ED Short Notes

8/17/2019 ED Short Notes

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ED UNIT-1

What is an 'Entrepreneur'

An individual who, rather than working as an employee, runs a small business and assumes all

the risk and reward of a given business venture, idea, or good or service offered for sale. Theentrepreneur is commonly seen as a business leader and innovator of new ideas and business

processes.

BREAKING DOWN 'Entrepreneur'

Entrepreneurs play a key role in any economy. These are the people who have the skills and

initiative necessary to take good new ideas to market and make the right decisions to make the

idea profitable. The reward for the risks taken is the potential economic profits the entrepreneur

could earn.

INTERNAL and EXTERNAL factor of entrepreneurship:

If there is anything that is steadfast and unchanging, it is change itself. Change is

inevitable, and those organizations who do not keep up with change will become

unstable, with long-term survivability in question.

There are things, events, or situations that occur that affect the way a business operates,

either in a positive or negative way. These things, situations, or events that occur that

affect a business in either a positive or negative way are called "driving forces or

environmental factors or forces."

There are two kinds of driving forces; Internal driving forces, and external driving

forces. Internal driving forces are those kinds of things, situations, or events that occur

inside the business, and are generally under the control of the company. Examples might

be as follows.

organization of machinery and equipment,

technological capacity,

organizational culture,

management systems,

financial management

employee morale.

External driving forces are those kinds of things, situation, or events that occur outside of

the company and are by and large beyond the control of the company. Examples of

external driving forces might be, the industry itself, the economy, demographics,



competition, political interference, etc.

Whether they are internal or external driving forces, one thing is certain for both. Change

will occur! A company must be cognizant of these changes, flexible, and willing to

respond to them in an appropriate way.

External driving forces can bury a business if not appropriately dealt with. The question

is, how does a business know what changes are occurring so that they can deal with them

in a positive way. OK, that's the next issue.

In order for a business to succeed and gain the competitive edge, the business must know

what changes are indeed occurring, and what changes might be coming up in the future. I

guess you might call this forecasting. Thus, critical to the business is what we

call "informational resources." It is the collection and analyzation of data. Some

examples of critical information might include the following:

Competition (what are they doing?)

Customer behavior (needs, wants, and desires)

Industry outlook (local, national, global)

Demographics (the change populations, there density, etc.)

Economy (are we peaking, or moving negatively)

Political movements and/or interference

Social environment

Technological changes

General environmental changes

Government interference (laws, regulations, policies, etc.)

The above are just some issues organizations must be on top of. Well it's never easy, but

organizations that are successful include all of the above (and more), to develop the appropriate

tactics, strategies, and best practices, to ensure successful out comes.



4 FUNCTIONS OF AN ENTERPRENEUR:

1. Entrepreneurial functions 2. Managerial functions 3. Promotional functions

4. Commercial functions (explanation in note book).

BARRIERS TO ENTREPRENEURSHIP:

1. Corrupt and unsupportive business environment: Lack of supportive and market-

augmenting governmental regulations serve as a barrier to entrepreneurship. Russia leads

all other large nations in having an unsupportive business environment because they lack

rule of law, have poorly defined contract and property laws, enforce regulations

inconsistently, allow rampant corruption and bribing, allow regulatory authorities and

inspectors to act in a predatory nature which therefore requires friendly ties with

government officials and bureaucrats to smooth the way for businesses to operate.2. Employee related difficulties: Building an employee asset base for the enterprise is one

of the more daunting and sometimes overlooked tasks. Entrepreneurs must find and select

the best-qualified employees who are motivated and willing to grow with the venture.

Then they must ensure the employees do not leave. The professors say this task becomes

a barrier when employees’ expectations increases, governmental regulations related to

labor employment is hardened, and employee costs grow. Employee cost is more than

pay. It includes healthcare, workers’ compensation, social security tax, and health and

safety regulations.

3. Severe market entry regulations: Governmental rules, taxation, environmental

regulations, lending requirements and licensing are all barriers to entrepreneurship. Most

countries, the United States included, proscribe or license market entry and the creation

of new firms to protect incumbents in certain industries and professions. Entry

procedures, or “red tape,” vary such that entrepreneurs need one day to register an

enterprise in one country and up to 20 weeks in another. Other barriers to

entrepreneurship are predatory tax behavior of authorities, lack of property rights and tax

disadvantages.

