The entrepreneur would like to start his bicycle company called ‘Fun Cycles’ in Rutland, which is a landlocked country between the Midlands and Leicestershire in the west and north respectively and Lincolnshire and Northamptonshire in the northeast and southeast respectively. The bicycle company will be providing the products to the customers in hire basis along with purchasing the product. The cycles are fitted with state-of-the art technique so that the rider can have a better experience while using the product. This will help the company in increasing its sales, as there are huge opportunities in the cycling business due to the environment friendly behaviour. The customers or the individuals are now being educated about the pollution that is taking place in most of the areas, which will help them in opting the cycles for a pollution free transit to their work.
The target customers for the company will include the customers who are aware of the dangers that are present in the environment and are looking for alternatives. The customers would be able to hire or purchase the cycle from the shop according to their needs so that it will help the company in earning better profits.
Working capital is one of the important aspects that have to be considered by the entrepreneurs so that their business can start with a better financial need. The term working capital refers to the amount that will help in the assets of the company exceeding the liabilities that are present in the company. The need of the working capital is that it will enable the entrepreneur in assessing the value of the work that will take place in the company so that the company can run in an efficient manner (Block et al. 2014). The use of the operating cycle will help the company in determining the amount of working capital so that the company can run in an efficient manner. The accounts of the company that are received has to be analyzed in a proper manner, which will help the company in making a better turnover by offering the products according to the needs of the customers. The payment that has to be done by the company needs to be done on the basis of priority so that the major suppliers can be dealt on a priority manner. The operating cycle cannot be financed only by the payable of the accounts. The decrease in the assets or the line of production is either covered by the net profits in an internal manner or by borrowing the capital from an external source (Lehner 2013).
The investments that are related to venture capital are provided by the companies or the individuals who invests in the particular company so that it can be developed in a better manner. The finances that are provided for the start up companies comes with a fixed period of time along with a pre-defined rate of interest, which helps the entrepreneurs to make sure that the amount is returned within the stipulated time. The primary help that the venture capital does is that it helps the start up companies by providing them assistance with respect to finance so that the cash flow of the company can be maintained (Korteweg and Nagel 2016). The capital helps the company in focussing on the projects that have high risks and the return on the investments is also very high.
The start up enterprises need the working capital so that they it can help in employing the people who are highly skilled, which will help in increasing the production of the company. This will help the company in increasing the profits. The increase in the production of the company will help the firm in generating better revenues so that the initial amount can be paid entirely by the company (Burns 2014). This will help the company in securing their position within the market without any outside liability. The use of venture capital will help in promoting the entrepreneurs so that they can convert their ideas in to a proper business methodology. The products of the company will get promoted, as the goodwill of the venture capitalist will help the small enterprise in selling the products in an easier manner (Karadag 2015).
The important steps in any setting up of the bicycle company are to have an adequate source of financing the project. The entrepreneur needs to evaluate the different sources that are present in the market so that the capital for the company can be arranged in a systematic manner. The entrepreneur for his business can consider the method of bootstrapping, which is to set up the company independently without taking the help of any third parties. It is difficult but is one of the basic foundations in the idea of entrepreneurship (Lerner and Tag 2013). The idea of Bootstrapping is that it is a creative way of financing strategy, which helps the entrepreneur in having an income in the beginning of the company. This is possible when the start up business requires a smaller amount for the investment and no investment for the company will be taken up by the third parties. The basic advantage is that the entrepreneurs exercise full control over their company and the major disadvantage is that the period of isolation that the entrepreneurs may face due to the lack of experience. The lack of experience of the entrepreneurs is not only restricted to lack of experience but with respect to better partners and business contacts as well. The concept of bootstrapping helps in the transformation of the human capital in to financial capital that is inclusive of the investment from the external sources at some point of time (Bruton et al. 2015).
The types of bootstrapping that the entrepreneur may consider for the bicycle business is the development of the product through the process, development of the business, the need of capital financing may get minimized and the need for the capital may decrease as well (Robb and Robinson 2014).
The other methods that the entrepreneur can consider are the use of the loans that are being provided by the banks is one of the oldest methods of financial sources. Most of the banks have to test the reality and the genuineness of the idea that is being put forwards by the entrepreneurs so that the loan can be given based on it. The idea of the entrepreneur has to have a positive correlation with the bank so that the loan can be sanctioned in an appropriate manner (Chaston 2017).
