Please make sure that it is your own work. Please read the study guide. Please watch out for Spelling and grammar error. Please use the APA 7th edition.
Book Reference:Neck, H. M., Neck, C. P., & Murray, E. L. (2021). Entrepreneurship: The practice and mindset (2nd ed). SAGE. https://online.vitalsource.com/#/books/9781544354644
Discuss how you would approach resource needs for a new venture. Include descriptions of the benefits and drawbacks of your resource acquisition choice or choices.
BUS 8303, Entrepreneurship and Innovative Business Development 1
Course Learning Outcomes for Unit VII
Upon completion of this unit, students should be able to:
5. Differentiate innovative business strategies.
5.1 Describe funding strategies.
5.2 Differentiate innovative bootstrapping choices and traditional financing strategies.
6. Evaluate financial implications involved with organizational growth.
6.1 Contrast equity financing and debt financing.
7. Describe legal aspects of business growth.
7.1 Explain how decisions have financial consequences.
Course/Unit
Learning Outcomes
Learning Activity
5.1
Unit Lesson
Chapter 12
Chapter 13
Article: “How Do Entrepreneurs Obtain Financing? An Evaluation of Available
Options and How They Fit into the Current Entrepreneurial
Ecosystem”
Unit VII Case Study
5.2
Unit Lesson
Chapter 12
Unit VII Case Study
6.1
Unit Lesson
Chapter 12
Chapter 13
Unit VII Case Study
7.1
Unit Lesson
Chapter 13
Student Resource: Defining Equity Financing
Unit VII Case Study
Required Unit Resources
Chapter 12: Bootstrapping and Crowdfunding for Resources
Chapter 13: Financing for Startups
In order to access the following resources, click the links below. Management homework help
Wright, F. (2017). How do entrepreneurs obtain financing? An evaluation of available options and how they fit
into the current entrepreneurial ecosystem. Journal of Business & Finance Librarianship, 22(3/4),
190–200. https://doi-org.libraryresources.columbiasouthern.edu/10.1080/08963568.2017.1372011
UNIT VII STUDY GUIDE
Venture Growth and
Financial Implications
BUS 8303, Entrepreneurship and Innovative Business Development 2
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Navigate to the Video and Multimedia area in Student Resources for Chapter 13 of the eTextbook to view the
item listed below.
• Defining Equity Financing
Unit Lesson
Funding Choices
Bootstrapping is the idea of starting a new venture without funds or looking for approaches that support the
resource needs of the new venture with limited funds. Examples of bootstrapping include working out of
personal space like a home, apartment, or garage or using resources that are not used to their full capacity by
the owner of the resources. An example is using a grade school kitchen on weekends to build a food-related
business. Bootstrapping requires creativity in thinking about how to gain access to resources when personal
funds are limited. Crowdfunding and crowdsourcing can also provide access to resources. Other than
bootstrapping, there are two primary approaches to funding your entrepreneurial venture: debt financing and
equity financing.
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Debt Financing
Debt financing relates to acquiring debt (borrowing money) with a payback timeline established by the lender.
This could be a bank loan, a loan from a family member, or some other source of borrowed funds. Debt
financing, in most cases, requires an established repayment plan, payment of interest, collateral, and meeting
the conditions for receiving the loan. If receiving a loan from a family member, these terms might be more
lenient, although it is a good idea to create a formal document to avoid misunderstandings between family
members.
From an entrepreneurial perspective, there are a few negatives related to debt financing. If borrowing from a
financial institution, the bank will want collateral. Since your venture will most likely not have a track record of
generating an income and banks have a fiduciary responsibility to protect their depositors’ funds (a bank’s
business model is to accept deposits and loan those deposited funds out to other individuals), a bank is riskaverse. This means that if the bank loans the entrepreneur money, the loan is based on traditional terms
including treating the entrepreneur as an individual who wants to borrow money, rather than approaching the
loan as a loan to the business. The bank will typically not want to become involved in the new venture as the
new venture does not have a performance track recourse. Banks prefer low-risk loans and will consider the
borrower’s character, credit score, repayment ability, and the quality of the collateral. The repayment plan is
based on the entrepreneur’s established income. Many entrepreneurs continue their traditional employment
while working on their new venture. This traditional employment and related income position are what the
bank will consider regarding your ability to repay the loan. The repayment plan means these repayment funds
are not available to invest in your new venture, although the borrowed funds are used in building the new
BUS 8303, Entrepreneurship and Innovative Business Development 3. Management homework help
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venture. Taking these regular payments that are owed to the bank out of your monthly cash flow is a financial
consequence of the decision to use debt funding; this decision can be a burden to the success of the venture.