4. Shortage of funds and resources: Finding the money to start up an enterprise is a

leading barrier to entrepreneurship. Without funds, any person cannot begin to organize,

train, develop and sell product.5. Lack of Entrepreneurship Opportunities: Venture creation requires existing

marketplace opportunities with possibilities known to the entrepreneur and favorable

odds for success for entrepreneurial “spirit” to succeed.

6. Lack of Adequate Entrepreneurship Training: Training and education can be a robust

incubator for new ventures. This includes training in technical skills, managerial skills,

entrepreneurial skills and entrepreneurship.



7. Lack of Appropriate Technical and Practical Skills: People tend to use the skills they

have acquired to pursue entrepreneurial initiat ive. Lacking the appropriate skills and

knowledge inhibits economic development.

8. Lack of Market Experience: The essence of leadership is first learning and doing before

leading. Therefore, the capability to start a business is propelled by previous education

and work experience. Rushing into a new market because it looks attractive and

rewarding without having some experience and background in it can be fatal. Experience

in a related business before start-up is positively correlated to the probability of success.

9. Aversion to Risk: A psychological barrier closely related to the fear of failure is aversion

to risk. Entrepreneurs must take initiative, create structure with a social-economic

mechanism and accept risk of failure. Entrepreneurs have to be risk takers while those

who are risk averse will seek the security if an existing establishment.

Entrepreneurial Motivation

Motivation is regarded "as the inner state that energizes activities and directs or channels behavior towards the goal". It can also be seen as a process that arouses action, sustains the

activity in progress and that regulates the pattern of activity.

The motives can be categorizing as social and psychological motives.

Few of the social motives are

1. Self esteem

2. Social acceptability

3. Competence building

4. Wealth generation

5. Self-actualization

Motives are not necessarily the gifts of heredity but are the outcome of the individual’s

interactions with others or the society.

CLASSIFICATION OF ED:

Based on the Type of Business:

1. Trading Entrepreneur:

As the name itself suggests, the trading entrepreneur undertake the trading activities. They

procure the finished products from the manufacturers and sell these to the customers directly or

through a retailer. These serve as the middlemen as wholesalers, dealers, and retailers between

the manufacturers and customers.

2. Manufacturing Entrepreneur:



The manufacturing entrepreneurs manufacture products. They identify the needs of the

customers and, then, explore the resources and technology to be used to manufacture the

products to satisfy the customers’ needs. In other words, the manufacturing entrepreneurs

convert raw materials into finished products.

3. Agricultural Entrepreneur:

The entrepreneurs who undertake agricultural pursuits are called agricultural entrepreneurs. They

cover a wide spectrum of agricultural activities like cultivation, marketing of agricultural

produce, irrigation, mechanization, and technology.

Based on the Use of Technology:

1. Technical Entrepreneur:

The entrepreneurs who establish and run science and technology-based industries are called

‘technical entrepreneurs.’ Speaking alternatively, these are the entrepreneurs who make use ofscience and technology in their enterprises. Expectedly, they use new and innovative methods of

production in their enterprises.

2. Non-Technical Entrepreneur:

Based on the use of technology, the entrepreneurs who are not technical entrepreneurs are non-

technical entrepreneurs. The forte of their enterprises is not science and technology. They are

concerned with the use of alternative and imitative methods of marketing and distribution

strategies to make their business survive and thrive in the competitive market.

Based on Ownership:

1. Private Entrepreneur:

A private entrepreneur is one who as an individual sets up a business enterprise. He / she it’s the

sole owner of the enterprise and bears the entire risk involved in it.

2. State Entrepreneur:

When the trading or industrial venture is undertaken by the State or the Government, it is called

‘state entrepreneur.’

3. Joint Entrepreneurs:

When a private entrepreneur and the Government jointly run a business enterprise, it is called

‘joint entrepreneurs.’

Based on Gender:



1. Men Entrepreneurs:

When business enterprises are owned, managed, and controlled by men, these are called ‘men

entrepreneurs.’

2. Women Entrepreneurs:

Women entrepreneurs are defined as the enterprises owned and controlled by a woman or

women having a minimum financial interest of 51 per cent of the capital and giving at least 51

per cent of employment generated in the enterprises to women.

