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Entrepreneurship

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Entrepreneurship ­ MGT602
VU
Lesson 36
SOURCES OF CAPITAL
PRIVATE PLACEMENT
A final source of funds is private placement with investors who may be family and friends or wealthy
individuals.
Type of Investors
1.
An investor usually takes an equity position and can influence the nature of the business to an
extent.
2.
The investors' degree of involvement is important for the entrepreneur to consider.
3.
Some investors want to be actively involved in the business, and others are more passive.
Private Offerings
1.
Public offerings involve much time and expense.
2.
Registering the securities with the Securities and Exchange Commission (SEC) requires a
number of reporting procedures once the firm has gone public.
3.
This public process was established to protect unsophisticated investors.
A private offering is faster and less costly than other funding.
4.
5.
These sophisticated investors still need access to material information about the company.
Regulation D
Regulation D contains:
1.
a.
A number of broad provisions designed to simplify private offerings.
b.
General definitions of what constitutes a private offering.
c.
Specific operating rules-Rule 504, Rule 505, and Rule 506.
2.
The entrepreneur carries the burden of proving that the exemptions granted have been met.
a.
Each offering memorandum needs to be numbered and contain instructions that
the document should not be disclosed.
b.
The date that the investor reviews the company's information should be recorded.
c.
The book documenting all specifics of the offering should be placed in the firm's
permanent file.
3.
Under Rule 504 a company can sell up to $500,000 of securities to any number of investors in
any 12-month period.
4.
Rule 505 permits the sale of $5 million of unregistered securities in the private offering in any
12-month period.
a.
These can be sold to any 35 investors, and an unlimited number of accredited
investors.
b.
"Accredited investors" include:
(I)
Institutional investors
(ii)
Investors who purchase over $150,000 of the issuer's securities.
(iii)  Investors whose net worth is $1 million.
(iv)  Investors with incomes in excess of $200,000 in the last two years.
(v)
Directors, officers, and general partners of the issuing company.
c.
Rule 505 permits no general advertising.
d.
Two-year financial statements must be available.
e.
All companies selling private-placement securities must furnish appropriate
company information to both accredited and unaccredited investors and allow any
questions to be asked prior to the sale.
5.
Rule 506 allows an issuing company to sell an unlimited amount of securities to 35 investors
and an unlimited number of accredited investors.
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Entrepreneurship ­ MGT602
VU
In securing outside funding, the entrepreneur must disclose all information as accurately as possible.
1.
If the business turns sour, both investors and regulators scrutinize the company's disclosures.
2.
When a violation of security law is discovered, management can be held liable.
3.
Lawsuits under securities law by damaged investors have almost no statute of limitations.
4.
The entrepreneur needs to be careful to make sure all disclosures are accurate.
5.
The SEC can also take administrative, civil, or criminal action, without any individual lawsuit
involved.
BOOTSTRAP FINANCING
Bootstrap financing is particularly important at start-up and early years of the venture when capital is more
expensive.
Outside capital has many costs:
1.
It takes time to raise outside capital when the company can least afford the time.
2.
Outside capital often decreases a firm's drive to make money.
3.
The availability of capital increases the impulse to spend.
4.
Outside capital can decrease the company's flexibility and hamper the creativity of the
entrepreneur.
5.
Outside capital may cause more disruption and problems in the venture than without it.
In spite of these potential problems, an entrepreneur at times needs equity funding.
1.
Outside capital should only be sought after all possible internal sources of funds have been
explored.
2.
When outside funds are obtained, the entrepreneur should not forget the basics of the
business.