Another negative is the assignment of the asset as collateral for the loan. Careful consideration is needed to
foresee if the collateral could be better used in another manner and contemplate the worst-case scenario that
the collateral is reposed in the event of failure to repay the loan. This financial decision’s consequence could
potentially mean the loss of your home if the home was mortgaged to borrow money to support the
entrepreneurial start-up. A third negative financial consequence relates to the payment of interest, as the
money paid in interest is also money that cannot be used in starting the venture.
If borrowing funds from a family member, collateral and interest might be disregarded, although the family
member might require these conditions. Specifically identifying the terms and conditions of the transaction is
important. Let’s say the venture is wildly successful, and the family member that loaned you money now says
the loan was really an equity investment and now the family member wants an equity share in the profits. This
means that the family member wants percent ownership in the new venture rather than the payback of the
originally loaned money. Consider if the opposite happens, where the venture is a complete failure, and you
want to pay the family member back with monthly payments, but the family member wants repayment at the
news that the venture is unsuccessful. In either situation, the financial consequences of these decisions can
be daunting. Clearly stating the terms and conditions that both parties agree to is important to avoid family
conflict. Another consideration is how other family members understand the transaction. Creating a formal
document alleviates tensions within a family and avoids concerns of favoritism or other emotions and
interpretations of the transaction.
Equity Financing
Equity financing is when someone invests funds into the venture in return for an equity stake in the venture.
An equity stake means that the person investing the funds is now part-owner of the venture—the person has
an equity stake in the venture. The terms for this arrangement should also be formally established.
The negative financial consequences connected with debt financing are removed when using equity
financing. There are no collateral, interest, or repayment terms. Instead, the investor receives payment
through a return on investment (ROI) either from future equity financing rounds, such as the entry of venture
capitalists (VCs), or when payment is received when the venture is sold to another company. VCs step in to
fund the venture at larger dollar amounts, generally paying off the original investor based on the valuation of
the venture at the time the VCs purchase equity in the venture.
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The expectation from an angel investor’s perspective is to invest in the venture and realize a significant ROI
within a short timeline. A common mistake that new entrepreneurs make is to accept equity funding from the
first person who offers money. Instead, taking the time to find the right person can provide greater benefits
than the invested dollars. Let’s first explain what an angel investor is, then address the benefits beyond
money that angel investors provide to the funded entrepreneur. An equity investor in an entrepreneurial
venture is called an angel investor. The name angel investor comes from the world of financing theatrical
productions in the 1800s. The cost to produce a theatrical performance was significant and risky as the
production could be well received and, therefore, financially successful or poorly received, thus amassing
debt. Angel investors were the people who were willing to invest in the production with the hope that the
production would be successful, and the angel investor would receive a sizable return on their invested funds.
Due to financial risks, traditional lenders were unwilling to loan money to the theatrical group to produce the
play. In the entrepreneurial world, the name angel investor represents a wealthy individual who is interested
and willing to invest in the entrepreneur and the venture. Angel investors are typically people who have
previously acted as an entrepreneur, harvesting their venture for a sizable return, and now have an interest in
helping other entrepreneurs. With this previous experience as an entrepreneur, the knowledge gained through
the angel investor’s experiences becomes a significant resource and benefit to the funded entrepreneur. This
is why it is so important for the entrepreneur to take the time to find the right angel investor.
Finding an angel investor who has the experience that transfers to the new entrepreneur’s needs provides a
plethora of benefits such as making contacts with other people who can provide guidance and support
through accessing the angel investor’s network and making better decisions based on the angel investor’s
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experience and knowledge. Finding the right angel investor is a bit easier than it was in the past as most
communities now have events where entrepreneurs can meet and present their ideas to angel investors.
