PART A : 3 MARKS

1. List the Elements of a New-Venture Team?

new-venture team is the group of founders, key employees, and advisers that move a new venture from an idea to a fully functioning Firm
The elements are:
• Founder or founders of a venture
• Board of directors
• Board of advisors
• Management team
• Key employees
• Lenders and investors
• Other professionals

2. List and briefly explain four attributes of sole entrepreneurs and members of new venture
team.
• Firm started by a team : New ventures that are started by a team can provide greater resources, a broader diversity of viewpoints, and a
broader array of other positive attributes than ventures started by individuals.
• Higher education : Evidence suggests that important entrepreneurial skills are enhanced through higher education.
• Prior entrepreneurial experience: Founders with prior entrepreneurial experience are familiar with the entrepreneurial process and are more
likely to avoid costly mistakes than founders new to the rigors of the entrepreneurial process.
• Relevant industry experience: Founders with experience in the same industry as their new venture will most likely have better-established
professional networks and more applicable marketing and management expertise than founders without relevant industry experience.
• Broad social and professional Network: Founders with broad social and professional networks have potential access to additional know-how,
capital, and customer referrals.
3. Why most new ventures need financing or funding?
There are three reasons that most entrepreneurial ventures need to raise money during their early life: cash flow challenges, capital investments,
and lengthy product development cycles.
cash flow challenges: The lag between spending to generate revenue and earning income from the firm’s operations creates cash flow
challenges, particularly for new, often small, ventures, as well as for ventures that are growing rapidly.
Inventory must be purchased, employees must be trained and paid, and advertising must be paid for before cash is generated from sales.
To prevent their firms from running out of money, most entrepreneurs need investment capital or a line of credit from a bank to cover cash flow
shortfalls until their firms can begin making money.
capital investments: The cost of buying real estate, building facilities, and purchasing equipment typically exceeds a firm’s ability to provide
funds for these needs on its own. Firms often need to raise money early on to fund capital investments.
it becomes increasingly difficult for them to do so when it comes to buying property, constructing buildings, purchasing equipment, or investing
in other capital projects.
Lengthy Product Development Cycles: Some products are under development for years before they generate earnings.
The up-front costs often exceed a firm’s ability to fund these activities on its own. In some industries, firms need to raise money to pay the up-
front costs of lengthy product development cycles.
This tortoise-like pace of product development requires substantial up-front investment before the anticipated payoff is realized. lengthy product
development cycles are the realities ventures face in many industries.

4. What is a business plan? Who are the audience for a firm’s business plan?
A business plan is a written narrative, typically 25 to 35 pages long, that describes what a new business intends to accomplish and how it intends
to accomplish it.
There are two primary audiences for a firm’s business plan:
a Firm’s employees : A clearly written business plan, one that articulates the vision and future plans of a firm, is important for both the
management team and the rank and- file employees.
A clearly written business plan also helps a firm’s rank-and-file employees operate in sync and move forward in a consistent and purposeful
manner.
investors and other external stakeholders: External stakeholders who are being recruited to join a firm, such as investors, potential business
partners, and key employees, are the second audience for a business plan. To appeal to this group, the business plan must be realistic and not
reflective of overconfidence on the firm’s part. Unless the new business can show that it has impressive potential, investors have little reason to
become involved with it.
5. List the main elements of a business plan (the outline of a business plan).
• Cover page
• Table of contents
• Executive summary
• Industry analysis
• Company Description
• Market Analysis
• The Economics of the Business
• Marketing Plan
• Design and Development Plan
• Operations Plan
• Management Team and Company Structure
• Overall Schedule
• financial Projections

6. Explain briefly the three types of “Business Plan”?

There are three types of business Plans
Summary plan: A summary business plan is 10 to 15 pages and works best for companies that are very early in their development and are not prepared to
write a full plan.
Works best for new ventures in the early stages of development that want to “test the waters” to see if investors are interested in their idea
Full business plan: A full business plan is typically 25 to 35 pages long.
Works best for new ventures that are at the point where they need funding or financing; serves as a “blueprint” for the company’s operations
Operational Business Plan : 40–100 pages Is meant primarily for an internal audience;
works best as a tool for creating a blueprint for a new venture’s operations and providing guidance to operational managers

