Entrepreneurship

Development
BBA 307
Dr. Rachana saxena
Associate Professor
NDIM
 ● Promotion of a Venture
● Opportunity Analysis
● External Environmental Analysis
● Economic, Social and Technological
● Competitive factors
UNIT II ● Legal requirement sof establishment of a new
unit and Raising of Funds;
● Venture Capital Sources and Documentation
Required.
TEXT BOOK

- Hisrich, Robert and Peters, Michael, (2017),

Entrepreneurship, 10th Edition, McGraw Hill Education.

- Charantimath, Poornima M., (2014), Entrepreneurship

Development and Small Business Enterprises, Pearson, New

Delhi.
2.2 Opportunity Analysis
●An opportunity is a favourable juncture of circumstances with a good
chance for success or progress. It is the job of the entrepreneur to locate
new ideas and to put them into action.

●Opportunity is a set of favorable circumstances associated with a

business idea that awards it good chances of progress and future success

●Entrepreneurial opportunities are defined as situations in which new

products, services and processes can be introduced and sold at greater
than the cost of production.

●Entrepreneurship can therefore be understood as the activity of

identifying and exploiting new business opportunities
The three key approaches to identify the best
investment opportunities are:

1. Observing Trends. Study of customers response to

products.
2. Solving a Problem. Recognize problems and develop
innovative ways to solve them.
3. Gaps in the Marketplace.
5 Keys to Conducting a Market Opportunity
Analysis

1. Research the customers and competition. Use market

research to analyze the customers and competitors on
multiple levels.
2. Get a high-level view of the market.
3. Explore adjacent opportunities.
4. Understand the business environment factors.
5. Lay down the opportunity analysis plan.
2.3 Entrepreneurial Environment
• Entrepreneurial environment refers to the various facets within which
enterprises - big, medium, small, and others have to operate. By and
large, entrepreneurship is influenced by an environment created by
political, social, economic, national, legal forces, etc.

• It is important to understand this environment because these very

conditions can facilitate or hamper the viability and growth of an
enterprise.
Environmental Analysis

Environmental analysis is the process by which entrepreneurs

monitor the economic/ market/ competitive/ supplier/
technological/ geographic and social setting to determine
opportunities and threats to their firms.
Need Of Environmental Analysis

●Environmental analysis provides the time to the entrepreneur of

forecast opportunities and to plan to respond aptly to these
opportunities.

●Environmental analysis helps entrepreneurs develop an early warning

system to prevent threats to develop strategies which can convert a
threat into an opportunity.

●They help to determine what factors in the environment present

threats to the organization's present strategy.
Need Of Environmental Analysis

●They help to determine the factors in the environment

opportunities for optimal utilization of resources and
achievement of objectives effectively.

●Systematic analysis enables the managers, to predict the future

and to have enough time for other activities. This minimizes the
time pressure of the managers on the unanticipated events.
Levels Of Environmental Analysis
●MACRO EXTERNAL ENVIRONMENT ANALYSIS

Its components are - economic, political, legal, social,

technological and international. Sometimes this level is called
general environment. It consists of identifying and analyzing
environmental influences individually and collectively to
determine their potential effects on an organization and the
consequent problems and opportunities.
Levels Of Environmental Analysis

MICRO EXTERNAL ENVIRONMENT ANALYSIS

Micro external environment involves factors of immediate

competitive situation that provide opportunities and threats to
the firm. Its factors are subject to an increased control of the
firm. Its factors include competition, supplier, customer,
channels and manpower.
Operating Environment Analysis is performed at 3 levels

●Industry Analysis
Industry analysis involves reviewing the economic, political and
market factors that influence the way the industry develops.
Major factors can include the power wielded by suppliers and
buyers, the condition of competitors, and the likelihood of new
market entrants.
●Competitive Analysis:
Competitor's analysis in marketing is an assessment of the
strengths and weaknesses of current and potential competitors.
This analysis provides both an offensive and defensive strategic
context through which to identify opportunities and threats.
●Firm Level Internal Analysis
Internal Environment consists of factors within an
organisation and has immediate and specific
implications for the firm. The factors of this 'level of
environment include functional management such as
organizational, personnel, marketing, production and
financial components.
Process Of Environmental Analysis

● Identifying Environmental Factors

● Scanning And Selecting Relevant And Key Factors
● Defining Variables For Analysis
● Using Different Methods, Techniques, And Tools
● Forecasting Environmental Factors
● Designing Profiles
● Strategic Position And Report Writing
Limitations Of Environmental Analysis

Environmental analysis cannot eliminate uncertainty, as the

environmental analysis does not foretell the future. However, by
environmental analysis, uncertainties can be minimised.