When the venture grows to the point that larger sums of equity funding are needed, that is the point at which
venture capitalists become involved in adding larger equity dollar amounts to support the venture’s growth.
The angel investor can also guide this process; another example of how an angel investor’s knowledge can
be worth more than the invested dollars. Management homework help
Grant Funding
A third possibility is grant funding. Grant funding is neither a debt funding method nor an equity funding
method because the grant is not paid back unless the terms of the grant are violated nor is any equity in the
venture assigned to the grantor. Grant funding requires searching for an appropriate grant, applying for the
grant in a competitive process and, if receiving the grant, complying with the conditions of the grant.
Complying with the conditions of the grant means that not only are the conditions of the grant fulfilled correctly
but tracking these conditions is also required. The process of searching for an appropriate grant takes time,
as does the documentation required as part of the conditions in the grant application and reporting process.
Some companies conduct the search for an appropriate grant and provide assistance in completing the
application process on a fee-based payment system, a possible option if the venture has components that
might fit within a grant-funded situation, especially if the venture is a social benefit-based idea.
Financial Knowledge
Understanding basic financial statements is important in managing the new venture, especially the cash flow
statement. Cash is king is a common phrase in the entrepreneurial world because if the entrepreneur runs out
of cash, no matter how great the potential is for this venture, the potential for success is compromised.
Keeping a close eye on the cash position of the venture is essential for the success and viability of the
venture. In writing the business plan, financial projections are created to assist in thinking through various
decisions. For example, how much of an increase in production costs can the venture sustain, and how would
a price increase impact the projected cash flow statement? This is just one example of why understanding the
financial statements and related decisions are essential for the success of the venture.
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All financial decisions have consequences; some consequences are good, other financial decisions can be
challenging to recover from. Considering the consequences of these decisions is well worth the time and
should be reviewed before starting the venture. The right financial decisions can result in supporting the
successful creation of the entrepreneurial start-up.
Interactive Activity
In order to check your understanding of
concepts from this unit, complete the Unit VII
Knowledge Check activity.
Unit VII Knowledge Check
PDF version of the Unit VII Knowledge Check
Note: Be sure to maximize your internet
browser so that you can view each individual
lesson on a full screen, ensuring that all content
is made visible.
Remember, this is a nongraded activity.
BUS 8303, Entrepreneurship and Innovative Business Development 6
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Suggested Unit Resources
Supplement A: Financial Statements and Projections for Startups
In order to access the following resources, click the links below.
The article below provides an overview of innovative approaches for entrepreneurs seeking financial support.
Bonini, S., Capizzi, V., & Cumming, D. (2019). Emerging trends in entrepreneurial finance. Venture Capital,
21(2/3), 133–136. https://doiorg.libraryresources.columbiasouthern.edu/10.1080/13691066.2019.1607167
The following article includes information on early-stage finance resources for entrepreneurial ventures
including incubators, accelerators, science and technology parks, and other options available to support the
entrepreneur’s needs for start-up funds.
Bonini, S., & Capizzi, V. (2019). The role of venture capital in the emerging entrepreneurial finance
ecosystem: Future threats and opportunities. Venture Capital, 21(2/3), 137–175. https://doiorg.libraryresources.columbiasouthern.edu/10.1080/13691066.2019.1608697
The following article includes information about online crowdfunding and the most success factors for funded
projects through Kickstarter.com.
Kromidha, E., & Robson, P. (2016). Social identity and signalling success factors in online crowdfunding.
Entrepreneurship & Regional Development, 28(9/10), 605–629. https://doiorg.libraryresources.columbiasouthern.edu/10.1080/08985626.2016.1198425
Learning Activities (Nongraded)
Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit
them. If you have questions, contact your instructor for further guidance and information.
In order to access the following resources, click the links below.
Utilize the following Chapter 12 Flashcards and Chapter 13 Flashcards to review terminology from the
eTextbook. Management homework help
