically possesses which of the following characteristics?
Growth equity funds are generally the best choice for companies requiring urgent restructuring.
Growth equity funds are generally the best choice for companies requiring urgent restructuring.
What are some benefits of growth equity investments for mature SMEs that are often family businesses?
What are some benefits of growth equity investments for mature SMEs that are often family businesses?
Flashcards
Start-Up Cost
Start-Up Cost
The initial expenses incurred to start a business.
Initial Capital Requirements
Initial Capital Requirements
Funds needed to cover start-up costs and operations.
Monthly Budget
Monthly Budget
A financial plan for recurring expenses in a business.
Sources of Personal Financing
Sources of Personal Financing
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Signage Cost
Signage Cost
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Contingency Fund
Contingency Fund
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Office Supplies
Office Supplies
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Rental or Lease Payment
Rental or Lease Payment
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Venture Capitalists
Venture Capitalists
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Corporate Venture Capital
Corporate Venture Capital
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Debt Financing
Debt Financing
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Sources of Debt Financing
Sources of Debt Financing
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Trade Credit
Trade Credit
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Microcredit Institutions
Microcredit Institutions
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CARD
CARD
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LPDF
LPDF
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TSPI
TSPI
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Growth Equity
Growth Equity
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Minority Equity Position
Minority Equity Position
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Private Equity Deal
Private Equity Deal
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Ideal Investment Partnership
Ideal Investment Partnership
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Seed Money
Seed Money
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Start-Up Budget
Start-Up Budget
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Bootstrapping
Bootstrapping
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Equity Financing
Equity Financing
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Business Angels
Business Angels
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Venture Capital
Venture Capital
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Initial Public Offering (IPO)
Initial Public Offering (IPO)
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Common Share
Common Share
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Preferred Share
Preferred Share
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Growth Equity Funds
Growth Equity Funds
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Minority Equity Stake
Minority Equity Stake
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Working Relationship
Working Relationship
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Management Retention
Management Retention
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Investment Alignment
Investment Alignment
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Communication of Culture
Communication of Culture
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Investment Style Match
Investment Style Match
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Disruptiveness of Growth
Disruptiveness of Growth
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Portfolio Companies
Portfolio Companies
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Mature SMEs
Mature SMEs
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Investment Purposes
Investment Purposes
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Controlling Stake
Controlling Stake
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Liquidity for Owners
Liquidity for Owners
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Competitive Advantage
Competitive Advantage
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Governance Rights
Governance Rights
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Study Notes
Lesson 1: Financing Ventures and Start-Up Operations
- Study Objectives: Understanding financing ventures, initial capital requirements, and determining initial start-up costs. Also, learning fund sourcing and capitalization.
- Introduction: New ventures require financing upfront as they don't generate enough income to cover initial costs, without sufficient funding, many ideas fail.
- Start Small: Entrepreneurship often involves starting small and then expanding to dream big, gradually learning about operations, minimizing risk, and potentially securing startup capital through entrepreneurial knowledge and ability.
- Capital Requirements: A crucial factor in new venture survival is preparing a startup budget, which demonstrates financial requirements for the business to operate until profitability. This budget shows how much capital is needed until profit is realised. Venture viability depends on the business structure.
- Calculating Initial Start-Up Costs: This includes deciding where to operate (rent, home, or new location), considering signage costs, office furniture/equipment/vehicles, stationery, insurance, licenses, permits, professional services, initial inventory and production costs, equipment and manufacturing tools, marketing, advertising and promotion, and funds for unexpected expenses.
- Monthly Budget for Recurring Expenses: This includes rental/mortgage payments, inventory, salaries, bank charges, insurance, supplies, repairs, utilities, and taxes.
- Sources of Personal Financing: Personal savings, personal property, and loans from family and friends are common sources of funds for ventures.
Lesson 2: Sources of Capital
- Two Basic Types of Financing: Equity financing and debt financing.
- Equity Financing: This includes business angels, initial public offerings (IPOs), and venture capital.
- Business Angels: Informal risk capitalists, wealthy individuals investing in startups.
- Initial Public Offering (IPO): First sale of stock to the public on stock exchanges.
- Venture Capital: Rich investors giving funds to companies with huge growth potential.
- Debt Financing: This includes bank loans, government financing programs, and other lending sources.
Lesson 3: Growth Equity
- Growth Equity Defined: Funds invested in businesses between start-up and buyout phases to help transformation (development). Often for companies with good growth potential, especially in emerging markets.
- Growth Equity Funds: Investment approach that gives owners control (minority equity stakes) allowing them to learn from investors as oppose to traditional debt markets.
- Characteristics of Growth Equity:
- Focus on partnership: Aligning interests of owners, management and investors.
- Targeting operational improvements, systems and processes, and governance optimization.
- Minority investment may have various returns and/or exits.
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Description
Explore financing new ventures, including calculating initial start-up costs and understanding capital requirements. Learn about creating a startup budget to ensure financial stability until profitability. Understand the importance of starting small and gradually expanding in entrepreneurship.
