This course covers in the chronological order each defining step of an entrepreneurial project. It begins with very personal considerations related to getting to better know yourself better so as to decide if you are ready for the multiple challenges of entrepreneurship. It then deals with creativity in order to provide the right set of tools to find an idea with the right potential to disrupt an existing business. We then discuss how to gather a founding team, how to raise money to initiate the project, and how to deal with day to day cash management. Later in the course, we discuss the art of selling, focusing on business to business sales, and how to measure the product launch phase using cohort analysis. Later on, we discuss the challenges of HR in an entrepreneurial environment, and of recruiting at a point where nobody knows your company. We then describe very practical techniques to initiate the international development of a small company. Last, we cover the exit strategy topic.
Avoiding the traps when negotiating with investors
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Do curso por HEC Paris
Entrepreneurship Strategy: From Ideation to Exit
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Igniting your project
In this module, you will learn the basics of day to day cash management as well as selecting and monitoring the right financial indicators. In the second part of this module, you will learn the importance of Selling: the great art of creating. We will also discuss about how to maintain rapport and how to launch a product by using the cohort analysis.
Conheça os instrutores
Ambroise HuretPartner at Eleven Strategy & Management
strategy and management
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To obtain a meeting with potential investors in your company,
you need of course to prepare a solid business plan
and a convincing investor pitch
that will help you make an impact when you meet them.
In the business plan, you should cover all key strategic items
so as to put your potential investors in a position to make a decision.
Your market dynamics, your targeted client segmentation,
your founding team, your unique selling proposition.
In one phrase, what you have to offer that is superior
in one or several ways to all other existing alternatives in the market.
Your product or service description,
and of course, your financial forecasts.
To build your financial forecasts, you should justify in detail
why you need the precise amount of money you're asking for.
As you know, there are three main financial tools you use in finance
to manage your company.
1. Your Profit and Loss explains how you generate your income
and how you spend your cash.
Be very careful here,
your P and L does not give you a direct vision of your cash situation.
For instance, what is considered as income is what you bill,
but not what you actually cash in.
2. Your balance sheet details your assets on one side,
and your liabilities and shareholder's equity on the other.
3. Last and most important for an entrepreneur and potential investors,
your Cash Flow statement explains how cash
gets in, or out, of your company's bank account.
This cash flow statement
is where you justify the amount of cash you're asking for.
Because it includes, of course,
the amounts you're asking from your potential investors.
And it ends at the bottom line with the projected cash balance of your company
that should stay positive, thanks to the cash invested.
These three financial tools are interconnected.
At this point, I would like you to stop and think
how you would prepare your financial business plan.
Say, for instance, you want to launch a software company or a restaurant,
but you do not have any specific financial expertise in those sectors.
What can you do to make sure your financial forecasts
are as credible as possible?
1. Ask similar entrepreneurs.
2. Search online.
3. Contact professionals in similar sectors.
4. Run different scenarios for growth.
Any options you can think of are valid
as long as you can get helpful information.
Keep in mind that VCs will test you on this exercise
and bring sectoral experts to ask you detailed questions on your financials.
To begin with, there is one thing I will advise you to do.
Go online and download financial reports
of listed companies in the same field as yours.
Of course, these correspond to companies
that have already reached maturity.
Nevertheless, this will give you a precise,
credible idea of the proportions for your financial forecasts.
For instance, should you launch a software business,
you will want to know the average ratio
of sales and marketing expenses compared to revenues,
of R&D compared to revenues,
or of general and administrative expenses compared to revenues.
That way, when you project your financials over a period of time,
you will know which proportions they should follow.
At this point, you should be in a position to send a solid business plan
to your potential investors.
And the process can then go two ways.
1. You could have exactly the right idea in the right market conditions,
and things can go fast with several VCs that want to invest in your company.
And using your negotiating skills,
you manage to close your round quickly at a good valuation.
2. You manage to raise some interest from a few VCs, but
not enough that they immediately want to invest.
Here, you need to understand that the strategy they will follow
is to play with time and try to minimize their risk.
For example, you could obtain a first meeting with a VC in January,
pitch your project and share your financial focus.
Then he might tell you:
"OK, let me have a more in-depth look at your business plan,
and let's meet again soon".
Then you could meet him again, for instance, at the beginning of March.
And what he will do then,
is compare the difference between what your financial forecast said
your company would do in January and February,
and what you actually did.
This could repeat several times.
In the end, he will be able to check if your financial forecasts are reasonable
and if you actually delivered what you had planned.
Think of this as a sort of real-life test phase
for the VC that can help him make a decision with conviction.
This is why you should always keep operations running
when initiating a negotiation with VCs.
Because what your company actually delivers during this period
will potentially decide whether or not they invest.
Now let's say you managed to convince a group of VCs
to invest in your promising company.
Typically, they use a set of tools to refine the assessment of your company
and finalize their investment.
A "strategic due diligence".
This is a strategic review of your company,
focusing on your strategic positioning,
on the potential threats and opportunities, and so on.
This review is usually performed by a sectoral expert,
or a strategy consulting firm.
A "technological due diligence".
This type of diligence is used for projects
with an intensive technological side,
and focuses exclusively on the technology involved in your product or service.
It is done either by a technological expert or by an IT firm.
Last, the "legal due diligence"
that will focus on the legal aspects of your business,
your contracts, and the potential legal risks your company could face
regarding its product or service.
Finally, let's take a step back
and think about financial cycles that could impact you as an entrepreneur.
For example, when the Internet bubble burst in early 2000,
after a period where investors were throwing enormous amounts of money
into startups, it suddenly became extremely difficult to raise money.
So, was it a bad time for entrepreneurs like you?
Actually, the answer is yes and no.
On the one hand, yes.
Because many capital-intensive projects
did not receive the cash they needed to move on, and eventually failed.
On the other hand, if you had raised cash just before the bubble,
or during this challenging period,
you suddenly had a fantastic competitive advantage,
because you had cash in the bank while many of your competitors didn't.
So the odds that your project actually made it were quite good.
In the next video, you will listen to one of our guests
while he shares with you his own experience raising money.
And perhaps you'll be able to better understand
some of the negotiation traps that you might find.
Then, join me in the next video
where we'll take a deeper look at your cash flow management.
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