0:04 chapter 12 and formal risk Capital
0:13 so how do you finance a business well
0:14 the sources of funding develops through
0:16 stages you have early stage financing
0:18 which is the most difficult you haven't
0:20 really proved anything or no one knows
0:22 you and it's costly to obtain seed
0:24 capital is usually a small amount for
0:26 proof of concept
0:28 meaning stuff you've you've invested in
0:31 there and market feasibility studies you
0:32 know why would your business work that's
0:34 a big part of your business plan startup
0:37 financing pays for developing and
0:38 selling initial products to determine
0:40 the feasibility of your commercial sales
0:43 development financing is the next step
0:45 step or next stage if you will
0:47 it's a working capital supports the
0:49 initial growth in the third stage the
0:50 company has positive cash flow and uses
0:53 funds for sales expansion so you pull
0:54 out back into the business the fourth
0:57 stage is uh the funds are used before
0:59 going public or being purchased
1:01 depending on what your in-game is there
1:02 um you're in games probably to make
1:04 money so you can go public and have
1:06 solve stocks which then makes your money
1:07 or you can actually sell off the company
1:10 to say a larger company either are
1:12 excellent plans I need to know what your
1:14 plans are in this class acquisition
1:16 financing is used for Acquisitions lbos
1:18 are going public
1:20 now let's talk about risk Capital
1:22 markets there are three risk Capital
1:25 markets for finance Finance growth uh
1:27 not Financial growth Finance growth the
1:29 public Equity Market is available for
1:31 high potential uh Ventures that's
1:34 selling shares or selling you know bonds
1:37 or well let's say shares to the to folks
1:39 in the public Venture Capital Market you
1:40 can have a VC
1:43 um provide some first stage funding for
1:44 larger Ventures you can find you know
1:46 someone who invests in companies
1:47 professionally and try to convince them
1:49 that you're worth investing in they
1:51 become basically your partner in it the
1:53 best source for first stage funds is the
1:56 informal risk Capital Market
1:57 um but you're talking more like hey
1:59 going to the bank going to the Local
2:01 Credit Union that type of thing the
2:02 private Equity Market provides capital
2:05 for private Ventures the market consists
2:07 of individuals like Angel Investors
2:09 Venture Capital firms and private Equity
2:12 Funds so you can find groups that will
2:13 invest in your business basically like
2:16 you're a stock informal risk um Capital
2:19 Market continued or excuse me this we
2:20 were talking about the risk Capital
2:22 Market in general this is the informal
2:24 risk Capital Market this Market is a
2:25 group of wealthy investors called
2:27 business angels or angel investors who
2:30 look for Equity investment opportunities
2:32 they basically want to you know take
2:34 their funds help you do your idea and
2:35 then you both profit from it Angels
2:37 provide funds for all stages but
2:39 particularly in startup funds if you see
2:41 Pitch competitions that that type of
2:42 thing on a formal stage generally
2:44 speaking there are business angels in
2:47 the audience listening to them
2:49 um this is the largest pool of risk
2:50 capital in the U.S and the size of the
2:53 number of investors has increased in
2:55 recent years the angel and money
2:57 um available for investment each year is
2:59 about 20 billion dollars so don't tell
3:00 me it's not out there you got to go get
3:02 it it starts with a great business plan
3:04 which is why that's what you're doing
3:06 here tell me how you innovate how you
3:09 create value and I can tell you there
3:11 are people out there that want to invest
3:13 and formal investors tend to be well
3:15 educated they tend to invest in firms
3:18 geographically close to them it's a kind
3:20 of a regional deal they make one or two
3:22 deals a year averaging 340
3:24 000 so keep that in mind when you come
3:26 ask me for a billion bucks all right
3:28 it's probably not even going to be 340
3:31 000. they may join with other angels to
3:33 finance larger deals if it's a bigger opportunity
3:34 opportunity
3:36 so where do angel investors find their
3:38 Deals Deals are found through business
3:40 associates friends personal searches
3:42 investment bankers and business brokers
3:44 an Angel Network
3:46 um our group of angels organized into
3:49 networks and or funds and growing and
3:51 more common way to find a deal
3:53 generally speaking your local Chamber of
3:55 Commerce probably knows these people but
