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College aantekeningen Entrepreneurial Finance () Entrepreneurial Finance
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Entrepreneurial FinanceChapter 1: Introduction to entrepreneurial finance
Definitions of entrepreneurship
An ‘adventurer’, who invests in the purchase of goods and materials, combines them to obtain new products with the
incentive of selling these in the future at uncertain prices. They take risks and identifies and realizes fruitful business
opportunities.
Definitions of finance
Finance is the management of resources, including money, that entrepreneurs need for their endeavors, and it involves
obtaining and investing money while understanding the costs and best use of it, with a focus on entrepreneurial finance
and corporate finance, which consist of investing and financing.
Entrepreneurial finance is the art and science of investing and financing entrepreneurial ventures.
Entrepreneurial finance Corporate finance
Focuses on the first challenge of new ventures Focuses on existing ventures
Challenges before there is value Assumes there is already value
No previous history Previous financial info available
Losses are expected and investments are negative Assumes all projects have a positive NPV
Choose fun, passion and uncertainty Choose lowest risk/highest return
Entrepreneurial finance vs. corporate finance
Topic Entrepreneurial finance Corporate finance
Funding sources Friends and family Banks
Crowdfunding Capital markets
Incubators/accelerators
Business angels
Venture capital
Private equity
Funding process Deal sourcing and screening Standard due diligence
Identificeren en beoordelen van potentiële grondig onderzoek naar een bedrijf
investeringsmogelijkheden voor de onderneming. voordat een investering of
Financial plan overname wordt overwogen
Opstellen van een gedetailleerd plan voor de Financial plan
financiële toekomst plan voor de financiële toekomst
Valuation van het bedrijf
bepalen van de waarde van de onderneming Collateral to back loan
Term sheet bieden van onderpand om een
voorwaarden en details van de lening te verkrijgen
financieringsovereenkomst
Growth Monitoring & key metrics Capital budgeting
Corporate governance Mergers & acquisitions
Protecting knowledge Private equity
Private equity Initial public offering (IPO)
Harvesting Existing (selling) initial public offering (IPO) Dividends
Four stages of venture development
1. Seed: From the idea to first customer. Prototyping and testing. Takes about months to years.
Key funders: entrepreneur, family and friends, incubator, accelerator, crowdfunding, business angel,
government programme, corporate strategic partnership.
2. Start-up: from sales to break-even. Improves the product and service. Growing the customer base.
Key funders: accelerator, crowdfunding, business angel, government programme, corporate strategic
partnership, venture capital, corporate venture capital, venture debt.
3. Growth expansion: launching new lines or new markets. Growth drives the business.
Key funders: corporate strategic partnership, venture capital, corporate venture capital, venture debt, asset-
based loan, trade credit, commercial bank loan, private equity, mezzanine capital, high yield bonds.
4. Maturity: company’s growth slow down. Not many new initiatives for high growth. Markets and competition have
reached maturity. Risk of new disruptive players.
Key funders: commercial bank loan, private equity, mezzanine capital, high yield bonds, public debt, IPO.
, Chapter 2: incubators, accelerators, and crowdfunding
In the early stages of their businesses have access to various financing options. These options provide several advantages:
1. Learning curve of entrepreneurs: Allows entrepreneurs to acquire the necessary resources to implement their
business ideas. It also enables them to gain valuable experience and learn from their mistakes, which are crucial for
their personal growth and the development of their businesses.
2. Reduction of transaction costs for investors: Streamline the process of identifying and screening start-ups, leading to a
reduction in transaction costs for investors.
3. Growth of industries involved in early sources of funding: Industries associated with early funding sources can
experience growth due to the increasing demand from entrepreneurs seeking funding and investors looking for
investment opportunities. This growth can stimulate innovation, create new jobs, and contribute to the overall
development of those industries.
4. Spillover effects to regional economies: They have the potential to grow and contribute to the economic development
of their local communities and regions. This growth can result in the creation of jobs, increased economic activity, and
the development of a vibrant business environment and innovative culture in the region.
By supporting start-ups in the early stages, they can grow and contribute to the economic development of their local
communities and regions. This can lead to more jobs and economic growth and can also contribute to the development of
a business environment and innovative culture in the region.
Early funding sources
- Bootstrapping
Bootstrapping is obtaining capital from one’s own savings, personal loans, and relatives.
- Incubator (seed stage)
Guides entrepreneurs through the very early stages. Provides shared operation space, networking opportunities,
mentoring, inspiration, and access to shared equipment.
o Benefit: learning about entrepreneurship in a confined environment.
o Benefit: have an impact on local ecosystems and have become an important KPI for universities and corporates.
o Concern: incubator needs to be more than just a meeting point.
o Concern: quality of an incubator is hugely dependent on the people involved.