The entrepreneur can also consider seed investments, which will help the company in expanding its business. The company along with the development in the technologies will help in its growth by developing the products in a better way. The private investors are always looking forward to help the entrepreneurs, as the investors will be benefitted in the long run due to the use of technological advances that will help in increasing the generation of revenue in a better way (Autio et al. 2014).
The business angels will help the entrepreneur in understanding the idea that is put forward by him in a better manner so that it can help him in setting up the business. The business angels will help the person with the business by providing them with a better experience along with the financial difficulties that the entrepreneur may face during setting up of the business. The angels help the entrepreneurs in funding the business in a smart manner by providing the knowledge and expertise that they have to the entrepreneurs (Ratten 2014).
The advantages of using venture capitalist organizations are as follows:
The firms that are dealing in venture capitals have various consultants who have diverse knowledge about the markets where the start up company wants to set up. These consultants help the company by providing them with better insights about the risks that are involved in the market. This will help the entrepreneur, as they can get a fair idea of the diverse market and avoid the risks that may cause harm to the company (Bodie 2013). It is seen that some of the entrepreneurs may not be a good leader in the business. The firms that provide the venture capital need a certain percentage of equity within the start up company. This leads to the point that the venture capital firms can advise the start up company so that it can be managed in a better way, as the firms hire management consultants as well.
The venture capital firms also help the start up company in finding the best talents that are available in the market by providing consultants who specializes in the process of hiring. This helps the start up company in avoiding the circumstances, which may lead to the hiring of the wrong people within the company that will lead to the decrease in the productivity within the new company (Valenciene and Jegeleviciute 2013).
The cycling business that the entrepreneur wants to start may deal with various legal matters, issues regarding taxation and the matters regarding payroll. The venture capital firms looks after these matters, as they have shown an interest in the success of the company by investing their capital in the company (Petkova, Rindova and Gupta 2013).
The disadvantages of the venture capital firms are as follows:
In most of the start up companies, it is seen that the venture capital firms wants to introduce one of its member in the management team of the start up company. This is generally done by the firms to see that the new business venture is successful in all its endeavours but at the same time it leads to internal conflicts as well (Bottazzi, Da Rin and Hellmann 2016).
The capital that the firm provides to the entrepreneur of the new business consists of more than 60 percent of the total capital, which indicates that the business operations within the company is not being monitored by the entrepreneur but by the venture capital firms. This leads to certain decisions that are uncontrollable by the entrepreneur, which may lead the company in failing in its objectives of delivering the products to the right customers (Feldman 2013).
The decision making capability of the new business does not rest in the hands of the entrepreneur solely. Since the venture capital firms provide the huge capital that is needed by the entrepreneur to start his business, the firms play an important role in the decision-making process of the company. This may lead to serious matters within the company and may also result in internal conflicts for the company, which may hamper the level of the productivity within the company (Gedajlovic et al. 2013).
The issues that the entrepreneur may face while getting in to a negotiation with the venture capitalists is as follows:
The valuation of the business needs to be done in a proper manner so that the amount of investment can be known to the venture capitalist. This will help the entrepreneur as well as the venture capitalist in getting a firsthand knowledge about the percentage of capital that the firm will invest in the new business (Zhelyazkov and Gulati 2016).
The investment has to be done within the time limit when required. Most of the start ups require a large amount of capital, which is provided at regular intervals by the firms. The firms need to provide the capital within the stipulated time so that the operations of the new business may not get hampered.
The agreements that are related to the factor of employment has to be discussed with the venture capitalist so that the benefit and compensation that is being provided to the employees can be set according to their skill set. This will help the company in negotiating the issues with the venture capitalists so that the activities of the employees and their payments can be controlled in a better manner (Beammish 2013).
The investors in the new company will try to cash out their investment in the exit strategy. This can be prevented by negotiating the rights of registration with respect to the demands of the venture capitalist. The other rights that needs to be considered is the participation right with respect to the stock sale and the redemption of the stocks under severe conditions of the company (Yan and Luo 2016).
The entrepreneur needs to put up the entire business plan in front of the venture capitalists so that they can understand the viability of the project, which will help the entrepreneur in getting the amount of capital that is mentioned within the plan. The venture capitalists need to evaluate the project and calculate the capital that is being asked by the entrepreneur in the plan so that the investment that is being made can help in reaping harvests after a certain period. This will help the venture capitalist firms to earn their profits as well by investing in the new business. Once the venture capitalist agrees to provide the financial capital to the entrepreneur, he needs to hire the best legal person that is available at his expense so that the contracts and the clauses that are being mentioned in the agreement do not include any frauds.
