Funding Innovation

Question 1

What questions should you ask when thinking about funding?

Answer 1

How much of the company am I willing to give away?
How much control do I want?
What choices do we have?

Question 2

Draw the figure for funding type vs the stage the company is at:

Answer 2

Power point.

Question 3

What are the headings and subheadings for finance type?

Answer 3

Internal (retained profits, personal and family/friends).

External (debt finance, equity, alternative).

Question 4

What might a company use retained profits for?

Answer 4

R&D, funding innovation will have tax benefits.

Can be hard for a startup.

Question 5

What is bootstrapping?

Answer 5

Using your own funds.
Using a frugal mindset.
Demonstrating TRACTION through production and sales.

Question 6

Why bootstrap?

Answer 6

To ensure your idea has merit before approaching investors.
Increase investor confidence by putting yourself on the line.
Increase the value of the company.

Question 7

What are the positives and negatives of using family/friend investors?

Answer 7

Adv: No need to establish credibility, may not have to pay funds back.
Disadv: Relationships deteriorating.

Question 8

What are grants and why are they good?

Answer 8

A form of funding from governments, foundations or philanthropists where there is no requirement to repay the money.
For the company they are free money whilst maintaining 100% control of the company.

Question 9

What challenges do grants pose to SMEs?

Answer 9

Lengthy process.
Change in government also means change in grant policy.
Options can be overwhelming.
Competition.
Often need to find match funding (money from somewhere else as well).

Question 10

Are grants helpful?

Answer 10

Hong et al. found in China that government grants had a negative impact on high-tech enterprises when compared with private R&D funding.

Question 11

Who might crowdfunding be useful for?

Answer 11

Consumer goods enterprise.
Micro-market products.
Unknown market.
One off products.
Artists.

Question 12

Who might crowdfunding be not as useful for?

Answer 12

Large companies.
Complex products.
Business to business.

Question 13

What did Ethan Mollick’s study find about crowdfunding?

Answer 13

Most crowdfunded efforts attempt to deliver promised goods but most are delayed.
Success of crowdfunding does depend on quality of product.
Success of crowdfunding influenced by geography.

Question 14

What is debt finance?

Answer 14

A company borrows money for a fixed amount of time with a set interest rate.

Question 15

What are the advantages of using debt finance?

Answer 15

Easily accessible.
Short term finance available.
Retain control of business.

Question 16

What are the disadvantages of debt finance?

Answer 16

Banks do not like risk so expect a strong product/business plan.
High interest rates.
May need to offer the bank security e.g. house.
Repayment time?
Often require 3 years of accounts and an established business.

Question 17

What problems do banks face when lending?

Answer 17

When they choose to provide for a company that fails it makes them adverse to further investment.
Difference in knowledge between entrepreneur and bank means problems will arise (‘asymmetric information’).
No guarantee an entrepreneur will act in the best interest of the bank; monitoring is expensive but required.

Question 18

In venture finance what are business angels?

Answer 18

A high-worth individual who makes a small investment looking to gain ROI and business knowledge. Provide technical expertise, strategy, network, entrepreneurial and commercial skills.

Question 19

What is venture capital?

Answer 19

Investments in entrepreneurial ventures by firms of full-time professionals who raise finance for business gain.
They want a high ROI achieved upon exit (selling equity).

Question 20

What are the stages in gaining equity investment?

Answer 20

Approaching and developing business plan.
Initial enquiries/negotiations.
Due diligence.
Final negotiations and completion.
Monitoring.
Exit.

Question 21

What might be included in a business plan?

Answer 21

Summary of product service with USP.
Market analysis.
Position.
Projections.
Detail of resources.
Exit strategy.

Question 22

What needs to be considered when forecasting?

Answer 22

Resources.
Market.
Environment.
Currency fluctuations.
Inflation.
Cost of resources.

Question 23

Why use payback period forecast?

Answer 23

basic and understandable.

Question 24

What are the drawbacks of PPF?

Answer 24

Does not consider the time value of money.

Cashflows change over time.

Question 25

Why use NPV?

Answer 25

Considers time value of money.

Includes all inflows and outflows.