E Commerce : A Great Idea Can Only Get You So Far With Limited Funds

These entrepreneurs start a company knowing from day one that their vision could change the world. They attract investment from equally crazy financial investors – venture capitalists. They hire the best and the brightest. Their job is to search for a repeatable and scalable business model.  When they find it, their focus on scale requires even more venture capital to fuel rapid expansion. Steve Blank acknowledged that scalable startups in innovation clusters (Silicon Valley, Shanghai, New York, Bangalore, Israel, etc.) make up a small percentage of entrepreneurs and startups but because of the outsize returns, attract almost all the risk capital.

Walnut Venture Associates are a group of angel investors. In 1997 the club had around a dozen individual investors, forming an “angel group”. Their primary targets are investments ranging from $250,000 to $1,000,000. This is due to the gap of capital funds initiated by the VC’s from not considering investments bellow $1 million. Also, angel investors can acquire significant equity at low cost, and help the growth of the company with their knowledge and expertise. By selecting only the most exceptional people and ideas, investments in startups can lead to massive returns on relatively small investments. As unexperienced entrepreneurs, they are a key resource to have in order to achieve quick growth, and secure the company’s early stages.

Business angels usually invest in companies around their home so they can check up on their investments.

Venture capital firms typically appoint representatives on the company’s board and offers strategic advice to the

Founders that intend to drive the business long-term should receive the larger chunk of the equity. Part-time founders and non-performing founders should expect very little. Early cash is valuable.

Before now, only entrepreneurs in a few select areas with the right connections could be funded, and only then if their vision matched a VC or Angel Investors criteria or schedule. Consequently, only a few thousand VCs in the world could decide which entrepreneurial

Zacharakis and Meyer’s research (1998) into the investment decision-making processes of VC investors is particularly pertinent to whether VC investments can be systematically improved and whether there are any gaps between understanding of their procedures and what happens in reality. Zacharakis, via studying 53 VCs from the two main start-up hubs in the United States (Silicon Valley and Colorado Front Range), establishes that there is a gap between the factors that affect VCs’ decision-making in reality and the factors that VCs identify as pertinent to their decision-making.

Private equity investments are primarily made by private equity firms, venture capital firms, or angel investors, each with their own set of goals, preferences and investment strategies.

Angel Investors - The main business angels vary from venture capitalists in their motives and level of involvement. Often angels are more involved in the business, providing ongoing mentorship and advice based on experience in a particular industry. For that reason, matching angels and owners is critical. There are substantial easily locatable networks of angels. Pitching to them is no less demanding than to a venture capitalist as they still review hundreds of proposals and accept only a handful. Often the demands around exit strategies are different for an angel and they are satisfied with a slightly longer term investment (say 5-7 years compared to 3-4 for a venture capitalist).

Venture capital is another option for a start-up business, however, these types of companies tend to invest more in high-growth potential companies like those in the technology industry. Miller could also approach his corporate customers with a proposal for their investment. He could offer interest in his company in exchange for capital. (Shein, 2011)

Venture Capital is one of the fastest emerging sources of finance for new entrepreneurs. In spite of its increasing popularity, funding via Venture Capital is faced with a number of difficulties. Thus, it is important to study the various aspects of raising funds through Venture Capital.

Angel investors are those investors that are particularly interested in investing in companies early stage companies. Their investment capital is generally limited and if relevant, it has been advantageous for them to pool their funds as a group to not only participate in larger deals but also to diversify risk. They invest in exchange for ownership equity or convertible debt.

As an organization develops, its worth has a tendency to expand, so venture capital firms can wind up making the original owner's stake in the organization more profitable.

investors exist for larger amounts of capital such as VC funds and banks, entrepreneurial initiatives that require much smaller amounts to start with need to rely on friends and family or own savings. They then also make extensive use of bootstrapping techniques to mitigate their financial constraints, by boosting their short-term profits.

Crowdfunding creates funds for new projects by using internet and social media. This can benefit small business projects to obtain their required funds. A project receives small investments from wide range of individuals through web advertising and social media. The individuals (investors) who have invested in the project may receive incentives such as discounts on the products, early opportunity to purchase their products, inclusion of their name in the list of contributing founders etc., so, they are not purchasing the share of the company. Crowdfunding avoids going to the banks, friends and family to get funds. It also avoids giving up partial ownership of their company. The websites like www.rockethub.com, www.peerfunding.com,