The financial advisor will help the entrepreneur by providing him with better advices with respect to the finances. The legal advisor will also be able to negotiate with the venture capitalist firms in a better manner so that the future of the start up company can be secured in a better manner. The contract with the venture capital firm has to be in an efficient manner so that the terms that are being put forward are free from any hidden contracts. Sometimes the entrepreneur cannot understand the legal terms that are being inducted in the agreement, which may lead to dangerous situations within the company. The hiring of a legal advisor helps the entrepreneur in dealing with these problems in a better way.
Conclusion and Recommendation
Thus, it can be concluded that the entrepreneur needs to consider the choices that are available to him with respect to the various financers that are available in the market. The best option for the entrepreneur that is present in the market with respect to the finances of the business that are available is to avail the business angels. The business angels will help the entrepreneur in providing better advices with respect to the market conditions so that it can help the company in being established in a better way.
The entrepreneur needs to consider the advantages and disadvantages that are present with respect to venture capitalist firms so that he can be aware of the problems that may result in harming the new company in the long run. The process of negotiation with the venture firms will help the entrepreneur in setting the terms and conditions in a proper manner so that it does not create any problem within the new company.
Reference:
Autio, E., Kenney, M., Mustar, P., Siegel, D. and Wright, M., 2014. Entrepreneurial innovation: The importance of context. Research Policy, 43(7), pp.1097-1108.
Beamish, P., 2013. Multinational joint ventures in developing countries (RLE International Business). Routledge.
Block, J.H., De Vries, G., Schumann, J.H. and Sandner, P., 2014. Trademarks and venture capital valuation. Journal of Business Venturing, 29(4), pp.525-542.
Bodie, Z., 2013. Investments. McGraw-Hill.
Bottazzi, L., Da Rin, M. and Hellmann, T., 2016. The importance of trust for investment: Evidence from venture capital. The Review of Financial Studies, 29(9), pp.2283-2318.
Bruton, G., Khavul, S., Siegel, D. and Wright, M., 2015. New financial alternatives in seeding entrepreneurship: Microfinance, crowdfunding, and peer?to?peer innovations. Entrepreneurship Theory and Practice, 39(1), pp.9-26.
Burns, P., 2014. New Venture Creation: A Framework for Entrepreneurial Start-Ups. Palgrave Macmillan.
Chaston, I., 2017. Entrepreneurship. In Technological Entrepreneurship (pp. 1-24). Springer International Publishing.
Feldman, R., 2013. Patent demands & startup companies: The view from the venture capital community. Yale JL & Tech., 16, p.236.
Gedajlovic, E., Honig, B., Moore, C.B., Payne, G.T. and Wright, M., 2013. Social capital and entrepreneurship: A schema and research agenda. Entrepreneurship Theory and Practice, 37(3), pp.455-478.
Karadag, H., 2015. Financial management challenges in small and medium-sized enterprises: A strategic management approach. Emerging Markets Journal, 5(1), p.26.
Korteweg, A. and Nagel, S., 2016. Risk?Adjusting the Returns to Venture Capital. The Journal of Finance, 71(3), pp.1437-1470.
Lehner, O.M., 2013. Crowdfunding social ventures: a model and research agenda. Venture Capital, 15(4), pp.289-311.
Lerner, J. and Tåg, J., 2013. Institutions and venture capital. Industrial and Corporate Change, 22(1), pp.153-182.
Petkova, A.P., Rindova, V.P. and Gupta, A.K., 2013. No news is bad news: Sensegiving activities, media attention, and venture capital funding of new technology organizations. Organization Science, 24(3), pp.865-888.
Ratten, V., 2014. Future research directions for collective entrepreneurship in developing countries: a small and medium-sized enterprise perspective. International Journal of Entrepreneurship and Small Business, 22(2), pp.266-274.
Robb, A.M. and Robinson, D.T., 2014. The capital structure decisions of new firms. The Review of Financial Studies, 27(1), pp.153-179.
Valanciene, L. and Jegeleviciute, S., 2013. Valuation of crowdfunding: benefits and drawbacks. Economics and Management, 18(1), pp.39-48.
Yan, A. and Luo, Y., 2016. International joint ventures: Theory and practice. Routledge.
Zhelyazkov, P.I. and Gulati, R., 2016. After the break-up: The relational and reputational consequences of withdrawals from venture capital syndicates. Academy of Management Journal, 59(1), pp.277-301.
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