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Table of Contents:
  1. THE NATURE AND IMPORTANCE OF ENTREPRENEURSHIP:DEFINITION OF ENTREPRENEUR
  2. THE NATURE AND IMPORTANCE OF ENTREPRENEURSHIP:Possibility of New Venture Formation
  3. ENTREPRENEURIAL PROCESS/START UPS:GOVERNMENT AS AN INNOVATOR
  4. THE ENTREPRENEURIAL AND ENTREPRENEURIAL MIND:ENTREPRENEURIAL PROCESS
  5. THE ENTREPRENEURIAL AND ENTREPRENEURIAL MIND (continued…)
  6. THE ENTREPRENEURIAL AND ENTREPRENEURIAL MIND (continued…):CLIMATE FOR ENTREPRENEURSHIP
  7. THE ENTREPRENEURIAL AND ENTREPRENEURIAL MIND (continued…):PROBLEMS AND SUCCESSFUL EFFORTS
  8. THE INDIVIDUAL ENTREPRENEUR:ENTREPRENEURIAL BACKGROUND AND CHARACTERISTICS
  9. THE INDIVIDUAL ENTREPRENEUR (continued…):Personal Values, Work History, MOTIVATION
  10. THE INDIVIDUAL ENTREPRENEUR (continued…):ROLE MODELS AND SUPPORT SYSTEMS
  11. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES:INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES, Minority interests
  12. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued…):DIRECT FOREIGN INVESTMENT
  13. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued…):BARRIERS TO INTERNATIONAL TRADE
  14. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued…):ENTREPRENEURIAL PARTNERING
  15. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued…):SOURCES OF NEW IDEAS
  16. CREATIVITY AND THE BUSINESS IDEA:METHODS OF GENERATING NEW IDEAS, CREATIVE PROBLEM SOLVING
  17. CREATIVITY AND THE BUSINESS IDEA:PRODUCT PLANNING AND DEVELOPMENT PROCESS
  18. LEGAL ISSUES FOR THE ENTREPRENEUR:NEED FOR A LAWYER, PATENTS
  19. LEGAL ISSUES FOR THE ENTREPRENEUR:TRADEMARKS, LICENSING
  20. LEGAL ISSUES FOR THE ENTREPRENEURS:PRODUCT SAFETY AND LIABILITY, INSURANCE
  21. CREATING AND STARTING THE VENTURE:WHAT IS THE BUSINESS PLAN, PRESENTING THE PLAN
  22. CREATING AND STARTING THE VENTURE (Continued….):WRITING THE BUSINESS PLAN
  23. CREATING AND STARTING THE VENTURE (Continued….):
  24. CREATING AND STARTING THE VENTURE (Continued….):WHY SOME BUSINESS PLANS FAIL, MARKETING PLAN
  25. THE MARKETING PLAN:MARKET RESEARCH FOR THE NEW VENTURE
  26. THE MARKETING MIX:STEPS IN PREPARING THE MARKETING PLAN
  27. THE ORGANIZATIONAL PLAN:DEVELOPING THE MANAGEMENT TEAM, LEGAL FORMS OF BUSINESS
  28. THE ORGANIZATIONAL PLAN (Continued….)
  29. THE ORGANIZATIONAL PLAN (Continued….):THE LIMITED LIABILITY COMPANY
  30. THE FINANCIAL PLAN:OPERATING AND CAPITAL BUDGETS
  31. THE FINANCIAL PLAN (Continued….):PRO FORMA INCOME STATEMENTS, PRO FORMA CASH FLOW
  32. PRO FORMA SOURCES AND USES OF FUNDS:PERSONAL FUNDS, FAMILY AND FRIENDS
  33. PRO FORMA SOURCES AND USES OF FUNDS:COMMERCIAL BANKS
  34. BANK LENDING DECISIONS:SMALL BUSINESS ADMINISTRATION LOANS
  35. SOURCES OF CAPITAL:GOVERNMENT GRANTS
  36. SOURCES OF CAPITAL:PRIVATE PLACEMENT, BOOTSTRAP FINANCING
  37. CAPITAL SOURCES IN PAKISTAN:PROVINCIAL LEVEL INSTITUTIONS, FINANCIAL INSTITUTIONS
  38. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  39. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  40. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  41. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  42. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  43. NEW VENTURE EXPANSION STRATEGIES AND ISSUES:JOINT VENTURES, ACQUISITIONS
  44. NEW VENTURE EXPANSION STRATEGIES AND ISSUES (Continued….):DETERMINING THE PRICE FOR AN ACQUISITION
  45. ENTREPRENEURSHIP & PAKISTAN:GENDER DEVELOPMENT STATUS WOMAN AS AN ENTREPRENEUR IN PAKISTAN