3:57 they're going to be very guarded before
3:59 they give you this information because
4:00 well they don't want to ruin their
4:02 relationship by sending them every Tom
4:03 Dick and Harry they want to send them
4:06 people who have a good business plan
4:08 with a solid plan it sounds like we
4:09 might have a reason for doing that in
4:11 this class
4:13 organize angel investor groups are
4:15 spreading in the U.S it's becoming more
4:17 of a thing I think it's been popular
4:19 rely popular
4:22 become more popular popularized is that
4:23 a word
4:25 um in America I think a lot of it has to
4:27 do with shows like the Shark Tank the
4:30 networker fund meets about six to ten
4:32 times per year basically anytime they
4:33 want to meet you better meet with them
4:35 uh we're select entrepreneurs may
4:37 present their business idea investment
4:39 is made individually and or with other interested
4:41 interested
4:43 business angels now crowdfunding has
4:45 become a thing crowdfunding is also an
4:46 individual investment
4:48 it can be used to pre-test a product or
4:51 service I think your generation invented
4:52 this is pretty cool uh this brings
4:54 together various individuals who commit
4:56 money to projects and companies they
4:58 support reward-based crowdfunding is
5:00 when individuals pledge money to a
5:01 company for developing a new technology
5:04 a new cultural art project or a new
5:07 music album or even a t-shirt we've seen
5:09 that lending crowdfunding allows
5:12 borrowing companies to occur
5:13 um debt funds without going through
5:15 traditional providers this is usually
5:17 the bar is a little bit lower but you
5:18 also have you know things you have to
5:20 pay if you can't pay it back that type
5:23 of thing Equity crowdfunding allows
5:24 individuals to invest in private
5:26 companies for percentage share of the company
5:26 company
5:29 other crowdfunding sites focus on real
5:30 estate human capital that type of thing
5:33 you can crowdfund into say a real estate
5:35 fund that will buy real estate say on
5:36 Coastal Florida that type of thing I
5:38 mean there's risk there but um
5:39 um
5:41 there's all kinds of stuff you can get
5:43 into both as a borrower and an investor
5:44 when it comes to crowdfunding
5:46 crowdfunding campaign successful
5:48 crowdfunding campaigns take time and
5:50 planning to develop a marketing campaign
5:52 execute a campaign and provide excellent
5:55 service to determine the crowdfunding
5:57 site you will you will use so here's
5:58 things you have to do determine the
5:59 crowdfunding site that you will use to
6:01 raise Capital there's plenty out there
6:04 just Google crowdfunding site
6:06 um create a video explaining what you
6:08 are doing with an emotional appeal why
6:10 people should care about what you're
6:13 doing and the feasibility of what you're
6:14 doing establish a budget showing
6:16 short-term costs sounds familiar doing
6:18 that in this class indicate the specific
6:20 tasks to be funded structure some
6:22 appropriate rewards and establish a
6:25 deadline for a campaign now Venture
6:27 Capital we touched on this lightly in
6:29 the last chapter let's dive in a little
6:31 further broadly venture capital is
6:32 professionally managed pool of equity
6:35 Capital the equity pool is fueled by
6:37 wealthy limited partners other investors
6:40 our Pension funds endowments and other
6:42 institutions including foreign investors
6:44 the pool is managed by General partner
6:46 The Venture Capital firm in exchange for
6:49 a percentage to gain realize for for
6:52 gain realize to make money in a fee
6:54 um venture capital is a long-term
6:56 investment so it's a long place this
6:57 isn't you know quick money back the
6:58 venture capitalist takes an equity
7:01 participation and is actively involved
7:03 monitoring the company and bringing
7:07 needed business skills to a firm so an
7:09 overview of the Venture Capital industry
7:12 the role of venture capital became an
7:14 industry after World War II with the
7:15 American Research and Development
7:17 Corporation are the small business
7:20 Investment Company act which we talked
7:22 about in the previous chapter form the
7:24 small business investment companies svic firm
7:25 firm
7:27 uh aspects
7:30 um were the start of formal Venture
7:32 Capital industry uh some of you were
7:35 talking again post World War II into
7:37 evolving here in the 1960s during the
7:39 1960s small private Venture Capital
7:42 firms emerged uh usually formed as
7:44 Partnerships with Venture Capital firm
7:46 acting as a general partner and a
