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Entrepreneurial Finance
- focuses on the financial management of a venture as it moves through its life
cycle, beginning with its development stage (ontwikkelingsfase) and continuing to
when the entrepreneur exits the venture.
- is about the application (aanbrengen) of financial tools and techniques to
efficiently plan, fund (financieren), operate (opereren) and enhance (uitbreiden) a
venture’s value.
- combines finance with entrepreneurship;
- finance: study of value and resource allocation
- entrepreneurship: relentless pursuit of opportunity without regard to
resources currently controlled
- multistep process: recognize opportunity, devise strategy, implement plan,
harvest the rewards
Entrepreneurial Finance VS Corporate Finance
- Entrepreneurial Finance deals with financial decision making by entrepreneurs
rather than decision making by managers of public companies
- Entrepreneurial Finance focuses on evaluating investments and financing
decisions in a new venture or a privately held business (particulier bedrijf);
- investment and financing are not separated
- often internally generated funds are not available such that external
financing (venture capital) is needed
- Investors are active rather than passive: venture capitalists do not only provide
finance but also management services
- incentive problems are addressed by contracts and close monitoring
- until recently major corporate scandals rarely involved private equity firms
- Risks are difficult to diversify
- entrepreneurs put all their eggs in 1 basket and often do not hold
diversified portfolios
- Monetizing the investment is important and hard
- new ventures do not generate free cash flows in early years
- investors in these ventures realize returns on their investments through
public offerings (IPO’s) or acquisition
,Importance of Entrepreneurial Finance
- New high-tech businesses have become an important part of economic
development
- Majority of job creation and innovations
- New high-tech businesses yesterday are the large multinational companies of
today/tomorrow (Apple, Google, Facebook, Uber)
- Investing in venture capital/private equity is profitable
- Warren Buffet, John Doerr (VC), corporate venturing (KPN, Microsoft)
Entrepreneurs Personal Traits:
Successful entrepreneur:
- ziet en grijpt commerciële kansen
- tends to be overly optimistic (perhaps even to a fault)
- plans to obtain the physical, financial and human resources needed for the
venture to succeed
- has a clear focus on how strategic choices and implementation decisions affect
rewards
- success is unlikely if you:
- are seldom unable to see an opportunity, until it ceases to be one
- view the glass as being half empty instead of half-full
- fail to plan which may be viewed as planning to fail
Successful entrepreneurs are risk averse!
Venture Green: most risky venture
Venture White: least risky venture
entrepreneurs prefer to undertake Venture Purple (49%) or White (34%) and Venture
Green (17%) Venture Yellow (17%)
Therefore entrepreneurs make risk-averse choices, “All sane people want to avoid risk”
(Sahlman 1997, HBBR)
“True entrepreneurs want to capture all of the reward and give all the risk to others. The
best business is a post office box to which people send cashiers checks. Yet risk is
unavoidable. What is a rational person to do?” (Howard Stevenson)
,Entrepreneurs behave like Parents, (Cardon et al, 2005), uses parenting as a metaphor
for examining entrepreneurship.
The entrepreneurial process follows the social cycle of dating, commitment, and the
bearing and raising of children. This can explain the less rational aspects of
entrepreneurship:
- cognitive biases that minimize risk (love is blind)
- persistence despite poor results (parent never gives up)
- extreme devotion to the business often entailing self-sacrifice
- problems of founder succession (separation anxiety)
- overcontrolling founders (overprotective parents)
Davidsson & Honig examine which people are likely to become an entrepreneur;
- if you took a business class
- you have previous start-up experience
- you have supporting family and friends
- you have friends and neighbors who are also in business
- you are a member of a business network or start-up team
- you are married
They find that you are more likely to become successful if you are a member of a
business network, success does not depend on any of the other factors
Who becomes an entrepreneur?
Verschillen tussen eigen baas (self-employed) en opgenomen ondernemer
(onderneming staat los van de ondernemer, met eigen rechten etc)
Eigen Baas:
- heeft niet bepaalde persoonlijke trekjes, vergeleken met mensen in loondienst
- werken minder uren dan degene in loondienst (salaried)
- verdienen minder geld dan degene in loondienst
Ondernemers:
- nemen deel aan activiteiten die een hoge mate van niet-routinematige cognitieve
vaardigheden vereisen, zoals creativiteit en algemene probleemoplossing
(generalized problem-solving), maar ook complexe interpersoonlijke
communicatie zoals overhalen (persuading), verkopen (selling) en anderen
managen.
- verdienen significant meer dan men in loondienst
- werken significant meer dan men in loondienst
, Entrepreneurs - Slim & Illegaal
- het is een mix van eigenschappen van vóór de arbeidsmarkt die het meest
geassocieerd worden met ondernemerschap
- men die zowel illegale/onwettige (illicit) praktijken verricht als tiener en hoog
scoort op leergierigheid testen hebben een veel grotere kans om een
entrepreneur te worden
- het is een bepaalde mix van slimme en onwettige karakteristieken die het
terechtkomen bij entrepreneurship verklaart
- creëren en introduceren van nieuwe producten onder risicovolle en onzekere
voorwaarden en het vernietigen van de posities van bestaande (incumbent)
bedrijven, het is niet verrassend dat de ondernemer zelfverzekerd , slim en
gevoelig is voor uitdagende conventies (challenging conventions).
Entrepreneurs - Diversity
Gompers and Wang (2017) onderzochten dat innovatieve ondernemerschap geen
diversiteit heeft;
- minder dan 10% is vrouw
- minder dan 2% is spaans
- minder dan 1% is afrikaans
- meer dan 72% is een witte man
Soortgelijke gebrek aan diversiteit bij Venture Capitalists
(durfkapitalisten/risicokapitalisten)
- 91.2% is man
- 80% heeft nooit een vrouwelijke investeerder aangenomen
- 86% is wit en 11% is aziatisch
Over de jaren heen zie je wel dat het aantal vrouwen dat investeerder en
investeringsprofessional wordt steeds stijgt.
Source of Fundings
Stage 1: Idee/Concept -> eigen
middelen, iets opstarten
(bootstrapping) met eigen spaargeld
of lening
Stage 2: Ontwikkeling -> familie en
vrienden, gift om te beginnen
Stage 3: De markt op -> seed capital
Stage 4: Groeien
Stage 5: Uitbreiding
Stage 6: De beurs op (IPO)
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