ENT527 Phoenix Financing Entrepreneurial Ventures DayOne Case Assignment Assignment ContentResource: Financing Entrepreneurial Ventures DayOne Case Grading

ENT527 Phoenix Financing Entrepreneurial Ventures DayOne Case Assignment Assignment ContentResource: Financing Entrepreneurial Ventures DayOne Case Grading GuideReview the DayOne Case Study at the end of Chapter 9.Compose a minimum of 1,400 words in which you discuss the DayOne Case Study:Examine what more the members of the DayOne team can do to build credibility and improve their chances of securing the capital they need to implement the business plan.Discuss what other options might be considered for raising the funds needed to move the company ahead.Evaluate if DayOne has proven the model yet, given that Andrew has approached you as a potential investor.Explain any concerns you may have.Explain reasons why you would or would not invest in DayOne.Cite a minimum of 2 peer reviewed references from the University of Phoenix Library.Format assignment consistent with APA guidelines. Financing Entrepreneurial Venture
DayOne Case Grading Guide
ENT/527 Version 1
Opportunity Assessment and Innovation
Copyright
Copyright © 2018 by University of Phoenix. All rights reserved.
University of Phoenix® is a registered trademark of Apollo Group, Inc. in the United States and/or other countries.
Microsoft®, Windows®, and Windows NT® are registered trademarks of Microsoft Corporation in the United States and/or other countries. All
other company and product names are trademarks or registered trademarks of their respective companies. Use of these marks is not intended
to imply endorsement, sponsorship, or affiliation.
Financing Entrepreneurial Venture DayOne Case Grading Guide
ENT/527 Version 1
Edited in accordance with University of Phoenix® editorial standards and practices.
2
Financing Entrepreneurial Venture DayOne Case Grading Guide
ENT/527 Version 1
Financing Entrepreneurial Venture DayOne Case
Purpose of Assignment
Lack of proper funding is one of the main reasons businesses fail. Starup up money, working capital, funding
growth and expansion all need to be planned for with precision. Equally important is understanding where to
access the funding needed in a timely manner. Students in this exercise will have the opportunity to explore
types of funding and showcase their understanding of financing a business.
Resources Required
Refer to Ch.9 of Entrepreneurship, 3rd edition, The DayOne case, page 360.
Grading Guide
Content
Met
Partially
Met
Not Met
Total
Available
Total
Earned
12
#/12
All key elements of the assignment are
covered in a substantive way. The following
questions were addressed in the student’s
paper:
1. The student examined what more the
members of the DayOne team could
do to build credibility and improve
their chances of securing the capital
they need to implement the business
plan.
2. The student discuss what other
options might be considered for
raising the funds needed to move the
company ahead.
3. The student addressed Andrew’s
interest in being a potential investor,
and whether DayOne has proven the
model.
4. The student explained their concerns
with DayOne.
5. The student gave reasons why they
would or would not invest in DayOne.
The student offered additional insights
beyond the scope of the textbook.
The paper is 1,400 words in length.
Comments:
3
Financing Entrepreneurial Venture DayOne Case Grading Guide
ENT/527 Version 1
Writing Guidelines
Met
Partially
Met
Not Met
Total
Available
Total
Earned
3
#/3
15
#/15
The paper—including tables and graphs,
headings, title page, and reference page—is
consistent with APA formatting guidelines and
meets course-level requirements.
Intellectual property is recognized with in-text
citations and a reference page.
Paragraph and sentence transitions are
present, logical, and maintain the flow
throughout the paper.
Sentences are complete, clear, and concise.
Rules of grammar and usage are followed
including spelling and punctuation.
Assignment Total
Additional comments:
#
Comments:
4
CHAPTER 9
FINANCING ENTREPRENEURIAL VENTURES
WORLDWIDE
Grameen Bank Founder and Nobel Peace Prize Laureate Muhammad Yunus speaks during
the lecture ‘A world without poverty’ on February 1, 2010 in Milan, Italy.
A new business searching for capital has no track record to present to potential investors and
lenders. All it has is a plan—sometimes written, sometimes not—that projects its future
performance. This means that it is very difficult to raise debt financing from conventional banks
because they require as many as three years of actual—not projected—financial statements and
assets that adequately cover the loan. Thus almost every new business raises its initial money
from the founders themselves and what we call informal investors: family, friends, neighbors,
work colleagues, and strangers; a few raise it from lending institutions, primarily banks; and a
miniscule number raise it from venture capitalists, who are sometimes called formal investors.
This chapter examines funding from entrepreneurs themselves, informal investors, and venture
capitalists in the United States and throughout the world. Chapter 10 will explain how to raise
equity capital, and Chapter 11 will look at nonequity sources of financing, including banks.
