TOPIC 8: The Search for Entrepreneurial Capital
Micro-management Angels
DEBT FINANCING
- Secured financing of a new venture that involves a
payback of the funds plus a fee (interest).
- Includes bank loans, loans from other individuals,
government-backed loans, lines of credit; credit
cards, mortgages, and equipment loans.
EQUITY FINANCING
- When company sell shares to investors to raise
capital.
- Involves the sale (exchange) of some of the
ownership interest in the venture in return for an
unsecured investment in the firm.
- The money received from investors doesn’t have to
be repaid. If the company fails, the funds raised
aren’t returned to shareholders.
INFORMAL INVESTORS / 4Fs
- friends, family, founders and other ‘foolhardy
investors.
- Someone who is foolhardy throws caution to the
wind and takes reckless chances.
- A foolhardy mistake is typically the result of this
kind of impulsive behavior.
ANGEL FINANCING
- Business angels or informal risk capitalists. They
provide financial backing for small businesses in
exchange for equity in the company.
- A more objective approach to determining whether to
invest.
 Hands-on investors – providing advice or direct
management input.
 Passive approach - backing others’ judgements.
- Ex. of Business Angels- high net worth individuals,
foundations, research centers, nonprofit societies,
corporations acting as donors, etc.
- They usually invest in a startup, early stage, or
developing firm.
TYPES OF ANGEL INVESTORS:
Corporate Angels
 senior managers who have been laid off with
generous severances or have taken early retirement.
 They seek a new senior management job in the
investment, want to be involved in one investment at
a time.
Entrepreneurial Angels
 most prevalent type of investors
 most of these individuals own and operate highly
successful businesses, now looking for ways to
diversify their portfolio or expand current business,
rather than looking for a new job.
 Takes bigger risk and invest more capital.
Enthusiast Angels
 aged 65 or older.
 independently wealthy
 Tend to invest smaller amounts across a number of
companie, but they do not actively participate in their
investments.
 “Investing is a hobby”.
 born wealthy but attained majority of wealth trough
own efforts.
 impose the tactics that worked for them on their
portfolio companies
 they may invest in as many as four companies at a
time, adding value as well as money to each.
 do not seek an active management role but demand a
seat on the board of directors.
Professional Angels
 invests in companies that offer a product or service
with which they have some experience.
 Not too actively involved.
 Invest/ Co-invest in several companies at one time.
SEED FINANCING
- Provides the initial funds for a business concept to be
developed.
- Also known as seed capital, seed money, or seed
funding) is the earliest stage of the capital-raising
process of a startup.
- Seed Financing is a typed of equity-based financing.
Investors commit their capital in exchange for an
equity interest in a company.
- Involve additional research, product development and
initial marketing to reach out to early-adopter
customers.
VENTURE CAPITAL
- Form of private equity and a type of financing that
investors provide to startup companies and small
businesses that are believed.
- Venture capital generally comes from well-off
investors, investment banks, and any other financial
institutions.
- Venture capitalists are a valuable and powerful
source of equity funding for some (a small minority
of) new ventures.
- Provide a full range of financial services for new or
growing ventures.
o Capital for start-ups and expansion.
o Market research and strategy
o Management-consulting functions
o Contacts with prospect customers, suppliers,
etc.
o Assistance on negotiating technical
agreements.
o Management and accounting controls
o Employee recruitment
o Risk management
COMMERCIAL BANKS- 1-5 year immediate-term loans
secured by collateral (receivables, inventories, or other
assets).
 Micro-credit- give very small loans (micro-loans) to
aspiring entrepreneurs who lack collateral to offer as
security to a bank.
 Micro-finance- full range of banking needs for poor
people.
FOUR TYPES OF MICRO FINANCE PROVIDERS:
1. Informal financial service providers: moneylenders,
pawnbrokers, savings collectors and money-guard
services.
 - EX. Moneylenders are those individuals who provide
financial aid in terms of loans to small farmers and
other groups whom it is difficult for financial
institutions to reach.
2. Member-owned organizations: self-help groups,
credit unions and a variety of hybrid organizations
such as financial service associations.
3. Non-governmental organization (NGOs): solidarity
lending, village banking and mobile banking.
4. Formal financial institutions: commercial banks, state
banks, agricultural development banks, savings
banks, rural banks and non-bank financial