7:47 limited partner supplying the funding so
7:49 you have the kind of people with money
7:51 putting them into this partnership and
7:52 this partnership investing in companies
7:55 they think can succeed you have to
7:57 convince them to be a recipient that you
8:00 can succeed thus you have to be able to
8:02 make a business plan so making a
8:04 business plan might be a good idea for
8:07 an MBA program where you are trying to
8:10 get entrepreneurs at least familiar with
8:12 all aspects of Entrepreneurship that's
8:14 the point of the course also Venture
8:16 Capital divisions of major corporations
8:19 were formed so big corporations started
8:21 doing this as well and they can invest
8:24 in startups and if the startups does do
8:25 well and let's say they're in the same
8:27 industry they can acquire the startup
8:30 and make it a part of their company so
8:32 pretty good exit strategy if you're an
8:34 entrepreneur geographically oriented
8:36 generally Venture Capital funds were
8:38 created for economic development and
8:40 very based on the state basis every
8:42 state has a program
8:44 I've been quite impressed with South
8:45 Carolina's programs where this college
8:48 is located in particular in the upstate
8:49 of South Carolina it's been a ton of
8:50 development if you think a lot of the
8:52 corporations big and small that have
8:55 moved to the area The Venture Capital
8:57 industry continued here University
9:00 sponsored eventual Capital funds uh
9:03 philanthropic Venture funds are usually
9:05 managed as separate entities uh the
9:07 basically like a business incubator a
9:09 business investment organization Under
9:11 the Umbrella of a university or college
9:14 The Venture Capital industry has not
9:16 returned to the highest level invested
9:20 in 1999 to 2000 which was uh one point
9:22 or excuse me
9:26 104.7 billion and over 7 800 deals in
9:30 2017 status touchdated because this book
9:32 quite frankly is a touchdated but we're
9:33 trying to control your costs so you'll
9:35 have more ability to bootstrap your own
9:37 projects but anyway in 2017 the three
9:41 primary Industries invested in where the
9:42 internet Healthcare and business product
9:46 products in general the amount or the
9:48 largest amount raised from a later stage
9:50 financing in 2017 but traditionally
9:53 expansion stage is the largest category so
9:55 so
9:56 generally get more money as the business
9:58 proves itself less up front
10:00 medium in the middle once you've proven
10:02 yourself you can get more money
10:05 the New York Metro areas receive the
10:06 largest amount of venture capital
10:08 geographically speaking in the United
10:10 States and probably in the world just
10:11 because that's kind of the financial
10:13 capital of the world so there's a lot of
10:16 venture capital Angel Investors a lot of
10:18 programs for that general area The
10:20 Venture Capital objectives and criteria
10:22 the objective of venture capital firm is
10:23 to generate long-term capital through
10:25 debt and Equity investment so they take
10:29 money give it to businesses with terms
10:31 either you give me a piece of equity you
10:32 may be a part of an owner or we're going
10:33 to loan you this money and you pay us
10:35 back plus interest the objective of the
10:36 entrepreneur is survival of the business
10:39 of course return on investment Roi
10:41 criteria increases with the increased
10:43 risk of early stage financing so the
10:45 more money you put up from up front in
10:47 an unproven firm the more it is at risk
10:49 the venture capitalist does not seek to
10:51 control a company but usually wants at
10:52 least one seat on the board of directors
10:54 they want to at least have a say
10:56 investment criteria includes financially
10:58 being financially committed first-rate
11:00 management teams are supported by family
11:02 members the product must also you know
11:03 must be unique product or service must
11:05 be unique it must solve a problem it
11:06 must create value it must be Innovative
11:09 name of the course the opportunity must
11:11 have significant capital appreciation
11:14 thus you know a greater ceiling for
11:17 growth so a higher Roi
11:18 now the Venture Capital process there's
11:20 a preliminary screening that begins with
11:23 their seat of the business plan okay see
11:24 where you're doing a business plan
11:26 here's the thing you turn on a crap
11:27 business plan you're gonna get a crap
11:29 grade okay
11:30 turn a great business plan you're gonna
11:33 get a great great why because that
11:35 reflects the Venture Capital process you