Before we examine conventional means of financing startups in medium- and higher-income
nations, we’ll begin by looking at how many would-be entrepreneurs eking out subsistence
livings in some of the most impoverished regions of the world are being financed by microcredit
organizations.
This chapter is written by William D. Bygrave.
Entrepreneurial Financing for the World’s Poorest
“To ‘make poverty history,’ leaders in private, public, and civil-society organizations need to
embrace entrepreneurship and innovation as antidotes to poverty. Wealth-substitution through
aid must give way to wealth-creation through entrepreneurship.”1 But the challenge is, “Where
do nascent entrepreneurs living in poverty get any money to start a micro-business?” In Africa,
for instance, 600 million people live on less than $3 per day based on purchasing power parity
(PPP). For China, the number may be 400 million and for India 500 million.2
La Maman Mole Motuke lived in a wrecked car in a suburb of Kinshasa, Zaire, with her four
children. If she could find something to eat, she would feed two of her children; the next time she
found something to eat, her other two children would eat. When organizers from a micro-credit
lending institution interviewed her, she said that she knew how to make chikwangue (manioc
paste) and that she needed only a few dollars to start production. After six months of training in
marketing and production techniques, Maman Motuke got her first loan of US$100 and bought
production materials.
Today Maman Motuke and her family no longer live in a broken-down car; they rent a house
with two bedrooms and a living room. Her four children go to school consistently, eat regularly,
and dress well. She currently is saving to buy some land in a suburb farther outside the city and
hopes to build a house.3
In the developing world, 1.4 billion people (one in four) were living below US$1.25 a day in
2005, down from 1.9 billion (one in two) in 1981. Poverty has fallen by 500 million since 1981
(from 52% of the developing world’s population in 1981 to 26% percent in 2005), and the world
is still on track to halve the 1990 poverty rate by 2015. But at this rate of progress, about a billion
people will still live below $1.25 a day in 2015.4
Conventional banking is based on the principle that the more you have, the more you can
borrow. It relies on collateral, which means that a bank loan must be adequately covered by
assets of the business or its owner—or in many cases, both. But half the world’s population is
very poor, so about 5 billion people are shut out of banks. For example, fewer than 10% of adults
in many African countries have bank accounts. Even in Mexico, the number of families with
bank accounts is less than 25%.
Microfinancing
In 1976, in the village of Jobra, Bangladesh, Muhammad Yunus, an economist, started what
today is the Grameen Bank. This was the beginning of the microfinance concept, which is best
known for its application in rural areas of Bangladesh but which has now spread throughout the
world. Yunus believes that access to credit is a human right. According to him, “one that does
not possess anything gets the highest priority in getting a loan.” Even beggars can get loans from
the Grameen Bank. They are not required to give up begging but are encouraged to take up an
additional income-generating activity, such as selling popular consumer items door to door or at
the place of begging.5 The bank provides larger loans, called microenterprise loans, for “fastmoving members.” As of June 2009, almost 1.9 million Bangladeshis had taken microenterprise
loans. The average microenterprise loan was US$360, and the biggest was US$23,209 to
purchase a truck. The Grameen Bank total loan recovery rate is 97.81%, which is remarkable
because the bank relies entirely on personal trust and not collateral.6
Microfinancing is now available in many nations. It is generally agreed that it is a powerful tool
in the fight to reduce poverty in poorer nations. The following is a microfinance success story
from Mexico, excerpted from an article in The Financial Times.7
Oscar Javier Rivera Jimenez stands on the corrugated steel roof of his warehouse and surveys
the urban wasteland around him. “We constructed all of this with the money from
Compartamos,” he says. “Before, there was nothing. We built it ourselves. That made it
possible. And the help of God as well, which is the secret of everything.” Compartamos is Latin
America’s biggest provider of microfinance—small loans aimed at budding entrepreneurs,
targeted at areas of severe poverty.
Mr. Rivera, who set up his business six years ago in the municipality of Chimalhuacan, one of
the poorest slums on the outskirts of Mexico City, is one of Compartamos’ most successful
clients. Starting at the age of 21 by delivering parts on a tricycle—much of the area lacks
paved roads, while both water and electricity supplies are unreliable—he now controls an
impressive warehouse, where builders can buy an array of different girders. He recently
opened a second branch about a mile away. He now has nine employees, four from outside the
family—showing that his brand of enthusiastic entrepreneurship might yet rescue the
neighborhood.
