case 3
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MGMT370BusinessGovernmentSocietyGregoryTheyelFall2021SlidesWeek6.pptxGregory Theyel, Ph.D. Professor
MGMT 370 – Business Government Society
Week 6 – Investment and Industry Emergence
Gregory Theyel, Ph.D. Professor
Investment and Industry Emergence
Investment is necessary for i) launching firms, ii) advancing technology, iii) refining production and supply networks, and developing markets
Investment is probably the most talked about element, but money does not necessarily i) correct bad strategy, ii) fix failing technology, iii) make supply networks and production work, iv) create markets, or fix misguided government policy.
Synchronization and Investment
Enables research and discovery
Can lead to more investment
Encourages supply network and production development
Government $$ is usually patient and invested for society
Gregory Theyel, Ph.D. Professor
Sources of Venture Financing
How much, when, from whom, and what terms?
Equity Financing
Bootstrapping – usually essential, shows ‘skin in the game’
Private investors/Angels – smaller, earlier, ‘seed’ money
Government grants (e.g. SBIR)
Venture capital – money, terms, advice, networks
Public equity markets (Initial public offering)
Corporate partners/acquisition – access to markets, technology, resources
Gregory Theyel, Ph.D. Professor
Sources of Venture Financing
How much, when, from whom, and what terms?
Debt Capital – loans against assets and cash flow
Asset-Based Financing – loans against accounts receivables, inventory, equipment, real estate, government backed loans
Internally Generated Financing – retained earnings, credit from suppliers
Gregory Theyel, Ph.D. Professor
Gregory Theyel, Ph.D. Professor
Gregory Theyel, Ph.D. Professor
Venture Capital
Fund raising technique for companies who are willing to exchange equity in their company in return for money to grow or expand their business.
Professionally managed pool of capital that is raised from public and private pension funds, endowments, foundations, banks, insurance companies, corporations, and wealthy families and individuals.
Invest in companies with high growth potential which have a realistic exit scenario within 5 to 7 years.
Require a higher rate of return on investment (ROI) than lenders receive
Investments are often structured as convertible preferred stock with dividend and liquidation preferences.
Gregory Theyel, Ph.D. Professor
Gregory Theyel, Ph.D. Professor
Gregory Theyel, Ph.D. Professor
Source: Center for American Entrepreneurship, 2018
Gregory Theyel, Ph.D. Professor
Angel Investors
High net worth individual investors
Former entrepreneurs or executives
Invest their own funds
Familiar with industries or technologies
Often co-invest with friends and associates
Seek active involvement in the business
Keiretsu Forum- Lafayette, CA
12 Angels - Los Angeles, CA
Angels' Forum - Palo Alto, CA
Band of Angels - Menlo Park, CA
European American Angel Club - San Francisco, CA
Golden Gate Angels - San Francisco, CA
Imporium Angels - San Diego, CA
Life Science Angels - Menlo Park, CA
North Bay Angels - Healdsburg, CA
Pasadena Angels - Pasadena, CA
Private Capital Network - Huntington Beach, CA
Sacramento Angels - Sacramento, CA
San Joaquin Angels - Stockton, CA
Sand Hill Angels LLC - Menlo Park, CA
TechCoast Angels - LA, Orange County, San Diego, Santa Barbara, CA
Gregory Theyel, Ph.D. Professor
Team: What is the track record and mix of technical, operational, financial and sales skills of the company’s managers? What kind of expertise is missing? What additional workforce/skills will company require for further expansion?
Funds: How much capital has been invested? How much funding is required for further growth?
Product/Technology: Does the product or technology work? How reliable is it? Is the company’s intellectual property properly protected? What parts of the value chain does the company engage in?
Market/Customers: Who are the customers that would buy the company’s products, and how many are there? How much are the potential customers willing to spend for the products? Will the potential customers actually buy the products?
Distribution Channels: What distribution channels does company use to reach its target market? How mature is the targeted market and what level of channel partnership is needed?
Competition: Which products are the company’s potential customers currently using and what would it take to get them to switch? Which companies are selling similar products? What is the value to the customer of these other products? What are company’s competitive advantages?
Financials and investment Returns: How will the company make money? Are the company’s cost and revenue projections realistic? Will the company make enough money to cover the risk?
Exit Strategy: Would the company be an attractive acquisition for a large company? Would the company be able to make a public offering of its common stock? What milestones would the company have to meet to achieve either exit?
Investment Criteria
Gregory Theyel, Ph.D. Professor
Digital Healthcare Industry
Gregory Theyel, Ph.D. Professor
Gregory Theyel, Ph.D. Professor
Investment and Industry Emergence
Bootstrap funding: founder investment for starting a company; equity
Risk-reward gap: expected returns of an investment compared to the amount of risk needed to capture the return (based on industry conditions) bridged with new analysis and insight
Seed funding: external entities investing, e.g. govt, angels, VCs
Milestone gap: when companies fail to meet targets and lose $; prototype to product, mfg. capabilities; sales targets
Growth funding: revenue, public offerings, corp. investment or acquisition