Based on the Size of Enterprise:

1. Small-Scale Entrepreneur:

An entrepreneur who has made investment in plant and machinery up to Rs 1.00 crore is called

‘small-scale entrepreneur.’

2. Medium-Scale Entrepreneur:

The entrepreneur who has made investment in plant and machinery above Rs 1.00 crore but

below Rs 5.00 crore is called ‘medium-scale entrepreneur.’

3. Large-Scale entrepreneur:

The entrepreneur who has made investment in plant and machinery more than Rs 5.00 crore is

called ‘large-scale entrepreneur.’

Based on Clarence Danhof Classification:

Clarence Danhof (1949), on the basis of his study of the American Agriculture, classified

entrepreneurs in the manner that at the initial stage of economic development, entrepreneurs have

less initiative and drive and as economic development proceeds, they become more innovating

and enthusiastic.

Based on this, he classified entrepreneurs into four types:

These are discussed in seriatim:

1. Innovating Entrepreneurs:

Innovating entrepreneurs are one who introduce new goods, inaugurate new method of

production, discover new market and reorganize the enterprise. It is important to note that such

entrepreneurs can work only when a certain level of development is already achieved, and people

look forward to change and improvement.

2. Imitative Entrepreneurs:



These are characterized by readiness to adopt successful innovations inaugurated by innovating

entrepreneurs. Imitative entrepreneurs do not innovate the changes themselves, they only imitate

techniques and technology innovated by others. Such types of entrepreneurs are particularly

suitable for the underdeveloped regions for bringing a mushroom drive of imitation of new

combinations of factors of production already available in developed regions.

3. Fabian Entrepreneurs:

Fabian entrepreneurs are characterized by very great caution and skepticism in experimenting

any change in their enterprises. They imitate only when it becomes perfectly clear that failure to

do so would result in a loss of the relative position in the enterprise.

4. Drone Entrepreneurs:

These are characterized by a refusal to adopt opportunities to make changes in production

formulae even at the cost of severely reduced returns relative to other like producers. Such

entrepreneurs may even suffer from losses but they are not ready to make changes in their

existing production methods.

THEORY OF ENTREPRENEURSHIP:

Economic Theories

Economic entrepreneurship theories date back to the first half of the 1700s with the work of

Richard Cantillon, who introduced the idea of entrepreneurs as risk takers. The classic,

neoclassical and Austrian Market process schools of thought all pose explanations for

entrepreneurship that focus, for the most part, on economic conditions and the

opportunities they create. Economic theories of entrepreneurship tend to receive significant

criticism for failing to recognize the dynamic, open nature of market systems, ignoring the

unique nature of entrepreneurial activity and downplaying the diverse contexts in which

entrepreneurship occurs.

Resource-Based Theories

Resource-based theories focus on the way individuals leverage different types of resources to get

entrepreneurial efforts off the ground . Access to capital improves the chances of getting a newventure off the ground, but entrepreneurs often start ventures with little ready capital.

Other types of resources entrepreneurs might leverage include social networks and the

information they provide, as well as human resources, such as education. In some cases, the

intangible elements of leadership the entrepreneur adds to the mix operate as resource that

a business cannot replace.

Psychological Theories

http://yourbusiness.azcentral.com/theories-entrepreneurship-23795.html






Psychological theories of entrepreneurship focus on the individual and the mental or

emotional e lements that drive entrepreneurial individuals . A theory put forward by

psychologist David McCLelland, a Harvard emeritus professor, offers that entrepreneurs possess

a need for achievement that drives their activity. Julian Rotter, professor emeritus at the

University of Connecticut, put forward a locus of control theory. Rotter’s theory holds that

people with a strong internal locus of control believe their actions can influence the

external world and research suggests most entrepreneurs possess trait. A final approach,

though unsupported by research, suggests personality traits ranging from creativity and resilience

to optimism drive entrepreneurial behavior.

Sociological/Anthropological Theories

The sociological theory centers its explanation for entrepreneurship on the various social

contexts that enable the opportunities entrepreneurs leverage. Paul D. Reynolds, a George

Washington University research professor, singles out four such contexts: social networks, a

desire for a meaningful life, ethnic identification and social-political environment factors.The anthropological model approaches the question of entrepreneurship by placing it within the

context of culture and examining how cultural forces, such as social attitudes, shape both the

perception of entrepreneurship and the behaviors of entrepreneurs.