Compartamos (“Let’s share” in Spanish) started life as a nongovernmental organization, and
gained its seed capital from multilateral funds. Now with more than 300,000 clients, its next
plan is to convert itself into a bank, so that it can take in savings and also start to offer life
insurance. Its portfolio grew by 58% last year, and Carlos Danel and Carlos Labarthe, its joint
chief executives, intend to keep that growth going. By 2008, they aim to have one million
clients. Compartamos’ average loan is for $330,8 and as is typical of microcredit elsewhere in
the world, only 0.6% of its loans are 30 or more days late.
Microcredit for the Poorest of the Poor
The first Microcredit Summit Campaign was held in 1997. Its aim was “to reach 100 million of
the world’s poorest families, especially the women of those families, with credit for selfemployment and other financial and business services by the year 2005.”
In November 2006, the campaign was relaunched to 2015 with two new goals: (1) working to
ensure that 175 million of the world’s poorest families, especially the women of those families,
are receiving credit for self-employment and other financial and business services by the end of
2015 and (2) working to ensure that 100 million families rise above the US$1 a day threshold,
adjusted for purchasing power parity (PPP), between 1990 and 2015.9 The campaign defines the
“poorest” people as those who are in the bottom half of those living below their nation’s poverty
line, or any of the 1.2 billion people (240 million families) in the world who live on less than
US$1 per day based on PPP.
In November 2011, to coincide with the release of the State of the Microcredit Summit
Campaign Report 2012 (SOCR 2012), the Microcredit Summit Campaign announced that more
than 137.5 million of the world’s poorest families received a microloan in 2010—an all-time
high, according to a report released today by the Microcredit Summit Campaign. Assuming an
average of five persons per family, these 137.5 million microloans affected more than 687
million family members, which is greater than the combined populations of the European Union
and Russia. SOCR 2012 provides the data shown in Figure 9.1.10
Year
Number of
Total Number of Number of “poorest”
Institutions Reporting Clients Reached clients reported
12/31/97 618
13,478,797
7,600,000
12/31/98 925
20,938,899
12,221,918
12/31/99 1,065
23,555,689
13,779,872
12/31/00 1,567
30,681,107
19,327,451
12/31/01 2,186
54,932,235
26,878,332
12/31/02 2,572
67,606,080
41,594,778
12/31/03 2,931
80,868,343
54,785,433
12/31/04 3,164
92,270,289
66,614,871
12/31/05 3,133
113,261,390
81,949,036
12/31/06 3,316
133,030,913
92,922,574
12/31/07 3,552
154,825,825
106,584,679
12/31/09 3,589*
190,135,080
126,220,051
12/31/10 3,652
205,314,502
137,547,441
Source: Maes, J. P. and Reed, L. R. State of the Microcredit Summit Campaign Report 2012.
Microcredit Summit Campaign. 2012. p. 35.
Figure 9.1 Growth in the implementation of microcredit, 1997–2010
Figure 9.2 shows the relationship between the number of families living in absolute poverty in
each region (living on under US$1 a day, adjusted for PPP) and the number of poorest families
reached in each region at the end of 2010. Of the 137.5 million poorest clients reached at the end
of 2010, 82.3% (113.1 million) were women. The growth in the number of very poor women
reached has increased from 10.3 million at the end of 1999 to 113.1 million at the end of 2010.
This is almost a 1,001% increase in the number of poorest women reached from December 31,
1999 to December 31, 2010. The increase represents an additional 102.9 million poorest women
receiving microloans in the last 11 years.
Asia Africa/Middle Latin
Eastern Europe &
East
America/Caribbean
Central Asia
Number of Poorest
Families
182.4 79.8
9
3.4
Number Reached by
Microfinance
125.5 8.9
2.9
0.13
Percent Coverage
69% 11%
32%
4%
Source: Maes, J. P. and Reed, L. R.. State of the Microcredit Summit Campaign Report 2012.
Microcredit Summit Campaign. 2012. p. 39.
Figure 9.2 Microfinancing by region, 2010 (in millions)
In the following sections, we will examine how entrepreneurs in all financial circumstances,
from the poor in developing nations to the well-off in developed nations, raise money to start
their new businesses.
Entrepreneurs and Informal Investors
Self-funding by entrepreneurs, along with funding from informal investors, is the lifeblood of an
entrepreneurial society. Founders and informal investors are sometimes referred to as the Four
Fs:founders, family, friends, and foolhardy investors. One of the most noteworthy findings of the
Global Entrepreneurship Monitor (GEM) studies is the amount and extent of funding by the Four
Fs. The prevalence rate of informal investors among the adult population of all the GEM nations
combined is 3.6%, and the total sum of money they provide to fund entrepreneurship is equal to
1.2% of the combined gross domestic product (GDP) of those nations. The entrepreneurs
themselves provide 65.8% of the startup capital for their new ventures; assuming that the
remainder of the funding comes from informal investors, the funding from entrepreneurs and
informal investors combined amounts to 3.5% of the GDP of all the GEM nations.
