ENTREPRENEURIAL MANAGEMENT

Crowdfunding

To dos

 No class next week. Have a great Thanksgiving!

 Final presentation slides due 12/01  Refer to the sample slides format and prototypes on

Canvas

 I will release the individual final report (take-home) in the last class • Answer questions based on a given case • Only use concepts learned in this class

Airbnb

1. Who are the cofounders of Airbnb? Describe their background and personality. Are there complementary skills in the founding team?

2. What was the inspiration of creating the company?

3. What challenges the cofounders faced, and how did they solve them?

4. How did the interactions with the hosts help them generate insights to improve their business model? What have they learnt?

5. What have you learned from their experience as entrepreneurs?

3

Sources of Funding

 Bank

 Venture capital

 Angel investor

 Crowdfunding

How does startup funding, such as Series A, B, C, etc., work?

 Startups typically fund themselves by raising money from outside investors, and each time they do, it's called a funding "round." Each round represents another stage in the startup's life.

 Pre-seed funding round: Think of this as the Steve Jobs's garage stage. Your startup doesn't have a concrete product, but you have a good concept. Your funders aren't professional investors, just friends or family who want to see you succeed.

 Seed: You’ve shown there’s a market for your product, which attracts interest from "angel investors," individuals who fund early-stage companies.

 Series A: Launch time. You've achieved proof of concept, and investors known as venture capitalists are analyzing data on what you achieved with past investments.

 Series B: Your business model has proven itself, but you need to expand. You might use the funds to explore new markets, grow teams, or hire a really expensive person on Cameo to make an appearance at an all-hands.

 Series C: You're an established business, but you want to eat up more market share, develop new products, or even make acquisitions.

https://www.morningbrew.com/daily

Exit/Liquidation Strategies

 Keep it private

 Initial Public Offering (IPO)

 Merger & Acquisition (M&A)

 Sell to a friendly individual

 Liquidation and close

Going Public

 A private company's initial public offering (IPO), thus becoming a publicly traded and owned entity

 The company hires an investment banker and decides on the number and price of the shares that will be issued

 Businesses usually go public to raise capital in hopes of expanding

 Venture capitalists may use IPOs as an exit strategy

Going Public - Benefits

 Raise capital

 Diversity ownership

 Sense of credibility

 Higher visibility

Going Public - Cons

 The going public process takes a lot of time

 Cost is particular high

o Investment backing fees ~ 7%

o Auditors, lawyers ~ 5%

 Requires a large amount of disclosure (for corporate control)

 Reveal additional information

 Possibility of hostile takeover

 Possibility of stock price drops suddenly

Initial Public Offering (IPO)

 There is usually waves of IPOs in the financial market

 Mostly related to investor sentiment and investment opportunities

 Investors can become irrationally optimistic about the prospects of a certain industry, thus drives up prices (supply and demand)

 Private firms may take advantage of this window to issue stock

Investment Banker

 Specialize by industry or type of firm

 Expertise in evaluating and pricing the shares

 Client base

 Cost does not differ much

Investment Banker

 Helps price the offering per share by using comparable deals and discounted cash flow

 Helps the entrepreneur draft their presentations to the public and institutional investors (E.g. investors include pension funds and life insurance companies)

 Builds a demand schedule for the offering during the “road show”

 Allocates shares at the offering because the demand > supply, usually places the share with best customers

 Do they usually overprice or underprice for IPO?