Ent Summary 1.2
Ent Summary 1.2
Ent Summary 1.2
Some Questions:
Equity investment can come from a variety of sources, each with its own characteristics and
purposes. Here are some of the primary sources:
1. Individual Investors: Retail investors who buy shares of public companies through stock
exchanges. They may also invest in startups via platforms like crowd funding sites.
2. Venture Capital (VC): Firms or individuals that invest in early-stage companies with
high growth potential in exchange for equity. VCs typically provide not just capital but
also guidance and connections.
3. Angel Investors: Wealthy individuals who provide capital to startups, usually in
exchange for convertible debt or ownership equity. They often invest in the early stages
and may offer mentorship.
4. Private Equity (PE): Investment firms that acquire private companies or public
companies intending to take them private. They usually invest in established companies
to improve their performance before exiting through a sale or IPO.
5. Institutional Investors: Organizations like pension funds, insurance companies, and
mutual funds that invest large sums of money in equities. They often seek to diversify
their portfolios and achieve long-term growth.
6. Corporate Investors: Companies that invest in startups or other businesses for strategic
purposes, such as gaining access to new technologies or markets.
7. Crowd funding Platforms: Online platforms that allow many individuals to invest small
amounts in startups or projects in exchange for equity, often used by early-stage
companies.
8. Real Estate Investment Trusts (REITs): Companies that own, operate, or finance
income-producing real estate, allowing investors to invest in real estate without having to
buy property directly.
9. Family Offices: Private wealth management advisory firms that serve high-net-worth
families, often investing in a mix of public and private equity.
Each of these sources has its own risk profile, return expectations, and involvement level in the
businesses they invest in
Angel investors and venture capital (VC) investors play distinct roles in the funding landscape
for startups, and they have several key differences:
1. Investment Stage:
o Angel Investors: Typically invest in the early stages of a startup, often during
seed or pre-seed rounds. They may support companies that are still in the idea or
prototype phase.
o VC Investors: Generally invest in more mature startups that have demonstrated
some traction and growth potential, often during Series A and later rounds.
2. Investment Size:
o Angel Investors: Usually provide smaller amounts of capital, ranging from a few
thousand to a few hundred thousand dollars.
o VC Investors: Tend to invest larger sums, often millions of dollars, as they aim to
fund substantial growth and scalability.
3. Source of Funds:
o Angel Investors: Typically use their personal wealth for investments. They are
often individuals or groups of individuals.
o VC Investors: Manage pooled funds from various institutional investors,
including pension
OTHERS INCLUDE:
Selecting the right venture capitalist (VC) is crucial for an entrepreneur, as it can significantly
impact the startup's growth and success. Here are some guidelines entrepreneurs should follow:
1. Alignment of Vision:
Ensure the VC shares your vision for the company’s growth and direction.
Discuss long-term goals and values to confirm alignment.
2. Industry Expertise:
Look for VCs with experience in your industry or sector. Their understanding can
provide valuable insights, connections, and resources that are specific to your
field.
3. Track Record:
Research the VC’s history with other startups. Evaluate their success rates, the
companies they’ve invested in, and the outcomes of those investments.
Consider the strength of the VC’s network. A well-connected VC can open doors
to potential customers, partners, and future funding sources.
6. Investment Philosophy:
Understand the VC’s investment strategy, including their typical check size,
expected growth rates, and exit strategies. Make sure these align with your
expectations.
7. Communication Style:
Evaluate the VC’s communication style and responsiveness. Clear and open
communication is crucial for a successful partnership.
8. Cultural Fit:
Consider the VC’s culture and values. A good cultural fit can lead to a more
harmonious working relationship.
9. Reputation and References:
Research the VC’s reputation within the startup community. Ask for references
from founders they’ve previously worked with to gauge their experiences.
Discuss potential exit scenarios upfront. Ensure that both parties have a shared
understanding of how and when to realize returns on the investment.
Overall, private placements are a useful tool for companies looking to raise capital while
maintaining greater control over the process and reducing regulatory burdens.
FINANCING THE BUSINESS
Some questions:
3. Why is bootstrapping important for (a) closely held companies and (b)
early-stage, high-growth companies that plan to seek equity investors?
1. No or low rent
Start by using a residence for office and workspace. Paying extra rent to a
landlord takes away cash that can go directly into the company. Hewlett-
Packard was started by 2 fresh graduates in a now famous garage in Silicon
Valley.
3. Why is bootstrapping important for (a) closely held companies and (b)
early-stage, high-growth companies that plan to seek equity investors?
Bootstrapping is important for both closely held companies and early-stage, high-
growth companies planning to seek equity investors for several reasons:
In both cases, bootstrapping can foster a strong foundation for growth, establish
credibility, and prepare the company for future funding rounds or business
challenges.
Specify the amount of money you need, how you plan to use it, and the
terms you are seeking (e.g., repayment period, interest rate).
Describe any collateral you can offer to secure the loan. This can include
property, equipment, or inventory.
Identify potential risks to the business and how you plan to mitigate them.
This shows lenders that you are proactive and prepared for challenges.
12. Follow Up
After submitting the proposal, follow up with the lender to address any
questions and demonstrate your commitment to the loan application process.
Building a strong relationship with a loan officer can significantly improve your
chances of securing a loan and accessing valuable guidance throughout the
process. Here are some steps to effectively cultivate this relationship:
1. Do Your Research
Understand the loan officer's background, the types of loans they specialize
in, and their lending institution’s policies. This will help you tailor your
approach and show that you’re informed.
5. Be Responsive
6. Show Appreciation
Thank the loan officer for their assistance, whether it’s through a simple
email or a handwritten note. Acknowledging their help fosters goodwill.
