Added value refers to various non-monetary services which venture capital firms provide in addition to their participation commitment to their startups. The services are provided with the goal of increasing the startup’s growth and, consequently, the value of the company over the period of investment commitments. The services include operational and strategic business functions for startups.[1] Specifically, startups benefit from the venture capital firms management and industry expertise, as well as from their access to attractive customer networks, business partners and other potential investors. In addition, the venture capital firms serve as sparring partners in strategy development processes and the support corporate controlling.[2]

 

References

[1] cf. Boué 2008, pp 24, 27-28

[2] cf. Rauschenbusch 2005, p 105

 

Boué, Andreas R. (2008): Wie komme ich zu Venture Capital? Praxisratgeber mit Insidertipps für die erfolgreiche Kapitalakquise, Wien.

Rauschenbusch, Alec (2005): Der Weg zu einer erfolgreichen Finanzierung. Venture Capital als Finanzierungsinstrument für High-tech-Start-ups, in: Venture Capital Magazin. Sonderausgabe „Tech-Guide 2005“, pp 104–105.

The big-money-model is a term from the world of venture capital. The model refers to innovative business concepts which have a very high financing need and need a strong and rapid growth rate due to a technological advantage and identified market.[1] The basis for the implementation of the big- money-model is a promising business opportunity from a sustainable business model which is initially developed and subsequently described in a convincing business plan. The big-money-model means to start great and to grow fast.[2] Only start-ups who follow the big-money-model are really suitable for venture capital firms.[3]

 

References

[1] cf. Weitenauer 2011, p 13

[2] cf. Volkmann / Tokarski 2006, p 312

[3] cf. Weitenauer 2011, p 13

 

Volkmann, Christine K./Tokarski, Kim Oliver (2006): Entrepreneurship. Gründung und Wachstum von jungen Unternehmen, Stuttgart.

Weitnauer, Wolfgang (2011): Handbuch Venture Capital. Von der Innovation zum Börsengang, 4. Auflage, München.

Debt capital is left to the borrowers for a limited period. Herein lies the significant difference to shareholders equity. Debt equity must – unlike shareholders equity – be repaid within a previously contracted period to the investor. Financing through borrowings are divided into their maturity into short, medium and long-term debt financing. Short-term debt financing sources include, for example, bank overdrafts, trade credit and customer advances. The medium and long-term external financing sources include, for example, the traditional loan, corporate bonds and promissory notes. Concerning to debt equity the "golden financing rule" must be taken into consideration. This means that matching the duration between the time of the capital investment and capital commitment must always be respected. Current liabilities should therefore not be used to finance fixed assets, as it is intended to serve the company in the long term and not the licensed capital in accordance with long-term commitment.[1] Borrowing is usually only for advanced founders relevant.[2]

 

References

[1] cf. Volkmann / Tokarski 2006, pp 345–353

[2] cf. Weitenauer 2011, pp 158–159

 

Volkmann, Christine K./Tokarski, Kim Oliver (2006): Entrepreneurship. Gründung und Wachstum von jungen Unternehmen, Stuttgart.

Weitnauer, Wolfgang (2011): Handbuch Venture Capital. Von der Innovation zum Börsengang, 4. Auflage, München.

During a due diligence an investor checks the capital-seeking companies through its paces as a basis for the investment decision.[1] The capital-seeking companies must agree to a due diligence beforehand. The aim of due diligence is to identify risks for the investor. During the due diligence the investor illuminates all areas of the capital-seeking companies and the financing of the project itself. Due diligence usually takes about two to four weeks.[2]

Due Diligence is divided into several sub-tests, which are usually carried out by external specialists:

• Legal Due Diligence
• Financial Due Diligence
• Technical Due Diligence
• Commercial Due Diligence

If the due diligence is positive and no knowledge arises that cause the investor to reconsider and adapt his offer, both parties start to negotiate.[3] In rare cases, the contract negotiations are already underway in parallel with the ongoing due diligence in order to speed up the process.[4]

 

References

[1] Weitenauer 2011, p 293

[2] Boué 2008, p 23

[3] Lemper 2005, pp 70–71

[4] Rauschenbusch 2005, p 105

 

Boué, Andreas R. (2008): Wie komme ich zu Venture Capital? Praxisratgeber mit Insidertipps für die erfolgreiche Kapitalakquise, Wien.

Lemper, Stefan (2005): Ablauf einer Venture-Capital-Finanzierung – 5 idealtypische Phasen zwischen erster Kontaktaufnahme und Unterzeichnung der Verträge, in: Venture Capital Magazin. Sonderausgabe „Start-up 2006”, pp. 70-71.

Rauschenbusch, Alec (2005): Der Weg zu einer erfolgreichen Finanzierung. Venture Capital als Finanzierungsinstrument für High-tech-Start-ups, in: Venture Capital Magazin. Sonderausgabe „Tech-Guide 2005“, pp. 104-105.

Weitnauer, Wolfgang (2011): Handbuch Venture Capital. Von der Innovation zum Börsengang, 4. Auflage, München.

The executive summary is the compressed and reduced version of the business plan and thus its most important component. It serves to attract investors for their own business idea, and is often that famous first impression for which you don’t get a second chance. In other words: It is the entrance ticket to an investment project.[1] The executive summary is not an advertising text, but a fact-oriented representation of facts. It should be more than two pages long and yet contain all relevant information relating to the business start-up (e.g. business idea, founding team, finance plan, etc.). Here it is clear that a reduction of information is essential – a challenge for many new entrepreneurs. Even the writing style should be "reduced", that is, as short and thick as possible writing, formulate easy to understand as well as complicated sentence structures refrain.[2]

 

References

[1] cf. Geigenberger 1999, p 61

[2] cf. Fischl / Wagner 2011, pp 25–26

 

Fischl, Bernd/Wagner, Stefan (2011): Der perfekte Businessplan. So überzeugen Sie Banken und Investoren, 2. Auflage, München.