Opportunity-Based Theory

Prolific business management author, professor and corporate consultant, Peter Drucker put

forward an opportunity-based theory. Drucker contends that entrepreneurs excel at see ing and

taking advantage of possibilities created by social, technological and cultural changes. For

example, where a business that caters to senior citizens might view a sudden influx of youngerresidents to a neighborhood as a potential death stroke, an entrepreneur might see it as a chance

to open a new club.

THE CONCEPT OF ENTREPRENEURSHIP

Entrepreneur entrepreneurship enterprise

person object Process of action



Concept of Entrepreneur

Basically an entrepreneur is a person responsible for setting up a business or an enterprise.

He has the initiative, skill for innovation and who looks for high achievements.

He is catalytic agent of change and works for the good of people. He puts up new green field

projects that create wealth, open up many employment opportunities and leads to growth of other

sectors.

ENTREPRENEUR

The word "entrepreneur" is derived from a French root ‘entreprendre’, meaning, "to undertake".

The term "entrepreneur" seems to have been introduced into economic theory by Cantillon(1755) but Say (1803) first accorded the entrepreneur prominence.

It was Schumpeter however, who really launched the field of entrepreneurship by associating it

clearly with innovation. Drucker’s definition of entrepreneurship, namely a systematic,

professional discipline, brought a new level of understanding to the domain (Maurer,Shulman,

Ruwe & Becherer 1995:526). Sharma and Chrisman (1999:12) identified two clusters of thought

on the meaning of entrepreneurship. One group focused on the characteristics of

entrepreneurship (e.g. innovation, growth, uniqueness) while a second group focused on the

outcomes of entrepreneurship (e.g. the creation of value).

•He is a person who develops and owns his own enterprise

•He is a moderate risk taker and works under uncertainty for achieving the goal.

•He is innovative

•He peruses the deviant pursuits

•Reflects strong urge to be independent.

•Persistently tries to do something better.

•Dissatisfied with routine activities.

•Prepared to withstand the hard life.

•Determined but patient

•Exhibits sense of leadership



•Also exhibits sense of competitiveness

•Takes personals responsibility

•Oriented towards the future.

•Tends to persist in the face to adversity

•Convert a situation into opportunity.

An entrepreneur is a person who starts an enterprise. He searches for change and responds to it.

A number of definitions have been given of an entrepreneur-The economists view him as a

fourth factor of production along with land, labor and capital. The sociologists feel that certain

communities and cultures promote entrepreneurship like for example in India we say that

Gujaratis and Sindhis are very enterprising. Still others feel that entrepreneurs are innovators

who come up with new ideas for products, markets or techniques. To put it very simply an

entrepreneur is someone who perceives opportunity, organizes resources needed for exploitingthat opportunity and exploits it. Computers, mobile phones, washing machines, ATMs, Credit

Cards, Courier Service, and Ready to eat Foods are all examples of entrepreneurial ideas that got

converted into products or services. Some definitions of an entrepreneur are listed below:

Stems:

from the French word ‘entrependre’ meaning one who undertakes or one who is a‘go- between’

Richard Cantillon: An entrepreneur is a person who pays a certain price for a product to resell it

at an uncertain price, thereby making decisions about obtaining and using the resources while

consequently admitting the risk of enterprise.

J.B. Say

: An entrepreneur is an economic agent who unites all means of production- land of one, the

labour of another and the capital of yet another and thus produces a product. By selling the

product in the market he pays rent of land, wages to labour, interest on capital and what remains

is his profit. He shifts economic resources out of an area of lower and into an area of higher

productivity and greater yield.

Schumpeter:

According to him entrepreneurs are innovators who use a process of shattering the status quo of

the existing products and services, to set up new products, new services.

David McClleland: An entrepreneur is a person with a high need for

achievement [N-Ach]. He is energetic and a moderate risk taker.



Peter Drucker

: An entrepreneur searches for change, responds to it and exploits opportunities. Innovation is a

specific tool of an entrepreneur hence an effective entrepreneur converts a source into a resource.

Kilby:

Emphasizes the role of an imitator entrepreneur who does not innovate but imitates technologies

innovated by others. Are very important in developing economies.

Albert Shapero

: Entrepreneurs take initiative, accept risk of failure and have an internal locus of control.