11:37 turn in a weak business plan you're not
11:39 going to get investment you turn in a
11:41 great business plan you still might not
11:42 get investment but at least you have you
11:45 have a chance the business plan is your
11:46 foot in the door you must have a clear
11:48 Mission and objectives
11:51 the executive summary is used for
11:53 initial screening I told you guys this I
11:54 told you I told you if you're watching
11:55 the other
11:58 um uh lectures people just look at that
11:59 executive summary which should be
12:01 written dead last when you figure out
12:02 exactly what your business is okay
12:04 people are trying to write it first I
12:06 don't get it uh written dead last people
12:09 look at your executive summary if if
12:11 that raises their interest they're going
12:14 to flip straight your financials if if
12:15 that is solid then they're going to read
12:17 the whole thing
12:19 executive summary matters the investor
12:21 evaluates the business determines the
12:23 deals fit into their portfolio whether
12:25 you make sense in their portfolio think
12:27 about like you're being a stock in their
12:29 portfolio they want to return on that
12:31 stock they investigate the industry and
12:33 your management team that's why you got
12:35 to do an industry analysis what analysis
12:37 of yourself and your competitors and
12:39 tell me why your management team is the
12:42 exact right team to put this together
12:44 and what holes do you have and how do
12:46 you plan to address it when it comes to
12:48 your management team the second stage of
12:50 the agreement on is on general terms the
12:53 third stage is detailed review and due
12:55 diligence this is the longest stage
12:57 takes takes anywhere from one to three
12:59 months the last stage is final approval
13:01 includes a comprehensive investment memo
13:06 so we do largely largely in this course
13:07 right here
13:10 because it's where you start and if you
13:11 can't get your foot in the door with a
13:13 business plan you're not going to get
13:15 any money anyway so none of this other
13:17 stuff matters this is where we start
13:18 then put everything else you got in this
13:20 degree together and you can navigate these
13:22 these
13:25 makes sense right locating and
13:28 approaching uh Venture capitalists only
13:29 approach firms who may be interested in
13:31 your opportunity research prospective
13:33 firms carefully including Regional and
13:34 National Venture Capital associations
13:37 approach your Venture capitalists in a
13:39 professional business manner you know
13:41 have your stuff together seek an
13:42 introduction Venture capitalists tend to
13:45 focus on referrals select the right say
13:47 your net worth is your network baby
13:50 Network equals net worth so always be
13:52 networking select the right venture
13:53 capitalist and don't shop your deal
13:56 around find the right one don't present
13:57 it to everyone because they want to have
14:00 exclusive rights bring one and only one
14:02 or two members of the management team
14:04 not the whole team you don't want to you
14:05 know freak them out a little bit develop
14:07 a brief well thought out oral
14:08 presentation it can be anything from an
14:11 elevator pitch to a 10 minute let's say
14:13 presentation which it's much more likely
14:14 you're going to get a lot less than 10
14:16 minutes you might get a minute
14:18 um a favorable first meeting May lead to
14:20 additional meetings and reaching an
14:22 initial agreement on terms if rejected
14:25 several other uh select several other
14:27 non-related firms to go find somebody else
14:28 else
14:30 I sell it too and
14:32 always learn was an interview or a sales
14:35 pitch or whatever or else
14:37 always learn what went well what didn't
14:39 go well what can I improve
14:42 okay you get better every time by
14:44 valuing your company the factors in
14:47 valuation so what value should you place
14:49 on your company people typically
14:50 overshoot this but the factors in
14:52 valuation include the nature and history
14:53 of the business the Outlook of the
14:54 economy in general and the industry in particular
14:56 particular
14:57 the book value net value of a company
14:59 stock and the company's overall
15:01 Financial condition
15:04 um the future earnings capacity with the
15:05 data to back it up is the most important
15:08 factor that's going to be something I'm
15:09 going to look at in your business plans
15:11 the dividend paying capacity is the
15:13 future capacity to pay
15:18 rather than actual dividend payments
15:20 um an assessment of Goodwill or other
