Every week has been a new learning experience for me regarding the start-up of new ventures. A lot of knowledge about the importance of proper venture funding, the types of venture funds and sources available, team building etc have been learnt in the previous weeks. This week also, the experience has been similar. A lot of new concepts as well as strengthening of concepts learned in the past have been accomplished this week. Three main topics were covered in the week. The first was concepts of due diligence by an entrepreneur and evaluation of new ventures by financiers like banks and venture capitalists. The second topic covered the different ways in which finance can be obtained and the practical difficulties involved in the same. The third topic was deciding on the type of finance that I would use to finance a new venture depending on the nature of business involved.
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Due diligence and evaluation of new ventures were the topics that were quite new to me. It can said that “the purpose of due diligence is to protect persons or entities from harm that may be caused by a process or event.” (Wright 2002, p.6). In this context the persons or entities include investors, shareholders and other stakeholders involved in the creation of a new venture. The process here is the creation of the new venture itself and the harm denoted loss of resources and capital that may happen if due diligence is not exercised. Certain questions have to be asked by the entrepreneur to himself. They include question of the entrepreneur’s own ability to make the business a success, market for the product, the capability of the management team, availability of the correct mix of finance etc. Another interesting and new topic was evaluation of new ventures and the methods to do so by investors and financiers. It is prudent for such people to do so since it is their hard earned money that is involved. There are many criteria that are followed by such persons in evaluation of a new venture. They include among other things evaluation of the market opportunity, the technology involved, competition and competitive advantage, the finance required, the sales model, the ability of the entrepreneur and his team etc. (Elements in Evaluating New Companies. 2007). My personal experience with regard to the start-up of Thai Lay Fashion Company Ltd in Hong Kong can be stated as and example of these two factors. At that time I did not have this technical knowledge about due diligence of evaluation of new ventures. Even though a certain amount of diligence was taken by me, it was not done in a planned manner as studied this week. It is now possible for me to do so in case of start-up of any new ventures in the future since I now have the practical and theoretical knowledge for this. I do not really know whether the persons who financed the venture back then did a sound evaluation of the business. In all possibility they must have done so. The second topic of the different ways that finance can be obtained is more familiar to me. Finance can be raised in two ways namely through external and internal ways. Internal sources of finance include retained profits, sale of assets, cost reduction, payment delays, etc. There are many sources of external finance and they include bank loans (debt equity), issue of stocks and shares (equity funds), loans from friends and family, factoring, overdrafts, grants, leasing an asset instead of buying it, and funds from venture capitalists. (Sources of Finance: External Source of Finance, p.116). Another way of financing which was novel to me until I had started this module is the concept of angle investors. “According to Robert J. Robinson and Mark van Osnabrugge, so-called business angels–those generally unheralded private investors who usually specialize in high-growth fields and often involve themselves directly in the endeavours they fund–now provide 30 to 40 times more financing each year than their more famous counterparts, venture capitalists.” (Editorial Reviews. 2009).
With regard to financing of the new venture in UK, namely Thai Lay Garments, the following ways of financing are proposed. The debt financing that can be availed by the company with its current resources is approximately 200,000 pounds. It will carry an interest rate of 7% per year. It is estimated that an amount of 200.000 pounds can be raised through equity financing. An amount of 40,000 pounds is proposed to be raised through loans and advances mainly to meet short term operational expenses.
I have been able to attend CUSTOMER TO INSERT NUMBER HERE classes this week. My work and sessions have been going as planned and no significant lag exists between planned and actual work. My tutors have been consistently helpful and it was the same for this week also.
- Editorial Reviews. (2009). [online].
- Elements in Evaluating New Companies. (2007). [online]. University of Lowa.
- Sources of Finance: External Source of Finance. [online]. Rai University. 116.
- WRIGHT, James F. (2002). Introduction. [online]. Monte Carlo Risk Analysis and Due Diligence of New Business Ventures. 6. Web.