G. Pinchot: Intrapreneur is an entrepreneur within an already established organization. Definition

of Entrepreneurs Today

Entrepreneurship is the process of creating something new and assuming the risks and

rewards.

Four aspects of being an entrepreneur today:

Involves creation process.

Requires devotion of time and effort.

Involves rewards of being an entrepreneur.

Requires assumption of necessary risks

UNIT-2

CONTENT OF A BUSINESS PLAN:

1 : Basic Information Name of the business or organization;

What stage are you up to? What is the business selling or producing? What money or other

resources do you need to start the business? What do you hope to achieve?

2 : People Involved

Names, abilities, qualifications, experience of people involved How will your business bemanaged? Describe the jobs involved running your business and the skills required Will people

need training? What training do you need?

3 : The Product Or Service

Describe in detail what you plan to make/sell What research have you done? Do you plan to

develop your product/service? How well does your planned product/service fit the market?



4 : Marketing Customers :

location, age, spending habits and buying power What are the trends in the market? What share

of the market will you need? Who are your target customers (those buying often)? Who are your

main competitors? Does the way you plan to price your product fit the market? How will you

prevent or deal with complaints?

5 : Production/Delivering

Your Service Premises needed, their layout and their suitability for producing/delivering the

service Machinery, equipment, fixtures and tools required Suppliers, their terms and the

availability of alternatives Sub-contracting (if any) Stock and quality control

6 : Legal Issues

Legal status of the business or organisation Licences, permits, agreements needed, leases on

premises Ownership of assets, patents, commercial information

7 : Financial Issues

Prices and basic costs Budgets or projections of your costs: labour, materials, overheads Cash-

flow forecasts; When will you break -even? When will you start to be profitable? How profitable

is the business? How large will your mark-up be? How much money will you need - grant, loan

or overdraft?

8 : Other Information

Research findings, other information, CVs of key personnel Publicity materials or photographsPremises plans/layout

CREATIVE PROBLEM SOLVING

PROJECT APPRAISAL

Project appraisal is a generic term that refers to the process of assessing, in a structured way,

the case for proceeding with a project or proposal. In short, project appraisal is the effort of

calculating a project's viability. It often involves comparing various options, using economic

appraisal or some other decision analysis technique.

PROCESS:

Initial Assessment

Define problem and long-list

Consult and short-list

Evaluate alternatives

https://en.wikipedia.org/wiki/Economic_appraisal



https://en.wikipedia.org/wiki/Decision_analysis







Compare and select Project appraisal

VALUE ANALYSIS:

Value analysis is an organized approach to identify unnecessary costs associated with any product,

material, part, component, system or service by analysis of function and efficiently eliminating them

without impairing the quality functional reliability or its capacity to give service.

According to Society of American Value Engineers (SAVE) “Value analysis is the systematic

application of recognized techniques which identify the function of a product or services establish a

monetary value for the function and provide the necessary function reliability at that lowest overall

cost.”

It is a rational and structured process consisting of:

(a) Functional analysis to define the reason for the existence of a product or its components,

(b) Creatively analysis for generating new and better alternatives and

(c) Measurement for evaluating the value of present and future concepts.

The phrase value analysis can be defined as a technique which examines the facts of a function and

cost o f a prod uct in ord er to determine whether the cost can be reduced or alto gether

eliminated, while retaining all the features of performance and qu ality of a prod uct or both.

Therefore, logically, VA is an organized approach of exposing and eliminating unnecessary cost s.

The method has logical foundation in its fundamental approach to cost reduction and profit

improvement and in this objective approach, the VA techniques has to analyze th e functional

cost o f an ite m and reco mmend a change.

Put alternatively, VA is a team approach to think functionally about a component as to “what it does”

rather than “what it is”. This approach is the real test of understanding problems under study.

UNIT-3

Corporate entrepreneurship

The concept of corporate entrepreneurship is generally believed to refer to the development of

new ideas and opportunities within large or established businesses, directly leading to the



improvement of organizational profitability and an enhancement of competitive position or the

strategic renewal of an existing business.

UNIIT-4

Concept of Women Entrepreneurs

Women Entrepreneurs may be defined as the women or a group of women who initiate, organize

and operate a business enterprise. The Government of India has defined women entrepreneurs as

―an enterprise owned and controlled by women having a minimum financial interest of 51 per

cent of the capital and giving at least 51 per cent of the employment generated in the enterprise

to women‖. Women entrepreneurs engaged in business due to push and pull factors which

encourage women to have an independent occupation and stands on their on legs. A sense

towards independent decision-making on their life and career is the motivational factor behind

this urge.