15:22 intangibles is a six Factor the seven
15:23 factors assessing the previous sale
15:26 Equity so like if you sold it before or
15:28 people invested in it before that's a
15:30 good that's kind of like a recent
15:31 appraisal if you will and the final
15:33 factor is the market price for a similar
15:36 company's Equity so you can compare to
15:38 neighboring companies in the same
15:40 industry ratio analysis calculations of
15:41 financial ratios can be used as
15:43 analytical and control mechanisms to
15:45 test the financial well-being of a firm
15:48 these ratios measure the financial
15:50 strengths and weaknesses of a venture
15:53 uh but they are only one control measure
15:57 there are industry rules of thumb when
15:58 um interpreting the financial data the
16:00 different types of ratios uh most
16:02 popular here are liquidity ratios how
16:04 much cash flow that goes back to cash
16:06 flow that really does liquidity ratios
16:08 activity ratios leverage ratios how much
16:09 debt you have profitability ratios that
16:13 that describes a lot of profitability
16:14 we're going to go through these
16:17 I think one by one here uh liquidity
16:19 ratios up first the current ratio
16:21 measures the short-term solvency of a
16:23 venture and its ability to meet its
16:24 short-term debts so
16:27 a ratio of two to one
16:30 is favorable but compare with your
16:32 industry standards Uh current ratio so
16:34 your assets like things you you own
16:36 things you put in the positive category
16:40 over things you owe okay so you rather
16:42 this be two to one so like 100 to 50 okay
16:43 okay
16:46 um in terms of dollar figures the acid
16:48 test ratio is a more rigorous test of
16:50 short-term liquidity of a venture and
16:52 eliminates inventory so it ticks like
16:54 things you have on your shelf out
16:55 um the ratio of one to one is favorable
16:57 so you want to take your current assets
16:59 so same thing here current assets of
17:01 reliabilities only from current assets
17:03 you check out your inventory
17:05 um so this lets you know okay so if
17:06 you're a
17:09 a factory that makes luxury golf carts I
17:10 don't know why that just popped in my
17:12 head but you would take okay the value
17:14 of the factory the machines the human
17:17 capital cash on hand but take out the
17:18 actual golf cart sitting in your
17:20 warehouse and divide that by liabilities
17:22 now it goes from two to one to one to
17:24 one is ideal
17:25 um so it lowers the bar slightly but
17:30 this inventory they take out an acid
17:33 test ratio just to see what you would
17:34 have if something happened to your
17:36 entire inventory
17:37 um activity ratio second one here the
17:39 average collection of period ratio
17:41 indicates the average number of days it
17:43 takes to convert accounts receivable to
17:46 cash why because cash flow is King uh
17:48 compare the result to your industry
17:50 standards so you need to look at your
17:52 competitors and try to get a read on
17:55 what their ratio is that way if you say
17:56 hey ours is like four to one it should
17:59 be two to one like on the previous one
18:01 um but everybody in this industry is
18:03 four to one then then that's a
18:04 justification for being four to one
18:06 average collection period account
18:09 accounts receivable divided by the
18:11 average daily sales so this is how many
18:13 sales you're making in the denominator
18:15 here and that counts receivables what
18:16 you're actually getting so how do you
18:19 convert sales into actual funds coming
18:22 into the um into the business which then
18:24 affects your cash flow which then has
18:25 their ability to reinvest in your
18:27 business and also pay your people that's
18:29 important so they keep showing up so
18:31 what is your average collection period
18:33 look like the inventory turnover ratio
18:35 measures the efficiency of the Venture
18:38 in managing and selling uh its inventory
18:41 quicker now more quickly a high turnover
18:43 rate is a favorable sign so you can take
18:45 stuff you've produced put it in the
18:47 market get money back how fast you turn
18:49 over your inventory so your cost of
18:51 goods sold so what you put into them
18:54 divided by your your inventory um
18:54 um
18:56 obviously if you can move things out the
18:58 door more quickly you can move dollars
18:59 back in the door more quickly and then
19:01 your activity ratio actually improves
19:04 third category here leverage ratios the
19:07 debt ratio assesses the firm's ability
19:09 to meet all of its obligations both
19:12 short and long term it also measures