- Accelerator (seed and startup stage)
Provides support services and funding opportunities. Intense programs including mentorship, office space and access
to (risk) capital.
o Concern: quality of an accelerator is hugely dependent on the people involved.
o Concern: participation and coping with the process are essential to the success of accelerators for
entrepreneurs.
o Concern: often take (non-distributable) equity stakes.
o Benefit: screening of applicants is important for the success of an accelerator.
o Benefit: accelerators accelerate entrepreneurs' learning curve.
o Benefit: create legitimacy for businesses.
o Benefit: open networks.
- Later stage accelerator
Like accelerators, however focused on boosting growth of established companies. Very competitive to get access as
an entrepreneur. Often have an industry focus or focused on specific themes. Focus on identifying growth limiting
factors and address them.
- Crowdfunding
Connects those who can give, lend, or invest money to those who need money for a specific project.
o Benefit: lowers transaction costs in finding investors
o Benefit: expands the reach and potential set of investors
o Benefit: doubles as a marketing tool
o Concern: reputational risk for the entrepreneur, visibility is harmful when goal is not met
o Concern: risk of being copied
o Concern: With lending-based crowdfunding, the entrepreneur is liable for repaying
Differences between incubators and accelerators
Incubator Accelerator
Specialization Horizontal (diverse) Vertical / theme’s (specific)
Target Individuals Teams
Entrance Restricted Open
Support Organic growth Boost growth
Programme None Generic
Duration Months-years-no limit 3-6 months
Financial contribution None-small amount Larger amount (€10.000 – up)
,Compensation None – small fee (e.g. rent) Equity stake (5-10%)
, Chapter 5: Public sources of funding
Value of public support and programmes
Public support and programmes for entrepreneurs have the potential to provide valuable benefits such as network
opportunities, financial support, and information sources, however, finding the right balance between public and private
support is crucial to avoid counterproductive effects. Overreliance on public support can lead to dependence on subsidies
and reduce entrepreneurial incentives to build profitable and sustainable businesses. Therefore, it is important that public
support and programmes are carefully designed and implemented, paying attention to market mechanisms, and promoting
long-term entrepreneurship.
Three pillars of public support and programmes are key components that are often combined to support the development
of a strong startup ecosystem. Programmes often combine three pillars:
- Encourage bottom-up movement with a strong brand. This pillar involves promoting entrepreneurship and innovation
from the ground up. It aims to encourage individuals and groups to start new ventures and provides support to help
them grow and succeed. This could involve creating events, workshops, and training programs to help aspiring
entrepreneurs learn the skills they need to succeed. It can also involve creating a strong brand identity for the startup
ecosystem to help promote it locally and globally.
- Actions to strengthen the connectedness and quality of the ecosystem. This pillar focuses on building a strong startup
ecosystem that fosters collaboration and connectedness among its various actors. This could involve creating
coworking spaces, incubators, and accelerators to bring entrepreneurs together and provide them with the resources
they need to succeed. It could also involve creating networks of investors, mentors and other stakeholders who can
help startups grow and scale.
- Direct and indirect funding activities. This pillar involves providing funding and financial support to startups and
entrepreneurs. This could involve providing grants, loans or other forms of financial support to help startups get off
the ground. It could also involve creating tax incentive or other policies that encourage investment in startups and
entrepreneurship. Indirect funding activities could include promoting venture capital investments and creating a
favorable regulatory environment that supports innovation and entrepreneurship.
Public funding alternatives for start-ups.
Public funding can be a great way for start-ups to get the financial support they need to grow their business.
- Grants (non-refundable vs. convertible grants)
- Loans (low interest, long maturity and initial grace periods before repayments)
- Guarantees (mobilize financing and lower transaction costs)
- Limited partner (in venture capital fund)
- Fund of funds
Key takeaways
- Public authorities must look to provide smart funding to entrepreneurs by partnering with key player in the ecosystem
or using new, innovative methods such as funds of funds.
- There are five main sources of public financing support. The appropriateness of the source depends on the
characteristics and stage of the venture.
- In some cases, the public financing support goes to venture capitalists and business angels who then decide which
startups have a better chance of success.
- Public – private support programmes include three main pillars: strong branding; activities to increase the
connectedness both within the ecosystem and internationally; and financial support, including taxation benefits.
- Public support initiatives vary from country to country, but they are now widespread, so searching for those that exist
in your country might prove to be a useful investment.
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