Having started a new technology venture, short-term cash is vital to the business. In addition to my 20% equity, I would need to find means to fund the 80% cash. A bank overdraft would be the first source of cash to consider, and the friends and family.A bank overdraft is a better source because one does not have to deal with individuals who might not berakis, 2010). Since the innovation is very likely to have rapid growth because of the high-tech innovation involved, I would consider looking for some funding from venture capitalists.
An angle investor should consider whether the business founder can be trusted, by ensuring that his business plan is solid (Bygrave & Zacharakis, 2010). I would, therefore, scrutinize the business plan to ensure that it demonstrates integrity and ethics. Without these, making any investment would be a risk. I would also consider what the business portrays about its IRR. Any angle investor has a time horizon during which he expects returns, in most cases 15-25% IRR in 5-7 years. Most founders might give a very high internal rate of return to attract as many investors as possible. I would ensure that the expected returns do not differ with those of similar industries (Bygrave & Zacharakis, 2010). The business plan should portray financial confidence. It should show the risks that are likely to arise as one invests in the business, and promise theinvestors that they are guaranteed of getting their money back, in case of failure or success of the business.
In order to mitigate the risk of running out of capital as the business proceeds, I would ensure that I develop a fundable business plan at the start. The business idea should be feasible for the financiers to have confidence in my business and fund it. I would also show commitment to the business to gain confidence of the business financiers, and the business will be assured a flow of capital. I would include a stellar management team, have attractive market characteristics and powerful product value to attract as many investors as possible in the business.
Part 2- Valuation
Net asset value is one of the techniques used in the valuation of the business. It is suitable for businesses with heavy investments and data for doing this valuation is readily available. It also allows for adjustments n estimating fair market value. However, it does not consider future changes in sales and the balance sheet may not reflect all assets. Capitalization of earning method is simplified and arrives at an easily determined value. However, it might overlook the value of assets, both tangible and intangible.
To win in valuation negotiations, entrepreneurs should prepare adequately. They should be open-minded to gather intelligence that can help them win a negotiation (Bygrave & Zacharakis, 2010). They should also understand the financial position of the business, to avoid being tricked by the experienced investors who could tell them of their version of the world. They should, therefore, obtain regular updates on the funding position from the investors.
Bygrave, W. & Zacharakis, A. (2010). Entrepreneurship, 2nd Edition. Hoboken, NJ: John Willey & Sons.
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