19:15 risk because the debt consists of a
19:17 fixed commitment of interest and
19:20 principal payments simple how leveraged
19:22 are you uh your debt ratios your total
19:24 liabilities what you owe over your total
19:26 assets now you preferred this number to
19:29 be small right but particularly in the
19:31 beginning you can have a potentially a
19:33 lot of liabilities if you can get in the
19:35 door with convincing someone you have a
19:37 winning business idea with your business
19:39 plan now over time you want this debt
19:42 ratio to go down but debt can be used to
19:44 get things done the debt equity ratio
19:46 assesses the firm's capital structure it
19:49 measures the risk to creditors the more
19:51 debt you have the more risky You Are by
19:52 considering the funds invested by
19:54 creditors that's that and investors
19:57 equity you'd love to have you know more
19:58 Equity than debt but sometimes that's
20:00 not the case
20:02 the higher percentage of debt the
20:04 greater the risk so again debt to equity
20:06 ratio what you owe versus what people
20:08 have plowed into the business if people
20:10 put more into your business you're more
20:12 attractive and less risky
20:16 the net profit margin ratio uh
20:19 represents the ability
20:21 um to translate sales into profits so
20:23 how do you how do you get down at the
20:26 end of the day use your gross profits uh
20:28 instead of net profit to provide another
20:31 measure of profitability uh net profit
20:33 margin so what do you get to keep as a
20:35 business your net profit over your net
20:39 sales so how good are you at converting
20:42 um what you're doing what you're selling
20:45 uh into actual profit in the better the
20:46 better you are at this the more profitable
20:47 profitable
20:49 um you'll be return on investment
20:51 measures is the ability to manage the
20:53 venture's total investment in assets
20:55 substituting stockholders equity for
20:58 assets calculates a return on Equity so
21:00 your Roi your return on investment is
21:02 your net profit divided by your total assets
21:03 assets
21:05 tell you what the best business plans I
21:08 see have these things okay have these
21:10 these these ratios or at least take a
21:13 stab at it they're going to want to see
21:16 it I would like to see it so make this
21:17 your stretch goal to include these in
21:19 your business plan General evaluation
21:22 approaches one widely used approach
21:24 assesses the price of comparable
21:26 publicly held Securities if one can be
21:29 found the present value of future cash
21:31 flow adjusts for time value of money in
21:33 the business of economic risk think back
21:35 to macroeconomics where you learn that
21:37 and uh you pray your financial
21:39 management class the replacement value
21:43 is used for insurance purposes let me
21:44 back up if you didn't have a financial
21:46 management class or you're coming from a
21:47 different industry hopefully you have
21:49 someone in your team who can do that if
21:50 you have no one on your team you need to
21:52 put that under the weaknesses assessment
21:54 of your company and how will you address
21:55 that by getting someone who's had
21:56 financial management and or
21:58 macroeconomics again the replacement
22:01 value is used only for insurance
22:03 purposes so building burns down how do
22:04 you replace all your equipment you know
22:06 heaven forbid that happens the book
22:08 value adjusts for depreciation and
22:10 inventory there's some accounting uh the
22:11 earnings approach provides the best
22:14 estimate of probable return on
22:16 investment at the end of the day that's
22:17 what people want to know before they
22:19 invest in your company be it in debt or
22:21 Equity the factor approach uses three
22:23 weighted factors to determine value
22:25 earnings dividend paying capacity and
22:28 Book value the approach given the lowest
22:31 value is liquidation values so how fast
22:33 you can move
22:37 into Cash Holdings so
22:39 um that's less important right up front
22:41 what's more important is your leverage
22:43 and if you're going to be able to
22:45 generate enough profit to stay cash solvent
22:46 solvent
22:48 General evaluation method this approach
22:49 determines how much of a company a
22:51 venture capitalist will want for a given
22:53 investment this approach considers the
22:56 time value of money to determine the
22:59 Investor's share so the percentage of
23:02 the Venture capital's ownership
23:04 so how much of the company they're going
23:08 to own is determined by their investment um
23:08 um
