OVERVIEW

While most entrepreneurship classes focus on the more sophisticated finance related to venture capital, we want to also look at what happens in the vast majority of the real world startups. Including:

• Most startups are self financed, which is what we also call bootstrapping. I saw a study published by Wells Fargo, in about 2005, showing that the average cost of a startup in the United States is $10,000.
• We do not want to forget the difference between owning a business entirely yourself, and dealing with partners. Essentially, if you can own it yourself, then you’re probably better off. One exception to the rule is when you want to have partners for reducing risk, bringing in know-how and experience, and peace of mind.
• Most businesses have some level of startup cost estimates related to strategy. It’s much more about strategy than it is about requirements of the type of business. For example, food service startups run the gamut between costing almost nothing for some kinds of catering, to the startup costs of a portable lunch stand, to the startup costs of a small local restaurant, to the startup costs of an ambitious restaurant in a major urban location.
• Types of financing depend on at least two factors: first, the size of investment required; second, the desireability of the investment to potential investors; and third, the preference of the startup entrepreneurs themselves.
• Venture capital is limited to a few thousand (maybe 5K, 6K, something like that) new startups every year. These are very exclusive ventures, with proven management teams, defensible business models, good markets, and good product-market fit.
• Angel investors are generally organized and knowledgeable, and they qualify as investors according to the SEC. Some research indicates more than 200,000 angel investors in the United States. They invest amounts in the hundreds of thousands, generally.
• Friends and family should be very carefully limited because there are a lot of legal restrictions. These investments might work for tens of thousands of dollars, in some cases hundreds of thousands.
• Bootstrapping is doing it yourself, without outside investors, without sharing ownership, with or without bank loans, credit card financing, or other borrowed money.

DEFINITIONS

Angel Investor: An individual who invests his or her own money in an entrepreneurial company.

Venture Capitalist (VC): A person or investment firm that makes venture investments, and … are expected to bring managerial and technical expertise as well as capital to their investments.

Business Valuation: What a business is worth. jTypes of valuation include:

• Asset-based valuation
• Book value
• Adjusted book value
• Liquidation value
• Replacement value
• Earnings Based Valuations

(Optional Reading)

• Life is Too Short to Deal with Non-Accredited Investors

1.  What Do Investors Want in a Startup?

Naval Ravikant, speaker

Naval Ravikant, the speaker, has been through the ringer a few times, on both sides of the investment table. I watched one of his ventures, epinions.com, very closely, because my daughter and son in law were employees. So now, a few years later, I follow his Venture Hacks blog.

Most of what he says here is pretty standard. And if you’re interested, his fellow blogger transcribed this interview on venture hacks. Some highlights:

“I look for two things that are paramount above all:

1. Great team. It’s obvious. It’s a tautology. Everybody says it. You have to be working with some of the best people in the industry you’re in.
2. Huge market. Niche markets just don’t work because the first idea never works. You always have to change the idea, so you need room to maneuver in a big market.

“There are three more factors that I look at. Not all three of them are required but I prefer a company to have at least two of them:

1. Difficult technology that is compounding over time.
2. A proprietary distribution channel. A clever viral marketing, or SEO, or partnership, or whatever strategy that gives them a leg up over competitors.
3. A direct monetization model. Something more than throwing up 10 cent banner ad CPMs.

Naval has more authority on this than I do, but his reference to niche markets bothers me a bit. I like niche markets in a world that is constantly splintering and dividing itself finer and finer. Some of the biggest markets there are started as niches: Facebook, for example, focused first on a few university campuses. Yahoo was a niche — the Internet — when it started. Starbucks was once a niche (gourmet coffee, affordable luxury) in the Northwest.

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2. 10 Top Things for Pitching VCs

David Rose, speaker

This is a web-embedded video from an entrepreneur who is also an investor, talking about what investors want to know, and what they want to see in a pitch.

If for whatever reason you don’t see the video here, you can click this link to go to the source video on the TED site.

If for whatever reason you don’t see the video here, you can click this link to go to the source video on the TED site.

Naval Ravikant, the speaker, has been through the ringer a few times, on both sides of the investment table. I watched one of his ventures, epinions.com, very closely, because my daughter and son in law were employees. So I now, a few years later, I follow his Venture Hacks blog.

Most of what he says here is pretty standard. And if you’re interested, his fellow blogger transcribed this interview on venture hacks. Some highlights:

“I look for two things that are paramount above all:

1. Great team. It’s obvious. It’s a tautology. Everybody says it. You have to be working with some of the best people in the industry you’re in.
2. Huge market. Niche markets just don’t work because the first idea never works. You always have to change the idea, so you need room to maneuver in a big market.

“There are three more factors that I look at. Not all three of them are required but I prefer a company to have at least two of them:

1. Difficult technology that is compounding over time.
2. A proprietary distribution channel. A clever viral marketing, or SEO, or partnership, or whatever strategy that gives them a leg up over competitors.
3. A direct monetization model. Something more than throwing up 10 cent banner ad CPMs.

Naval has more authority on this than I do, but his reference to niche markets bothers me a bit. I like niche markets in a world that is constantly splintering and dividing itself finer and finer. Some of the biggest markets there are started as niches: Facebook, for example, focused first on a few university campuses. Yahoo was a niche — the Internet — when it started. Starbucks was once a niche (gourmet coffee, affordable luxury) in the Northwest.