institutions.
NBFI- facilitate bank-related financial services, such as
investment, risk pooling, contractual savings, and market
brokering.
- Ex. insurance firms, pawn shops, cashier's check
issuers, check cashing locations, payday lending,
currency exchanges, and microloan organizations.
PRIVATE PLACEMENTS- usually from private investors in
the form of shares or sometimes bonds. Suitable when you
need an injection of capital to jump to the next level of
growth and you have a proven track record of profitability.
- Bonds (interest) is loan from an investor to a
borrower such as a company or government. The
borrower uses the money to fund its operations, and
the investor receives interest on the investment.
Bondholders have seniority and extra protection
from bankruptcy risk.
- Shares (dividends) the founder does not need to pay
back the initial amount raised from investors, which
is in contrast to bonds.
INITIAL PUBLIC OFFERINGS (IPO)
- used to represent the registered public offering of a
company’s securities for the first time.
 Going public- a corporation raising capital through
the sale of securities on the public markets.
 ADVANTAGES:
o Size of Capital amount
o Liquidity
o Value
o Image
 DISADVANTAGES:
o Costs
o Disclosure
o Requirements
o Shareholder Pressure
TOPIC 9: The Assessment Function with Opportunities
How to Assess an Opportunity?
1. CHOOSING SUITABLE, EXPLOITABLE
MARKETS
- Mainstream markets are difficult for entrepreneurs to
break into.
2. CHOOSING NICHE MARKETS THAT CATER
FOR SPECIALIST NEEDS
- The Body Shop started up by appealing to
environmentally aware cosmetics customers.
3. OPENING NEW MARKETS
- smartest entrepreneurs see emerging trends early and
maneuvers themselves into the cash flow.
4. STEERING CLEAR OF OVERCROWDED
MARKETPLACE
- Become a big fish in a small pond. (A situation in
which one person has more power, influence,
knowledge, or experience than others within
a small group.)
5. THE REVERSE IS ALSO TRUE
- Small fish in a really big pond have the opportunity
to capture market share.
6. OFFERING A UNIQUE PRODUCT OR SERVICE
- may discover some technical breakthrough protected
by a patent.
Critical Factors in Opportunity Assessment
UNIQUENESS
 range of uniqueness (quality of being one of a kind or
unlike the others) or novelty (quality of being new or
original) can be considerable, extending from fairly
routine to highly non-routine.
 Venture uniqueness - characterized by the length of
time a non-routine venture will remain nonroutine.
INVESTMENT
some industries relatively small sums may be
required, whereas in other industries millions of
dollars are necessary.
GROWTH OF SALES
A lifestyle venture appears to have independence,
autonomy and control as its primary driving forces.
 A high-growth venture, significant sales and profit
growth are expected to the extent that it may be
possible to attract venture capital money and funds
raised through public or private placements.
PRODUCT AVAILABILITY
Availability of a saleable good or service, at the time
the venture opens its doors.
 Some have problems in this regard because the
product or service is still in development and needs
further modification or testing.
CUSTOMER AVAILABILITY
 Venture risk is affected by customer availability at
start-up.
 At one end of the risk spectrum, customers pay
upfront for products or services. At the opposite end,
businesses begin without knowing their customers or
when they will identify them.
 A key factor is the time it takes to understand the
customers, their buying behavior, and their potential
spending.
TOPIC 10: THE MARKETING ASPECTS OF NEW
VENTURES
ENTREPRENEURIAL MARKETING
- The proactive identification and exploitation of
opportunities for acquiring and retaining profitable
customers through innovative approaches to risk
management, resource leveraging and value
creation(how to attain profitable customers).
- Entrepreneurs must be prepared to explore markets
through co-creation strategies and partnership
strategies with potential customers, suppliers and/or
investors making judgements through affordable loss
rather than expected return.
o Market- is a group of individuals or
companies (potential customers) who have
purchasing power and unsatisfied needs.
o Co-creation (co-design)- business strategy in
which a company involves customers in the
product development and decision-making
process, allowing them to offer ideas and
input, give feedback, or choose from a range
of potential options.
o Lego's “Idea” platform is a famous example
of co-creation. Ideas call for customers to
post their own design ideas for new playsets.
MARKETING MIX
- Controllable elements or variables that a company
uses to influence and meet the needs of its target
customers in the most effective and efficient way
possible.
 o 4Ps (Product, Price, Place, Promotion)- used
to match the needs of your target.