Geigenberger, Isabel (1999): Risikokapital für Unternehmensgründer. Der Weg zum Venture Capital, München.

The exit terminates the participation phase of the venture capital firm, usually after three to seven years.[1] The phase-out of the investment is usually complemented through an initial public offering (IPO = Initial Public Offering) or by selling the company's shares to the former shareholders (usually the founder or founders of the company) or to strategic investors.[2]

 

References

[1] cf. Weitenauer 2011, p 15

[2] cf. Rauschenbusch 2005, p 105

 

Rauschenbusch, Alec (2005): Der Weg zu einer erfolgreichen Finanzierung. Venture Capital als Finanzierungsinstrument für High-tech-Start-ups, in: Venture Capital Magazin. Sonderausgabe „Tech-Guide 2005“, pp. 104-105.

Weitnauer, Wolfgang (2011): Handbuch Venture Capital. Von der Innovation zum Börsengang, 4. Auflage, München.

Guerilla marketing is an unconventional form of marketing which presents a brand to the target group in an unexpected way, so that each individual feels addressed personally.[1] According to Hutter/Hoffmann, guerrilla marketing includes "different communication policy instruments at a comparatively low cost with the goal to achieve a surprise effect and, therefore, a very high guerilla effect (ratio promotional benefits/costs) for the largest possible number of people."[2] The three central principles of guerrilla marketing are defined as follows:

•Guerilla marketing surprises people. It employes unusual actions to win the attention of oversaturated ad consumers.[3]

•Guerilla marketing campaigns are rebellious. Such campaigns usually have the aim to challenge conventional marketing methods and to destabilize the values of the competition.[4]

•Guerilla marketing relies on the inherent dynamic and independent distribution of the advertising message.[5]

 

References

[1] cf. Margolis/Garrigan 2010, unpaginated

[2] cf. Hutter/Hoffmann 2011, p. 121–135

[3] cf. Schulte 2007, p. 28

[4] cf. Zerr 2005, p. 468

[5] cf. Huber/Meyer/Nachtigall 2009, p. 6

 

Huber, F./Meyer, F., Nachtigall, C. (2009): Guerilla-Marketing, p. 6 in: Wollscheid, C. (2010): Guerilla-Marketing, Grundlagen, Instrumente und Beispiele, Hamburg.

Hutter/Hoffmann (2011): Guerilla-Marketing – eine nüchterne Betrachtung einer vieldiskutierten Werbeform. In: der Markt – International Journal of Marketing. Nr. 2, 2011, 50. Jg., p. 121–135.

Margolis, J./Garrigan, P. (2010): Guerilla-Marketing für Dummies, Weinheim.

Schulte, T. (2007): Guerilla-Marketing für Unternehmenstypen, ¬ Das Kompendium, 3., völlig überarbeitete und erweiterte Auflage, Sternenfels.

Zerr, K. (2005): Guerilla-Marketing in der Kommunikation, p. 468, in: Wollscheid, C. (2010): Guerilla-Marketing, Grundlagen, Instrumente und Beispiele, Hamburg.

The Return on Investment (RoI) is a financial ratio, which reflects the profitability of a company. The RoI is affected by the amount of capital employed, since it is calculated from the ratio of net income, interest and taxes to total capital. The lower the shareholders equity, the higher the RoI. This principle is called "leverage effect".[1]

 

References

[1] Weitenauer 2011, p 156

 

Weitnauer, Wolfgang (2011): Handbuch Venture Capital. Von der Innovation zum Börsengang, 4. Auflage, München.

Shareholders equity belongs to the adhesion mass of a company. It is exposed to the risk of total loss and serves the existing and creditor protection. Shareholders equity is the basis for the financing structure of a company as a whole, without it, alternative financing instruments in the field of debt or mezzanine would not obtain.[1] Shareholders equity can be provided to a company either through equity financing from outside or through retained earnings (retention of profits in the company to strengthen its equity = internal financing).[2] Shareholders equity is provided to a company for an unlimited period.[3]

 

References

[1] cf. Weitenauer 2011, p 156

[2] cf. Wöhe 2002, p 922

[3] cf. Volkmann / Tokarski 2006, p 345

 

Volkmann, Christine K./Tokarski, Kim Oliver (2006): Entrepreneurship. Gründung und Wachstum von jungen Unternehmen, Stuttgart.

Weitnauer, Wolfgang (2011): Handbuch Venture Capital. Von der Innovation zum Börsengang, 4. Auflage, München.

Wöhe, Günter (2002): Einführung in die Allgemeine Betriebswirtschaftslehre, 21. Auflage, München.

Venture or risk capital, is invested as time-limited shareholders equity in young, fast growing and privately held startups. Investors typically opt for startups with a potential for huge profits, based on product and/or service innovations. With the investment, the investor acquires shares in the company. The shares are sold as profitable as possible after a few years (Exit). In general, venture capital investors support the founders actively in management issues.[1]

 

References

[1] cf. Kobel 2005, p 153

 

Kobel, Magnus (2005): Pre-IPO-Finanzierungen durch Venture-Capital-Unternehmen. Eine phasenspezifische Analyse der institutionenökonomischen Risiken des Investors, Bayreuth.