7. Stay Engaged
Keep in touch even after the loan process. Share updates on your business’s
progress, milestones achieved, or any challenges you’re facing. This keeps
the relationship active and demonstrates your ongoing commitment.
8. Seek Advice and Feedback
Don’t hesitate to ask for their insights on financial matters or the lending
process. Loan officers often have valuable experience that can benefit your
business.
9. Be Professional
By following these steps, you can cultivate a mutually beneficial relationship with
a loan officer, increasing your chances of securing financing and receiving
valuable guidance throughout your entrepreneurial journey.
MANAGING THE MONEY
Some Questions:
3. What are the major categories and steps in preparing the projected cash
activity?
4. What are the differences between quick ratio, debit ratio, and current
ratio?
1. What financial measurements should be prepared to measure
performance?
Total Revenue: The total income generated from sales before any expenses
are deducted.
Sales Growth Rate: The percentage increase in sales over a specific period,
indicating business growth.
2. Profitability Ratios
3. Return Ratios
Return on Assets (ROA): Net Income/Total Assets\text{Net Income} / \
text{Total Assets}Net Income/Total Assets — indicates how effectively
assets are used to generate profit.
Return on Equity (ROE): Net Income/Shareholder’s Equity\text{Net
Income} / \text{Shareholder's Equity}Net Income/Shareholder’s Equity —
measures the return generated on shareholders' investment.
4. Liquidity Ratios
5. Efficiency Ratios
9. Customer Metrics
1. Revenue Budget
o Estimates of expected income from sales, services, and other sources.
This forms the basis for the overall budget.
2. Operating Budget
o Details projected expenses related to day-to-day operations, including:
Fixed Costs: Rent, salaries, insurance, etc.
Variable Costs: Utilities, raw materials, marketing, etc.
3. Capital Budget
o Plans for long-term investments in fixed assets, such as equipment,
technology, and property.
4. Cash Flow Budget
o Projects cash inflows and outflows over a specific period, ensuring
there’s enough liquidity to meet obligations.
5. Financial Budget
o Includes projections for financial statements, such as income
statements, balance sheets, and cash flow statements.
6. Contingency Budget
o Allocates funds for unexpected expenses or emergencies, providing a
financial cushion.
3. Estimate Revenue
o Project sales based on market analysis, historical data, and growth
expectations. This includes considering seasonal trends and economic
factors.
9. Evaluate Performance
o At the end of the budgeting period, assess overall performance against
the budget. Identify successes and areas for improvement, informing
future budget planning.
By following these categories and steps, businesses can create reliable projections
for cash activity, ensuring they have the liquidity needed to meet obligations and
pursue growth opportunities.
4. What are the differences between quick ratio, debit ratio, and
current ratio?
The quick ratio, debt ratio, and current ratio are all important financial metrics used
to assess a company's liquidity and financial health, but they focus on different
aspects. Here’s a breakdown of each:
1. Quick Ratio
Definition: The quick ratio, also known as the acid-test ratio, measures a
company's ability to meet its short-term liabilities using its most liquid
assets. It excludes inventory from current assets since inventory is not as
easily converted to cash.
Formula: Quick Ratio=Current Assets−InventoriesCurrent Liabilities\
text{Quick Ratio} = \frac{\text{Current Assets} - \text{Inventories}}{\
text{Current
Liabilities}}Quick Ratio=Current LiabilitiesCurrent Assets−Inventories
Purpose: It provides a more conservative view of liquidity than the current
ratio, showing whether a company can cover its short-term obligations
without relying on inventory sales.
2. Debt Ratio
3. Current Ratio
Definition: The current ratio assesses a company’s ability to cover its short-
term liabilities with its current assets. It includes all current assets, such as
cash, accounts receivable, and inventory.
Formula: Current Ratio=Current AssetsCurrent Liabilities\text{Current
Ratio} = \frac{\text{Current Assets}}{\text{Current
Liabilities}}Current Ratio=Current LiabilitiesCurrent Assets
Purpose: This ratio provides a broad measure of liquidity, indicating
whether a company has enough assets to pay off its short-term obligations.
A ratio above 1 typically suggests a good liquidity position.
Key Differences
1. Focus:
o Quick Ratio: Focuses on liquid assets (excludes inventory).
o Debt Ratio: Focuses on the financing structure (debt vs. assets).
o Current Ratio: Focuses on overall current assets relative to current
liabilities.
2. Interpretation:
o Quick Ratio: More conservative measure of liquidity.
o Debt Ratio: Indicates financial leverage and risk.
o Current Ratio: General measure of liquidity, less conservative than
the quick ratio.
3. Usage:
o Quick Ratio: Useful for assessing immediate liquidity needs.
o Debt Ratio: Important for understanding financial risk and leverage.
o Current Ratio: Commonly used to assess short-term financial health.
INTELLECTUAL PROPERTY
Intellectual property deals with a range of legally defensible rights conferred upon individuals
and companies that have produced original work of some potential value.
(a) Write notes on trademark, copyright, and patent as forms of intellectual property, with
examples where possible. (12 marks)
(b) What is the purpose of trademarks, how are they registered and protected?
Trademark:
Patent:
Purpose of Trademarks:
Brand Identity: Trademarks help consumers identify and differentiate
products or services from competitors, ensuring they associate certain
qualities or reputation with a brand.
Consumer Protection: By preventing confusion in the marketplace,
trademarks protect consumers from misleading practices.
Value Creation: Trademarks can become valuable assets, contributing to
brand loyalty and recognition.
Registration of Trademarks:
Protection of Trademarks:
Legal Rights: Trademark owners have the right to take legal action against
unauthorized use, dilution, or infringement.
Renewal: Trademarks must be renewed periodically (typically every 10
years in the U.S.) to maintain protection.
Monitoring: Owners should actively monitor the market for potential
infringements to protect their brand.