Environmental analysis does not guarantee the organizational

effectiveness. It is only one of the inputs in strategy
development and testing
 Limitations Of Environmental Analysis

●The potential of environmental analysis is often not realized

because it depends upon how it is practiced. Sometimes the
managers show their faith in the data without verifying the
data.

●When there is overloading of information, one is likely to be

misled as too much reliance is often given to the data collected
through environmental scanning.
2.3 Legal Requirements of Establishing a New Unit

One of the primary requirements for setting up a business is to

abide by the legal requirements set by federal, state and county
rules and regulations.
External Environmental Analysis

● Economic factors

● Socio-cultural factors

● Technological factors

● Competitive factors

● Political and legal factors

SOCIO-CULTURAL FACTORS
● Religion

● Values

● Rural-urban orientation

● Education

● Tradition
POLITICAL AND LEGAL FACTORS

● Govt. legal bindings

● Govt. policies

● Rules and laws related to the industry and business

INSTITUTIONAL FACTORS

● Financial institution
● Training and development institution
● Consulting firms
● Incubators organization
● Research organization
MICRO FACTORS
● Enterprise itself

● Suppliers

● Intermediaries

● Customers

● Competitors

● Public
MACRO FACTORS

● Demographic factors

● Economic factors

● Physical factors

● Technological factors

● Cultural/Social Factors
OTHERS

● Venture Capital

● Experience of Entrepreneurs

● Technically Skilled Labor Force

● Supplier’s Accessibility

● Availability of Land Facilities

● Accessibility of Transportation
● Favorable loan and financial Policies
● Research and development activities
● Capital Intensiveness
● Proximity to corporate head quarters
● Competitive Situation
Venture Capital
● Venture capital financing is funding provided to companies and
entrepreneurs. It can be provided at different stages of their
evolution.

● Venture capital is a subset of private equity (PE). While the

roots of PE can be traced back to the 19th century, venture
capital only developed as an industry after the Second World
War.

● It has evolved from a niche activity at the end of the Second

World War into a sophisticated industry with multiple players
that plays an important role in spurring innovation.

● Harvard Business School professor Georges Doriot is generally

considered the "Father of Venture Capital".
● Venture capital is financing that investors provide to startup
companies and small businesses that are believed to have
long-term growth potential.

● Venture capital generally comes from well-off investors,

investment banks and any other financial institutions.

● However, it does not always take a monetary form; it can also

be provided in the form of technical or managerial expertise.
● Though it can be risky for investors who put up funds, the
potential for above-average returns is an attractive payoff.

● For new companies or ventures that have a limited operating

history (under two years), venture capital funding is
increasingly becoming a popular – even essential – source for
raising capital, especially if they lack access to capital markets,
bank loans or other debt instruments.

● The main downside is that the investors usually get equity in

the company, and, thus, a say in company decisions.
Features of Venture Capital investments

● High Risk
● Lack of Liquidity
● Long term horizon
● Equity participation and capital gains
● Venture capital investments are made in innovative projects
● Suppliers of venture capital participate in the management of
the company
Methods of Venture capital financing

● Equity
● participating debentures
● conditional loan
Phases of Venture Capital Funding

The venture capital funding process typically involves four phases

in the company’s development:
● Step 1: Idea generation and submission of the Business Plan
● Step 2: Introductory Meeting
● Step 3: Due Diligence
● Step 4: Term Sheets and Funding
Step 1: Idea generation and submission of the Business
Plan
The initial step in approaching a Venture Capital is to submit a
business plan. The plan should include the below points:
● There should be an executive summary of the business proposal
● Description of the opportunity and the market potential and size
● Review on the existing and expected competitive scenario
● Detailed financial projections
● Details of the management of the company

There is detailed analysis done for the submitted plan, by the Venture
Capitalist to decide whether to take up the project or not.
Step 2: Introductory Meeting

●Once the preliminary study is done by the VC and

they find the project as per their preferences, there is a
one-to-one meeting that is called for discussing the
project in detail.