23:12 uh divided by or multiplied by the
23:16 number of VCS so and then year five
23:18 profits ton of price earnings multiple
23:21 so the the reading goes into much more
23:23 detail here and I don't want to get
23:25 bogged down here because I really want
23:26 to see these
23:28 these
23:36 business plan but if you are a VC one
23:37 thing you want to consider is the time
23:40 value of money to determine your your
23:41 share so
23:43 when you're here on Shark Tank hey for a
23:45 51 stake which is a controlling stake in
23:48 the company uh we're asking you for 500
23:50 000 you need to figure out if that 500
23:53 000 today is going to be more money or
23:54 less money in the future if it's less
23:55 money in the future you don't do it if
23:57 it's more money in the future depending
23:59 on the percentage return the return on
24:00 investment which we talked about previously
24:02 previously
24:04 you make the deal
24:08 okay it all starts here read more about
24:10 this this is really more important from
24:13 the venture capitalist perspective than
24:15 it is necessarily from where you guys in
24:16 this course is coming from in terms of
24:20 uh being a an entrepreneur but uh
24:22 definitely read more about this
24:23 um because what you're gonna be asking
24:25 them you're going to be off you're gonna
24:27 be wondering how you know what
24:28 percentage you're going to offer them
24:31 and at what value the general evaluation
24:33 method again this slide doesn't do it
24:35 enough Justice make sure you're reading
24:36 that particular part of the chapter I'll
24:38 try to look up and see what page it is
24:40 and put it in the um in the notes there
24:43 evaluation of an internet company the
24:44 valuation process of our early stage
24:46 internet company
24:47 is different from the traditional
24:49 evaluation process this is something
24:50 that's more modern day the qualitative
24:52 portion of the due diligence carries
24:54 more weight than other evaluations
24:56 qualitative remember or non-number
24:59 there's just a qualitative aspect of hey
25:01 well this is just another internet
25:03 company will it work what is the value
25:05 proposition is it innovating is it
25:07 creating a solution for somebody's
25:09 problem that people are willing to spend
25:10 money on after analyzing the market size
25:12 and potential revenues of a company the
25:14 investor examines the management team
25:17 through a technology firm though a
25:19 technology firm may sell for tens of
25:22 million dollars it is uncommon generally
25:24 speaking they are on average required
25:26 for much less the internet people have a
25:28 bit of uh success bias here they only
25:30 hear about the crazy success stories
25:32 they want to hear about the thousands if
25:36 not millions of moderate successes to
25:38 complete failures the internet and Tech
25:40 firms are changing how companies are
25:42 funded valuing a company based on Talent
25:45 may be growing Trend and one of the that
25:47 remains within the tech industry so who
25:49 you have matters
25:51 but if you don't explain do a good job
25:53 in your business plan explaining who you
25:56 have and why I should invest in you
25:58 because of who you have
26:01 you don't get past that first stage we
26:03 talked about the previous chapter deal
26:05 structure another concern is deal
26:07 structure the terms of the transaction
26:08 between entrepreneur and the funding
26:10 source the needs of the funding source
26:12 include required rate of return
26:14 timing and reform of return the amount
26:16 of control desired in the perception of
26:18 the risk involved can you convince them
26:21 it's worth the risk entrepreneurs need
26:22 to include degree and mechanism of
26:24 control like how will the company work
26:26 the amount of financing needed why is it
26:28 that amount do you have a solid budget
26:31 that explains that well hint for your
26:32 business plan
26:35 uh in the objectives of the firms
26:36 um I will add in here I'll give some
26:37 bonus points from people who address
26:39 human flourishing from a Christian
26:41 perspective in the entrepreneurial and
26:43 and endeavors
26:46 how will your business Advance the
26:48 kingdom of God and lead to him and
26:50 flourishing through creating value and
26:53 Innovation very lightning quick too
26:55 quick overview of chapter 12 and formal
26:57 risk Capital venture capital and going public
26:59 public
27:02 look for the notes I'll try to add the
27:04 specific section on the venture
27:06 capitalist percentage as always
27:07 available to your office hours otherwise
