Lecture # 13

ENTREPRENEURSHIP
DR AFSHAN NASEEM

DEPARTMENT OF ENGINEERING MANAGEMENT

NUST COLLEGE OF E&ME
SOURCE OF CAPITAL
 DEBT OR EQUITY FINANCING

• Debt financing: Obtaining borrowed funds for

the company
• Requires asset to be used as collateral
• Equity financing: Obtaining funds for the
company in exchange for ownership
• Does not require collateral
• Offers investor some form of ownership
position
 INTERNAL OR EXTERNAL FUNDS

• Internal funds- Generated from sources within

the company
• Profits
• Sale of assets
• Working capital reduction
• Accounts receivable
• Short-term internal source of funds:
• Reducing short-term assets
• Extended payment terms from suppliers.
 PERSONAL FUNDS
• Least expensive in terms of cost and control
• Essential for attracting outside funding
• Sources include:
• Savings
• Life insurance
• Mortgage on a house or car
 FAMILY AND FRIENDS

• Likely to invest due to relationship with

entrepreneur
• Advantage - Easy to obtain money
• Disadvantage - Direct input into
operations of a venture
 COMMERCIAL BANKS
• Asset base loan
• Tangible collateral valued at more than the
amount of money borrowed
• Types of bank loans
• Accounts receivable
• Inventory
• Equipment
• Real-estate
• Cash Flow Financing
 ROLE OF THE SBA IN SMALL-
BUSINESS FINANCING
• Small Business Administration (SBA)
• Guarantor of loans made by private and other
institutions
• Proceeds can be used for:
• Working capital
• Machinery and equipment
• Furniture and fixtures
• Land and building
• Leasehold improvements
• Debt refinancing
 PRIVATE FINANCING
• Private offerings
• Also called Business Angels
• Are individuals who invest their personal
capital directly in start-ups.
• Formalized method for obtaining funds from
private investors
• Faster and less costly
• Looking for high growth and profit
 VENTURE CAPITAL

• Venture Capital
• Is money that is invested by venture-capital firms
in start-ups and small businesses with
exceptional growth potential.
• There are about 650 venture-capital firms in the
U.S. that provide funding to about 2,600 firms
per year.
• Venture capital firms fund very few
entrepreneurial firms in comparison to business
angels.
 BOOTSTRAP FINANCING

• Bootstrapping is finding ways to avoid the need for

external financing or funding through creativity,
ingenuity, thriftiness, cost-cutting, or any means
necessary.
 BOOTSTRAP FINANCING
Buying used instead of Minimizing personal Leasing equipment
new equipment. expenses. instead of buying.

Obtaining payments in
Coordinate purchases Avoiding unnecessary
advance from
with other businesses. Expenses.
customers.

Buying items cheaply but Sharing office space or

prudently via options employees with other Hiring interns.
such as eBay. Businesses.
 INITIAL PUBLIC OFFERING

• An initial public offering (IPO) is a

company’s first sale of stock to the public.

• When a company goes public, its stock is

traded on one of the major stock exchanges.
 CREATIVE SOURCES OF
FINANCING OR FUNDING

Leasing Strategic Partners

Other Programs
 LEASING

• Leasing
• A lease is a written agreement in which the
owner of a piece of property allows an
individual or business to use the property for a
specified period of time in exchange for
payments.
• The major advantage of leasing is that it
enables a company to acquire the use of assets
with very little or no down payment.
 STRATEGIC PARTNERS

• Biotech firm often partner with large drug

companies to conduct clinical trials and
bring new products to market.

• The biotech firms benefit by obtaining

funding from their partners, and the partners
benefit by having additional products to sell.
 OTHER PROGRAMS
HEC-Pakistan

http://hec.gov.pk/english/services/faculty/Start-
Up%20Research%20Grant%20Program/Pages/
Introduction.aspx
 OPPORTUNITIES
&
CHALLENGES
IN
DIGITAL INNOVATION
 DIGITAL ENTRPRENEURSHIP
• Entrepreneurship is being changed by the digital
transformation of business and society. This is
called as digital entrepreneurship.
• It includes:
• New ways of finding customers and opportunities
• New ways of designing and offering products and
services
• New ways of generating revenues and reducing cost
• New opportunities to collaborate with platforms and
partners
• New sources of opportunities, risk and competitive
advantage
 DIGITAL ENTRPRENEURSHIP
PROCESS

1. Choosing a digital business idea

2. Building a prototype

3. Testing the business idea on potential

customers

4. Launching the business

 REDUCING BARRIERS TO
ENTRPRENEURSHIP

• Faster

• Cheaper

• Easier

• New Possibilities for Collaboration

• More Effective
 NEW DIGITAL OPPORTUNITIES

• Experimentation
• Easy to create MVP as prototypes for your business
idea
• Data
• Unique data opportunities
• Scale
• Easy to change the size of the business to fit the
opportunities and resources
 NEW DIGITAL CHALLENGES

• Security
• Digital businesses will never be 100% secure
• Privacy
• Privacy regulations are increasingly complex
• Competing for Attention
• Millions of websites, mobile apps and billions
social media profiles
EXIT STRATEGY
 EXIT STRATEGY
• If you startup is your dream, why would you
want to think about an exit? It's going to be so
successful and so much fun that you don't need
to think about what comes after.
• Wrong.
• There are two very real and practical reasons
why you need to plan an exit:
• Outside investors want to collect their return
• Entrepreneurs love the art of the start
 EXIT STRATEGY
• In three to five years, you will be anxious to start a
new entity, with new ideas and spinoffs that have
built up in your mind, and certainty that you can
avoid all those potholes you hit the first time
around. If your startup was less than a success,
you'll definitely want to erase it from memory.
• Merger & Acquisition (M&A)
• Initial Public Offering (IPO)
• Sell to a friendly individual
• Make it your cash cow
• Liquidation and close
 EXIT STRATEGY
• To some, an exit strategy sounds negative. Actually,
the best reason for an exit strategy is to plan how to
optimize a good situation, rather than get out of a bad
one. This allows you to run your startup and focus
efforts on things that make it more appealing and
compelling to the short list of acquirers or buyers you
target.
• The type of business you choose should depend on
your goals, and the way you grow it should be aligned
with your exit strategy. Don't wait until you are in
trouble to think about an exit, rather think of it as a
succession plan, or a successful transition.
END OF COURSE
DISCUSSION