●After the meeting the VC finally decides whether or

not to move forward to the due diligence stage of the
process.
Step 3: Due Diligence

●The due diligence phase varies depending upon the

nature of the business proposal.
●This process involves solving of queries related to
customer references, product and business strategy
evaluations, management interviews, and other such
exchanges of information during this time period.
Step 4: Term Sheets and Funding

● If the due diligence phase is satisfactory the VC offers a

term sheet which is a non-binding document explaining
the basic terms and conditions of the investment
agreement.

●The term sheet is generally negotiable and must be agreed

upon by all parties, after which on completion of legal
documents and legal due diligence, funds are made available.
Types of Venture Capital funding

●The various types of venture capital are classified as per their

applications at various stages of a business. The three principal
types of venture capital are early stage financing, expansion
financing and acquisition/buyout financing.

●The venture capital funding procedure gets complete in six stages

of financing corresponding to the periods of a company’s
development
Types of Venture Capital funding
●Seed money: Low level financing for proving and fructifying a new idea
●Start-up: New firms needing funds for expenses related with
marketingand product development
●First-Round: Manufacturing and early sales funding
●Second-Round: Operational capital given for early stage companies
which are selling products, but not returning a profit
●Third-Round: Also known as Mezzanine financing, this is the
money for expanding a newly beneficial company
●Fourth-Round: Also called bridge financing, 4th round is proposed for
financing the "going public" process
Early Stage Financing
●Early stage financing has three sub divisions seed financing,
start up financing and first stage financing.
●Seed financing is defined as a small amount that an
entrepreneur receives for the purpose of being eligible for a
start up loan.
●Start up financing is given to companies for the purpose of
finishing the development of products and services.
●First Stage financing: Companies that have spent all their
starting capital and need finance for beginning business
activities at the full-scale are the major beneficiaries of the
First Stage Financing.
Expansion Financing

●Expansion financing may be categorized into second-stage

financing, bridge financing and third stage financing or mezzanine
financing.

●Second-stage financing is provided to companies for the purpose

of beginning their expansion. It is also known as mezzanine
financing. It is provided for the purpose of assisting a particular
company to expand in a major way. Bridge financing may be
provided as a short term interest only finance option as well as a
form of monetary assistance to companies that employ the Initial
Public Offers as a major business strategy.
Acquisition or Buyout Financing

●Acquisition or buyout financing is categorized into acquisition

finance and management or leveraged buyout financing.
Acquisition financing assists a company to acquire certain parts or
an entire company.

●Management or leveraged buyout financing helps a particular

management group to obtain a particular product of another
company.
Advantages of Venture Capital

● They bring wealth and expertise to the company

● Large sum of equity finance can be provided

● The business does not stand the obligation to repay the money

● In addition to capital, it provides valuable information,

resources, technical assistance to make a business successful
Disadvantages of Venture Capital

● As the investors become part owners, autonomy and

control of the founder is lost

● It is a lengthy and complex process

● It is an uncertain form of financing

● Benefit from such financing can be realized in long run only

Exit route

There are various exit options for Venture Capital to cash

out their investment:
● IPO
● Promoter buyback
● Mergers and Acquisitions
● Sale to other strategic investor
Legal Requirements for Establishment of a New Unit
●Establishing a new business unit is a complex and risky task.
Entrepreneurs have to fulfil various legal formalities for
establishment of a new unit.
●The entrepreneur needs to be aware of any regulation that may
affect the establishment of his new unit. Legal formations may be
necessary at different stages of the start up.
●These formalities differ in relation to the form of enterprise
adopted by the entrepreneur, such as sole proprietorship,
partnership firm and company.
●The legal requirements also differ in reference to the size of the
business unit, such as small scale, medium scale, or large scale
enterprise. Moreover, consumer product enterprise and industrial
product enterprise may attract different legal formalities.
(1)Incorporation and Registration : There are various forms of business
organisations in the private sector such as sole-trader, partnership, Joint
Hindu family and company etc. In case of sole-proprietorship, partnership
and Joint Hindu family, registration is not compulsory, while in case of
company, incorporation and registration is essential.