3 KEY ELEMENTS OF EFFECTIVE MARKETING

- Customer Centric (focused on customer)
- The customer is the heart of any marketing strategy. 1. Marketing Philosophy
If the customer doesn't buy your product or service, 2. Consumer Behavior
you're unlikely to turn a profit. 3. Market Segmentation
o 4Cs: determine whether a company is likely
to succeed or fail in the long run.
MARKETING PHILOSOPHY

1. Product Driven Philosophy- Based on the

‘build it and they will come’ belief that you
should produce good products efficiently
and worry about sales later.
2. Sales Driven Philosophy- Focuses on
personal selling and advertising to persuade
customers to buy the company’s output,
regardless of the product’s quality.
3. Consumer Driven Philosophy- Relies on
research to discover consumer preferences,
PROMOTION MIX (4 Categories) desires and needs before production actually
begins.
o Advertising- to increase awareness.
o Sales promotion- to boost sales. EX.
coupons, voucher, B1T1. MARKET SEGMENTATION
o Public Relations- to create a good image of
o the process of identifying a specific set of
the company. EX. sponsorships.
characteristics (subgroups) that
o Digital Selling (e-commerce)- Increase
differentiate one group of consumers from
reach at lower cost. the rest.
o The total market is often made up of
NEW MARKETING MIX
submarkets (called segments).
o 7Ps o The differences in social class, income,
1. Product occupation, education, housing, family
2. Price influence and time orientation are all
3. Place personal characteristics.
4. Promotion
5. People CONSUMER BEHAVIOR
6. Process
7. Physical Evidence o Study of how people make purchase
decisions to satisfy their needs, wants, or
4Ps vs. 4Cs desires and how their emotional, mental, and
behavioral responses influence the buying
decision.
o Involves how your customers behave before,
during and after consuming the product.
o Psychological Characteristics- perceptions,
buying patterns, self-concept, aspiration
groups and reference groups.

MARKETING PLAN
 - process of determining a clear,
comprehensive approach to the creation
of customers.
- may be part of an overall business plan.
- Solid marketing strategy is the foundation of
a well-written marketing plan so that goals
may be achieved.
ELEMENTS OF MARKETING PLAN
FACTORS AFFECTING PRICE DECISION:
 Cost
 The degree of competitive pressure
 Availability of sufficient supply
 Seasonal or cyclical changes in demand
 Distribution costs
 Prevailing economic conditions
 Customer services provided by the seller.
 Amount of promotion done and the market’s
buying power
 The product’s life cycle stage, changes in
production costs

Product Life Cycle- sustainability (old companies

addresses their issues very well)

Contingency plan- back up plan

Traditional approaches- are more expensive than the

digital ones.

DIGITAL MARKETING

- The component of marketing that uses the

Internet and online-based digital
- technologies such as desktop computers,
mobile phones and other digital media and
platforms to promote products and services.
– Wikipedia
- Allows a start-up to go beyond market
segmentation.
- It allows low-cost ways to segment
customers according to actual online
behavior and according to their relationship
intensity.
Skimming- setting a high price then eventually lowering
it. They take advantage when the product is still new and
MOBILE MARKETING
in-demand.
- a group of mobile marketing applications Penetration- Low price then suddenly increasing it. To
that allow the creation and exchange of user- attract customer.
generated content.
- a fast-paced and high-impact marketing tool Consumer Pricing- value-based (how much are you
that many companies have started to use willing to pay)
very successfully as part of their overall
Demand-oriented- adjusts depends on the demand.
marketing strategy.
Loss-Leader Pricing- some of the products that is being
SOCIAL MEDIA MARKETING sell doesn’t have interest. EX. Cigarettes, alcohol, load,
ice, and soft drinks.
- the use of social networks, online
communities, blogs, wikis, and other
collaborative media for marketing purposes.

o Viral Marketing – viral replication of

a message through user-to-user
contact is what makes social media
marketing work.
 price acceptable to customers. (EX.
Clothing industry)

 Total customization- includes user

participation in designing or co-creating a
product or service. It doesn't rely on
standardized components; instead,
customers actively engage in the design of
the specific parts they require.

Prestige Pricing- love pricing signifies low quality

products.
Differential Pricing- discriminatory
Geographic Pricing- it charges shipping fee because of
the distance.
Psychological Pricing- also called add pricing ($ 99.99)
Cost Plus Pricing- commonly used type of pricing.
Price lining- the price of the same products differs. (ex.
hotel rooms)
Dynamic Pricing- price differs cause of factors.

PRICING OUTLINE

Customization on Pricing Strategies

Customization is done by the user. Users are asked to
identify their preferences and they are then shown things
that they prefer.
For example, when customers sign up for Netflix, the
service asks users to select a few shows they like and
then displays a list of options based on those choices.
Then, Netflix customizes the user’s account based on the
identified preferences.

 Mass customization- A manufacturing

approach where customization occurs during
assembly, enabling the production of
component and basic modules in large
quantities to keep costs low. This allows
businesses to offer customized products at a