Entrepreneurship:

Successfully Launching New

Ventures, 2/e
Bruce R. Barringer
R. Duane Ireland

Chapter
10

10-1
 Case Study: S-Core IT Solutions

 A software solution provider to more than 140

clinics.
 Aiming for > 1000 clinics by the end of 2015
 Awarded with the Cradle Fund’s (an agency under
Ministry of Finance, Malaysia), the CIP500 Grant in
September 2010
 Awarded MSC Status – August 2011
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 Founded by Zaidi and Shahrulnizam – home-based since
2004
 Specialises in Clinic and Hospital Management System

10-3
 1. The Importance of Getting
Funding

Few people know - deal with the process of raising

investment capital for their start-up.
Many go about task of raising capital haphazardly
(unsystematically):
Lack experience and don’t know much about their
choices.

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2. Why Most New Ventures Need Funding

Three Reasons

10-5
3. Alternatives for Raising Money - PEDO

Personal Funds Equity Capital

Other Creative
Debt Financing
Sources

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 a. Personal Financing

Vast majority of founders contribute

personal funds - along with sweat equity
Sweat equity - value of time and effort

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Friends and Family
• 2nd source of funds:
• ‘friendly’ loans or investments
• outright gifts
• delayed compensation
• reduced or free rent

E.g. Founder of Gateway computer got his start

with a USD10,000 loan from his grandmother.

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Bootstrapping
• Finding ways to avoid the need for external
financing or funding through creativity,
innovation, economical, cost-cutting, or any
means necessary.
• Difficult for new companies to get financing
or funding early on - bootstrap out of
necessity.

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Examples of Bootstrapping Methods
Buying used instead of Leasing equipment
new equipment instead of buying

*Applying for and *Obtaining payments in

obtaining grants advance from customers

Minimizing personal Coordinating purchases

expenses with other businesses

Sharing office space Avoiding unnecessary

with other businesses expenses

10-10
Matching a New Venture’s Characteristics with the
Appropriate Form of Financing or Funding

10-11
10-12
10-13
 ‘Preparing an Elevator Speech’

• A brief, carefully constructed statement - outlines

merits of a business opportunity

• Why is it called an elevator speech?

• If an entrepreneur stepped into an elevator on
25th floor of a building - found that by a stroke of
luck a potential investor was in the same elevator
- would have the time it takes to get from the
25th floor to the ground floor to try to get the
investor interested in his or her opportunity.

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This quick pitch has taken on the name
“elevator speech.”
Most elevator speeches - 45 seconds to
two minutes long.

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Guidelines for Preparing an Elevator Speech

10-16
 b. Equity Funding

Business Venture
Angels Capital

Initial Public
Offerings
(IPO)

10-17
 Business Angels
• Individuals - invest their personal capital directly in
start-ups.
• Typical business angel
• about 50 years old

• has high income and wealth

• well educated

• has succeeded as an entrepreneur

• interested in the start-up process.

• Number of angel investors - has increased

dramatically over the past decade.
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• Valuable - willingness to make relatively small
investments.
• Needs just RM 50,000 rather than the RM 1 million
minimum investment - most venture capitalists require.
• Difficult to find
• Most angels remain fairly anonymous - matched up with
entrepreneurs through referrals.
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 Venture Capital

VC companies interested in investing in

start ups and small businesses with
exceptional growth potential.

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• limited partnerships of money managers
who raise money in “funds” to invest in
start-ups and growing companies.

• Funds or pool of money - raised from

successful companies, wealthy
individuals, pension plans, university
endowments, foreign investors, and
similar sources.
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• Venture-capital companies fund very few
entrepreneurial companies in comparison to
business angels.
• Many entrepreneurs get discouraged -
repeatedly rejected for funding, even though
they have an excellent business plan.
• Still, for the companies that qualify - a viable
alternative.

10-22
• An important part of obtaining venture-
capital funding - due diligence process.
• VCs invest money in start-ups in “stages,”
meaning - not all the money invested -
disbursed at the same time.
• Some venture capitalists also specialize in
certain “stages” of funding.

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 Cradle Investment Programme
• Pre-seed funding programme for viable ideas
• Enables innovators and innovative
entrepreneurs to make the jump from - having
an innovative technology idea to become a
successful start-up.