7. Explain the concept called liabilities of newness.

The liability of newness refers to the fact that entrepreneurial ventures often falter or even fail
because the people who start them can’t adjust quickly enough to their new roles and because the firm lacks a “track record” with customers and suppliers.
These limitations can be overcome by assembling a talented and experienced new-venture team.
- new ventures have a high propensity to fail.
- The high failure rate is due in part to what is known as the liability of newness, which refers to the fact that companies often falter because the
people who start them aren’t able to adjust quickly enough to their new roles and because the firm lacks a “track record” with outside buyers and suppliers
8. List and briefly explain four alternatives of raising money (funding) for a new venture.
Personal financing: the seed money that gets a company off the ground comes from the founders’ own pockets. There are three categories
of sources of money in this area: personal funds, friends and family, and bootstrapping.
The vast majority of founders contribute personal funds along with sweat equity to their ventures.
Friends and family are the second source of funds for many new ventures. Bootstrapping is a third source of seed money for new ventures.
Bootstrapping is finding ways to avoid the need for external financing or funding through creativity, ingenuity, thriftiness, cost-cutting, or any
means necessary.
Equity Capital: Once a start-up’s financial needs exceed what personal funds, friends and family, and bootstrapping can provide, debt and
equity are the two most common sources of funds Equity financing (or funding)
means exchanging partial ownership of a firm, usually in the form of stock, in return for funding.
Angel investors, private placement, venture capital, and initial public offerings are the most common sources of equity funding
Debt Financing: Debt financing is getting a loan. The most common sources of debt financing are commercial banks and Small Business
Administration (SBA) guaranteed loans. In general, banks lend money that must be repaid with interest.