(2)Small Unit Registration Certificate : The entrepreneur of a small scale

unit should seek registration of his selected project unit with the
Directorate of industries. This will make the entrepreneur and his unit
eligible for availing Government assistance. A unit is normally registered
provisionally first and accorded permanent registration later.
● 3) Registration under the Factories Act : An entrepreneur must
registered his enterprise under the ‘Factories Act, 1948’, before
starting the manufacturing unit. Factories Act contains provisions
regarding licensing and registration of factories, working hours,
health, safety and welfare measures, employment of women and
young persons, annual leaves, dangerous operations etc. The Act
fixes the minimum age of persons who can enter a factory for work
at 14 years. The Act, lays down the provision regarding cleanliness,
ventilation, overcrowding, explosive gases, dust, fumes, fencing of
machinery etc.
● 4) Import License : If imported raw-material and other
equipment are necessary for the new business enterprise,
then the entrepreneur should obtain the import license from
the export-import controller.
● 5) Permission of Finance Ministry : For the agreement of foreign
collaboration, an entrepreneur must obtain the permission of finance
ministry.
● 6) No Objection Certificate (NOC) : The unit must obtained all
necessary clearances. For example, NOC from Pollution
Control Board is obtained if required.
● 7) Industries (Development and Regulation) Act, 1951 : The
licencing policy for industries is determined under this Act. The Act
states that the Central Government may specify the requirements
which shall be complied by small scale industrial undertakings to be
regarded as a small scale or an ancillary industry.

This may be done by the Central Government with a view ascertaining

which small scale or ancillary industrial undertaking needs supportive
measures, exemptions or other favourable treatment under this Act to
enable them to maintain their viability and strength.
● (8) Foreign Exchange Management Act : All foreign
collaborations require the approval of the government and
are subject to the regulations under the Foreign Exchange
Management Act. All investment by foreign companies in
India is permitted only with the approval of the Reserve Bank
of India. The Reserve Bank of India’s approval is again based
on the approval of the investment proposal by the
government.
●9) Registration of Trademark : According to Trade and Merchandise
Marks Act, 1958 (India) the mark’ “includes a device, brand, heading,
label ticket, name signature, word, letter or numeral or any combination
thereof.”
The purpose of registration of trademark is that the consumer may
distinguish the product of manufacturer/service provider from others and
therefore ‘deceptively similar’ trademarks are not allowed to be used
because they can cause confusion to users.
Once a trademark is registered as per provisions of Trade and
Merchandise Marks Act, 1958 and Trademarks Act, 1999 no one else can
use similar trademark on any of its packing.
The trademarks are registered for unlimited period and helps in the
promotion of sales.
● (10) Registration under the Appropriate act for taxation: An
entrepreneur should get registered his enterprise in the
appropriate law of the state government as well as central
government and obtain certificate for this purpose. Besides
above mentioned legal formalities, an entrepreneur have to
fulfil some other formalities also depending on the nature of
product produced by the new business unit. For example he
has to get registered his unit under Food and Drugs Control
Act etc. if it is in the food processing industry.
Assignment Questions

Q1. What do you mean by Environment analysis?

Q2. Discuss various factors impacting Environment analysis
in detail.
Q3. What is opportunity analysis? How is it relevant for
Entrepreneurship development in present times?
Q4. What is Venture Capital? Discuss various stages of
venture capital financing.
Q5. Discuss the legal Requirements for Establishment of a New
Unit.
Link for assignment submission

https://docs.google.com/forms/d/e/1FAIpQLSeO78_oEb0jdSCIdwavwDxr30ptY4dOIsKtdlBI
_n7-JrCbAg/viewform?usp=sf_link

Last date: 4th Oct’2020

THANK YOU!