• Grant – up to RM150,000 for innovative

technology ideas with commercialisation
potential.
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 Track Record
• As of May 2008, about 270 technopreneurs
have benefited from the Cradle Investment
Programme (CIP).

• Received RM 50,000 per idea, a total of RM15.7

million for commercialising their ideas.

• 42% of the ideas completed have reached

commercialisation stage - the highest rate of
commercialization amongst grants in the nation.
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• Looking for ideas that fall under the areas of ICT and
high growth, including:
• Software and information services
• Internet: e-services, e-commerce and e-content
• Communication and networking mobile data
• High tech consumer and business products
• Electronic and semi-conductors
• Medical devices and advance materials
• Biotechnology and life sciences
• Environmental resources management and
renewable energy
• Technology innovation for any industry
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 Malaysia Venture Capital Berhad
(MAVCAP)
• Incorporated in 2001 by the Malaysian Government
• The nation’s largest venture capital (VC) company which
focuses on investments in the local ICT sectors
• Its mission:
• serve as an ideal training ground to groom venture
capitalists,
• empower entrepreneurs to create wealth
• generate attractive returns for its investments
• Focuses on the ICT sector and high-growth industries

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In evaluating an investment opportunity, VCs factor
prospective rate of return of business within a set time
period.
Having studied in detail - key factors related to the
potential of the investee company such as:
• composition and competency of the founders and
management team
• market opportunity and scalability
• product strength
• potential exit strategy within the funding cycle

Evaluate business proposition rigorously prior to any

investment commitment made.
10-28
 Initial Public Offering

• Sale of stock to the public - traded on one of the

major stock exchanges.
• Most entrepreneurial companies go public trade
on the KLSE - weighted heavily toward technology,
biotech, and small-company stocks.
• An important milestone for a company.
• Not able to go public until it has demonstrated -
viable and has a bright future.

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 Four reasons that motivate companies go public

Reason 1 Reason 2 Reason 3 Reason 4

raises a a liquidity event

a way to raise company’s to cash out their By going public, a
public profile, investments. company creates
equity capital
making it easier another form of
to fund ‘currency’ to grow
to attract high-
current and quality
the company.
future customers,
operations. partners, and
employees.

10-30
• Many advantages to go public - complicated
and expensive process.
• The first step in initiating a public offering
is to hire an institution - acts as an
advocate and adviser and walks a
company through the process of going
public.

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c. Debt Financing

Commercial
Banks

10-32
 Commercial Banks

• Have not been viewed as practical sources of

financing for start-up companies.

• This sentiment is not a knock against banks - they

are risk adverse and financing start-ups is a risky
business.

• BETTER NOT for a new venture –

BANCRUPT!!!
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• Interested in companies - strong cash
flow, low leverage, audited financials,
good management and a healthy balance
sheet.

• Although many new ventures have good

management, only few have these strong
characteristics (financial track record).
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 SME Bank

Designed to function - one-stop financing and

business development centre, SME Bank is dedicated
to accelerate growth of SMEs.

Principal activities - to provide financing as well as

business advisory services to Malaysian SMEs

10-35
 d. Creative Sources of
Financing or Funding

Leasing Strategic
Partners

Government
Grants

10-36
 Leasing

A written agreement in which the owner of

a piece of property allows an individual or
business to use the property for a
specified period of time in exchange for
payments.

10-37
• Most - a modest down payment and monthly
payments during the duration of the lease.
• At the end, new venture has the option to stop,
purchase it for fair market value, or renew.
• Leasing – more expensive than paying cash for an
item.
• An alternative to equity or debt financing.

10-38
 Government Grants

• Early-stage funding for technology companies.

(MTDC, MOSTI, MARDI)

• These programs provide cash grants to

entrepreneurs who are working on projects in
specific areas.

10-39
 Strategic Partners
• MyCreative Ventures Sdn Bhd, a government
investment arm, was launched by Prime Minister
Datuk Seri Najib Razak today to spur Malaysia's
creative industry via strategic and innovative
funding.

• The initiative was initally announced by Najib

during 2012 budget proceedings, where RM200
million was allocated for this purpose.

10-40
Revision

10-41