Creative Sources: Because financing and funding are difficult to obtain, particularly for startups, entrepreneurs often use creative ways to
obtain financial resources.
Even for firms that have financing or funding available, it is prudent to search for sources of capital that are less expensive than traditional ones.
Such as , A popular creative source of funding for new businesses is crowdfunding.
Crowdfunding is the practice of funding a project or new venture by raising
monetary contributions from a large number of people, typically via the Internet.
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 Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (STTR) programs are two important sources of early-
stage funding for technology firms.
Strategic partners are another source of capital for new ventures. Indeed, strategic partners often play a critical role in helping young firms fund
their
operations and round out their business models.
PART B- Long answer: ANSWER any THREE QUESTIONS
1. Discuss the ways lenders and investors add value to an entrepreneurial firm?
lenders and investors have a vested interest in the companies they finance, often causing these individuals to become very involved in helping
the firms they fund.
lenders and investors help new firms by providing guidance and lending legitimacy and assume the natural role of providing financial oversight.
In some instances, lenders and investors also work hard to help new firms fill out their management teams.
Sometimes this issue is so important that a new venture will try to obtain investment capital not only to get access to money, but also to obtain
help hiring key employees.
Bankers also play a role in establishing the legitimacy of new ventures and their initial management teams. Investors often take a seat on the
boards of directors of the firms they fund to provide oversight and advice.
beyond Financing and Funding: Ways lenders and investors add value to an entrepreneurial venture:
■ Help identify and recruit key management personnel
■ Provide insight into the industry and markets in which the venture intends to participate
■ Help the venture fine-tune its business model
■ Serve as a sounding board for new ideas
■ Provide introductions to additional sources of capital
■ Recruit customers
■ Help to arrange business partnerships
■ Serve on the venture’s board of directors or board of advisors
■ Provide a sense of calm in the midst of the emotional roller-coaster ride that many new-venture
teams experience
2. List and explain any three creative sources of financing or funding?
common creative sources of financing and funding for entrepreneurial firms:
• Crowdfunding is the practice of funding a project or new venture by raising monetary contributions from a large number of people,
typically via the Internet. There are two types of crowdfunding sites: rewards-based crowdfunding and equity-based crowdfunding.
Rewards-based crowdfunding allows entrepreneurs to raise money in exchange for some type of amenity or reward. The most popular rewards-
based crowdfunding site are Kickstarter.
The second type of crowdfunding is equity-based crowdfunding. Equitybased crowdfunding helps businesses raise money by tapping individuals
who provide funding in exchange for equity in the business. more popular equity-based crowdfunding site are FundersClub.
• 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. There are many
different players in the leasing business.
Some vendors, such as Dell, lease directly to businesses. As with banks, the vendors look for lease clients with good credit backgrounds and the
ability to make the lease payments.
There are also venture-leasing firms that act as brokers, bringing the parties involved in a lease together.
These firms are acquainted with the producers of specialized equipment and match these producers with new ventures that are in need of the
equipment.
• Strategic partners are another source of capital for new ventures. Indeed, strategic partners often play a critical role in helping young
firms fund their
operations and round out their business models.
a small biotech firm would rarely have access to sufficient financial capital and other resources to take a new discovery from the lab all the way
to market.
It just takes too much time, capital, and other resources to pull off.
As a result, they rely on deep-pocketed strategic partners to perform parts of the process. Many strategic partnerships are also formed to gain
access to a particular resource or to facilitate speed to market.
In exchange for access to plant and equipment and established distribution channels, new ventures bring an entrepreneurial spirit and new
ideas to these partnerships.
These types of arrangements can help new ventures lessen the need for financing or funding.
3. Explain the three steps involved in preparing to raise debt or equity financing.
The steps involved in properly preparing to raise debt or equity financing Are:
Step 1 Determine precisely how much money the company needs.
Constructing and analyzing documented cash flow statements and projections for needed capital expenditures are actions taken to complete this step.
This information should already be in the business plan, Knowing exactly how much money to ask for is important for at least two reasons.
First, a company doesn’t want to get caught short, yet it doesn’t want to pay for capital it doesn’t need.
Second, entrepreneurs talking to a potential lender or investor make a poor impression when they appear uncertain about the amount of money required to
support their venture.
Step 2 Determine the most appropriate type of financing or funding.
Equity and debt financing are the two most common alternatives for raising money. Equity financing (or funding) means exchanging partial ownership of a
firm, usually in the form of stock, in return for funding.
Angel investors, private placement, venture capital, and initial public offerings are the most common sources of equity funding.
Equity funding is not a loan—the money that is received is not paid back.
Instead, equity investors become partial owners of the firm. Many entrepreneurs are not familiar with the standards that equity investors apply and get don’t
qualify for venture capital or angel investment.
Often, the reason they isn’t because their business proposal is poor, but because they don’t meet the exacting standards equity investors usually apply.
Debt financing is getting a loan. The most common sources of debt financing are commercial banks and Small Business Administration
(SBA) guaranteed loans.
In general, banks lend money that must be repaid with interest. bankers are interested in minimizing risk, properly collateralizing loans, and repayment, as
opposed to return on investment and capital gains. The ideal candidate for a bank loan is a firm with a strong cash flow, low leverage, audited financial
statements, good management, and a healthy balance sheet. A careful
review of these criteria demonstrates that most start-ups are simply too early in their life cycle to have the set of characteristics bankers want.
Step 3 Developing a strategy for engaging potential investors or bankers.
There are three steps to developing a strategy for engaging potential investors or bankers.
First, the lead entrepreneurs in a new venture should prepare an elevator speech (or pitch)—a brief, carefully constructed statement that outlines the merits
of a business opportunity.
The second step in developing a strategy for engaging potential investors or bankers is more deliberate and requires identifying and contacting the best
prospects. First, the new venture should carefully assess the type of financing or funding it is likely to qualify for Then, a list of
potential bankers or investors should be compiled.
The third step in engaging potential investors or bankers is to be prepared to provide the investor or banker a completed business plan and make a
presentation of the plan if requested. The presentation should be as polished as possible and should demonstrate why the new venture represents an
attractive endeavor for the lender or investor.
4. One of the sources of raising money (funding) for a new venture is referred to as bootstrapping. Explain
and discuss what is meant by bootstrapping as a method of funding. Provide four examples of
bootstrapping method.

Bootstrapping is a source of seed money for new ventures.

Bootstrapping is finding ways to avoid the need for external financing or funding through creativity, ingenuity, thriftiness, cost-cutting, or any
means necessary.
It is the term attached to the general philosophy of minimizing start-up expenses by aggressively pursuing cost-cutting techniques and money-
saving tactics.
While bootstrapping and using personal funds are highly recommended actions in almost all start-up situations, there are subtle downsides.
Cost cutting and saving money are admirable practices,
but pushing these practices too far can hold a business back from reaching its full potential.
examples of bootstrapping Methods:
■ Buy used instead of new equipment
■ Coordinate purchases with other businesses
■ Lease equipment instead of buying
■ Obtain payments in advance from customers
■ Minimize personal expenses
■ Avoid unnecessary expenses, such as lavish office space or furniture
■ Buy items cheaply, but prudently, through discount outlets or online auctions such as eBay,
rather than at full-price stores
■ Share office space or employees with other businesses
■ hire interns
5. Discuss the advantages and disadvantages of starting a venture as a team.