The informal investor prevalence rate among the GEM nations participating in the 2009 study is
shown in Figure 9.3. Among the G7 nations, the United States and France have the highest
prevalence rates (both 3.8%), and the United Kingdom has the lowest (1.1%). The annual
amount of funding provided by informal investors as a percentage of the GDP of the GEM 2009
nations is shown in Figure 9.4. The total amount of funding is the product of the number of
informal investors and the average amount that each investor provides annually. A nation with a
high prevalence rate and a high average amount per informal investor relative to its income per
capita—China, for instance—ranks high in Figure 9.4. Russia, on the other hand, ranks low
because its prevalence rate and the average amount per informal investor relative to its income
per capita are both low. Of course, it is to be expected that in general the wealthier a nation, the
higher the average amount per investor. Nonetheless, there is considerable variation, as we can
see in Figure 9.5, which compares the average amount per investor with GDP per capita.
Informal investors in nations above the trend line provide more investment per capita than
predicted, and those below the trend line provide less; for example, Japan and the Netherlands
provide more, and Norway, Finland, and the United States less. However, the amount of
informal investment in a nation is only one side of the financing equation; the other side is the
startup funding needed by entrepreneurs.
Figure 9.3 Informal investor prevalence rate, 2009
Figure 9.4 Annual informal investment as a percentage of GDP, 2009
Figure 9.5 Annual amount per informal investor vs. GDP per capita (US$)
Amount of Capital Needed to Start a Business
The amount of capital that entrepreneurs need to start their ventures depends, among other
things, on the type of business, the ambitions of the entrepreneur, the location of the business,
and the country where it is started. In the United States, the average amount required to start a
business is $62,594, with entrepreneurs providing 67.9% of the funding. For all the GEM nations
combined, the average amount needed to start a business is $53,673, and as expected, more is
needed for an opportunity-pulled venture ($58,179)$58,179 than for a necessity-pushed
one ($24,467)$24,467. The amount needed to start a business is highest in the business
services sector ($76,263)$76,263 and lowest in the consumer-oriented
sector ($39,594)$39,594. The businesses that need the most startup capital are those created
with the intent to grow and hire employees. For example, nascent businesses that expect to
employ 10 or more persons five years after they open require an average of $112,943 of startup
money. Business started by men require more capital than those started by women ($65,010 vs.
$33,201); a partial explanation is that women are more likely than men to start necessity-pushed
businesses, which are more likely to be consumer-oriented and less likely to be business services.
To put nations on an approximately equal footing on the basis of wealth, we plot the amount of
funding needed to start a business against a nation’s GDP per capita, as seen in Figure 9.6.
Entrepreneurs in countries falling below the trend line have a comparative advantage over
entrepreneurs in countries above the trend line because it costs less to start a business relative to
the income per capita in those countries, all other things being equal. This finding partially
explains why the United States and Canada have the highest total entrepreneurial activity (TEA)
rates among the G7 nations and Italy the second-lowest rate. It might also explain to some extent
why Norway has a higher TEA rate than its Scandinavian neighbors Sweden and Denmark.
Figure 9.6 Startup funding per company vs. GDP per capita (US$)
Characteristics of Informal Investors
Entrepreneurs provide 65.8% of their startup capital; hence, others, principally informal
investors, provide the remaining 34.2%. Who are informal investors? We can categorize them as
follows: close family and relatives of the entrepreneurs (49.4%) are first; next are friends and
neighbors (26.4%); these are followed by other relatives (9.4%), work colleagues (7.9%), and
strangers (6.9%), as shown in Figure 9.7. Strangers—the foolhardy investors among the Four
Fs—are usually called business angels.
Relationship:
Percent Mean Amount Median
Median X
Investor-Investee Total
Invested US$ Payback Time Return
Close family
49.4%
23,190
2 years
1x
Other relative
9.4%
12,345
2 years
1x
Work colleague
7.9%
39,032
2 years
1x
Friend, neighbor
26.4%
15,548
2 years
1x
6.9%
67,672
2–5 years
1.5 x
Stranger
100.0%
24,202
2 years
1x
Figure 9.7 Relationship of informal investor to investee
Using GEM data for the United States, Bygrave and Reynolds11 developed a model that
predicted whether or not a person was an informal investor. They found that the informal
investor prevalence rate among entrepreneurs …
Purchase answer to see full
attachment