Introduction & Theory Flashcards
What are the typical stages of a startup company’s lifecycle?
Early Stage = Seed Stage, Startup Stage
Seed Stage:
- product conception
- market analysis
- basic research
Startup Stage:
- company formation
- product development
- marketing concept
Expansion Stage:
- product manufacturing
- market entry or growth financing
Bridge
- preparation for IPO or sale to industrial investor
MBO/MBI
- takeover by current management or external management
What are the typical financing sources in the different stages of a startup?
Early Stage:
- own funds
- incubators
- public funds
- friends & family
- business angels
- crowdfunding
- venture capital
Later Stages:
- debt and loans
- equity markets
- private equity
Name 4 qualities of startup companies
- Strong leadership from the main entrepreneur
- Complementary talents and outstanding teamwork of team members
- Skill and ingenuity to find and control resources
- Financial backing to chase opportunity
Name 3 characteristics of giant firms
- Hierarchical in structure
- Leadership as managing and administering from the top down
- Rewards for the “largest” (assets, funds, …)
What are some bad consequences of the characteristics of giant firms that motivate intrapreneurship?
- slow to change archaic strategy (6 years)
- slow to change outdated culture (10-30 years)
- slow to recognize and incorporate entrepreneurship, entrepreneurial leadership and reasoning
What are the 7 domains of differences between corporate and entrepreneurial finance?
- Interdependence between investment and financing decisions
- managerial involvement of outside investors
- diversifiable risk and investment value
- information problems
- incentive alignment
- harvesting the investment
- value to the entrepreneur
What are the characteristics of New Institutional Economics?
- rejection of earlier institutional economics and neoclassical economics which were based on the assumption of the homo economicus and market’s infomation efficiency
- institutions are formal and informal arrangements and the sanctions to execution
- New Institutional Economics examines the affects on individuals and their transactions
What are the assumptions of (principal) agency theory?
Situation: principal provides agent with resources (contract conclusion) to enable agent acting in the principal’s best interest (decision to act).
Problems:
- information asymmetry: agent’s informational advantage over principal
- agent’s opportunistic behavior: agent uses informational advantage for his personal utility maximization
- conflict of interest: principal and agent either have diverging goals or different risk attitudes towards the same goal
Solution: normative approach:
how to design formal and informal arrangements such that agent’s interest perfectly matches the principal’s interest?
Name the 4 types of information asymmetry
Hidden Characteristics (of agent), Hidden Information, Hidden Action, Hidden Intention
How do the assumptions of New Institutional Economics manifest in principal agency theory?
Conflict of interests: VC interested in high exit-value, detailed information about company; Founder wants to grow his business but might also pursue other goals (social recognition, track record, mission)
What are the dimensions of company formations?
Independent Dependent (company founders), Primary Derivative (structural existence)
- Primary-independent: new business start-ups
- Primary-dependent: rollouts, subsidiaries
- Derivative-independent: MBOs/MBIs, succession of founders
- Derivative-dependent: M&A (mergers, acquisitions), change of legal forms
What are the dimensions of innovation
Established innovative product / service, established innovative business model / process
New product, established business model: Skype
Established product & business model: Crafts
Established product, new business model: Amazon
New product & business model: Mobile commerce
What is the resource-based view of a firm?
Understand firm as a bundle of distinct resources that are unique to the firm and that other firms cannot acquire easily and most likely not at the same conditions
-> competitive advantage results from firm-specific advantages
Internal View: Strengths, Weaknesses (Resource-based view)
External View: Opportunities, Threats (Environmental models of competitive advantage)
What are the VRIN characteristics?
For resources to yield a sustainable competitive advantage they must have VRIN characteristics:
- valuable
- rare
- inimitable
- non-substitutable
Name the 8 resource categories
- Technological
- Financial
- Managerial
- Personnel
- Physical
- Organizational
- Reputational
- Social
What are the 4 primary factors influencing the source of funds?
- uncertainty
- nature of assets
- asymmetric information
- market conditions
What are aspects an early stage investor has to be aware of?
Opportunities:
- Large upside potential
- High expected return
Risks:
- Liability of newness
- Liability of smallness
- Uncertainty of supply
- Uncertainty of demand
- Competitive uncertainty
- Dependency on founders