Teams bring more talent, resources, ideas, and professional contacts to a new venture than does a sole.
Teams bring a broader and deeper network of social and professional contacts to a new business.
The psychological support that the cofounders of a business can offer one another can be an important element of a new venture’s success.
When a new venture is started by a team, several issues affect the value of the team.
First, teams that have worked together before, as opposed to teams that are working together for the first time, Team members may not get
along.
Second, if the members of the team are heterogeneous, meaning that they are diverse in terms of their abilities and experiences, rather
than homogeneous, meaning that their areas of expertise are very similar to one another,
they are likely to have different points of view about technology, hiring decisions, competitive tactics, and other important activities.
If the founders have similar areas of expertise, they may duplicate rather than complement one another.
Team members can easily disagree in terms of work habits, tolerances for risk,
levels of passion for the business, ideas on how the business should be run, and similar key issues.
A founding team can be too big, causing communication problems and an increased potential for conflict.
6. Explain and discuss the three main roles of a firm’s board of directors.
If a new venture organizes as a corporation, it is legally required to have a board of directors—a panel of individuals who are elected by a
corporation’s shareholders to oversee the management of the firm.
A board of directors has three formal responsibilities:
(1) appoint the firm’s officers (the key managers), (2) declare dividends, and
(3) oversee the affairs of the corporation

Provide expert guidance: Although a board of directors has formal governance responsibilities, its most useful role is to provide guidance and
support to the firm’s managers.
Many CEOs interact with their board members frequently and obtain important input.
The key to making this happen is to pick board members with needed skills and useful experiences who are willing to give advice and ask
insightful and probing questions.
lend legitimacy: Providing legitimacy for the entrepreneurial venture is another important function of a board of directors.
Well-known and respected board members bring instant credibility to the firm.
Presumably, high-quality individuals would be reluctant to serve on the board of a low-quality firm because that would put their reputation at
risk.
So when a high-quality individual does agree to serve on a firm’s board, the individual is in essence “signaling”
that the company has potential to be successful.
Board members are also often instrumental in helping young firms arrange financing or funding.
7. Explain the guidelines for writing a business plan.
There are several important guidelines that should influence the writing of a business plan
• structure of the Business Plan:
To make the best impression, a business plan should follow a conventional Structure.
Although some entrepreneurs want to demonstrate creativity in everything they do, departing from the basic structure of the conventional business plan
format is usually a mistake.
entrepreneurs should avoid a plan that looks as though it came from a “canned” source.
software package may be helpful in providing structure and saving time, but the information in the plan should still be tailored to the individual business.
Some businesses hire consultants or outside advisers to write their business plans. However, a consultant or outside adviser shouldn’t be the primary author
of the plan.
Along with facts and figures, a business plan needs to project a sense of anticipation and excitement about the possibilities that surround a new venture—a
task best accomplished by the creators of the business themselves,
• content of the Business Plan:
The business plan should give clear and concise information on all the important aspects of the proposed new venture.
It must be long enough to provide sufficient information, yet short enough to maintain reader interest. After a business plan is completed, it should be
reviewed for spelling, grammar, and to make sure that no critical information has been omitted.
The plan’s appearance which is the Style or Format of the business Plan must be carefully thought out.
When writing the plan, avoid getting carried away with the design elements included in word-processing programs, such as boldfaced type, italics, different
font sizes and so forth. Overuse of these tools makes a business plan look amateurish rather than professional
. There are three types of business plans, each of which has a different rule of thumb regarding length and level of detail.
Summary Business Plan: 10–15 pages
Works best for new ventures in the early stages of development that want to “test the waters” to see if investors are interested in their idea
Full Business Plan
25–35 pages
Works best for new ventures that are at the point where they need funding or financing; serves as a “blueprint” for the company’s operations
Operational
Business Plan:
40–100 pages
Is meant primarily for an internal audience; works best as a tool for creating a blueprint for a new venture’s operations and providing guidance to operational
Managers
• recognizing the elements of the Plan May Change : A final guideline for writing a business plan is to recognize that the plan will usually change as it is
being written and as the business evolves.
New insights invariably emerge when entrepreneurs immerse themselves in writing the plan and start getting feedback from others.
This process continues throughout the life of a company, and it behooves entrepreneurs to remain alert and open to new insights and ideas