ROLE:

1. Imaginative: It refers to the imaginative approach or original ideas with competitive

market. Well-planned approach is needed to examine the existing situation and to identify

the entrepreneurial opportunities. It further implies that women entrepreneurs have

association with knowledgeable people and contracting the right organization offering

support and services

2. Attribute to work hard: Enterprising women have further ability to work hard. Theimaginative ideas have to come to a fair play. Hard work is needed to build up an

enterprise.

3. Persistence: Women entrepreneurs must have an intention to fulfill their dreams. They

have to make a dream transferred into an idea enterprise; Studies show that successful

women work hard.

4. Ability and desire to take risk: The desire refers to the willingness to take risk and ability

to the proficiency in planning making forecast estimates and calculations.

5. Profit earning capacity: She should have a capacity to get maximum return out of

invested capital.



The motivational factors to be an entrepreneur

To improve the quality of life of their children

To share the family economic burden

To adjust and manage household and business life successfully on their own terms

Due to the death or sickness of their husband

CHALLENGES FOR OMEN ENTREPRENEUR:

1. Utilizing connections: "One of the biggest challenges for a female

entrepreneur is not understanding how important it is to have networks and

trusted advisors. In almost any type of entrepreneurial endeavor, a key

contributor to success is obtaining introductions and connections to people who

can help you to get through the door. If you get through the door of a decision

maker as the result of a friend's recommendation, you will inevitably walk away

having learned valuable information from the meeting.

2. Being decisive: "A prerequisite to being an entrepreneur is to finely tune your

decision-making abilities. In my time as CEO, I have learned to be comfortable

making decisions with less than perfect information, while being mindful of the

various viewpoints. Avoiding 'paralysis by analysis' is a major obstacle, but it is

also not an excuse to overlook contrasting viewpoints."

3. Access to funding: "Women face greater obstacles than men when starting

and growing businesses, especially when it comes to receiving angel

and venture capital. Though it might be unintentional, men fund people who

look and sound just like them, and the consequences are just as harmful as if

there was malicious aforethought. Don't do it alone! [Seek] advice from a variety

of sources, including co-founders, professional advisers such as accountants and

lawyers, peer advisory groups, CEO mastermind groups, boards of advisers, and

family members."

4. Lack of role models: "There are successful female entrepreneurs throughout

the world, but male entrepreneurs get better media coverage and visibility.

What's easier to name, three successful female entrepreneurs or three

successful male entrepreneurs? Women tend to start businesses in the sectors

where they have work experience, skills and networks. The low percentages of

http://www.businessnewsdaily.com/6632-questions-investors-want-answered.html








SOURCES OF FINANCE:

1. Financial Bootstrapping: Financial Bootstrapping is a term used to cover

different methods for avoiding using the financial resources of external investors.

It involves risks for the founders but allows for more freedom to develop the

venture. 2. External Financing: Businesses often need more capital than owners are able

to provide. Hence, they source financing from external investors: angelinvestment, venture capital, as well as with less prevalence crowd funding, hedgefunds and alternative asset management. While owning equity in a private

company may be generally grouped under the term private equity, this term isoften used to describe growth, buyout or turnaround investments in traditional

sectors and industries.

(i)Business Angels: A business angel is a private investor that invests part of his or her

own wealth and time in early stage innovative companies. Apart from getting a good

return, business angels expect to have fun. It is estimated that angel investmentamounts to three times venture capital.

(ii) Venture Capital: Venture capital is a way of corporate financing by which a financial

investor takes participation in the capital of a new or young private company in

exchange for cash and strategic advice. Venture capital investors look for fast-growing

companies with low leverage capacity and high-performing management teams. Their

main objective is to make a profit by selling the stake in the company in the medium

term. They expect profitability higher than the market to compensate for the increased

risk of investing in young ventures.

Key differences between business angels and venture capital:

Own money (BA) vs. other people’s money (VC)

Fun + profit vs. profit

Lower vs. higher expected IRR

Very early stage vs. start-up or growth stage

Longer investment period vs. shorter investment horizon

VENTURE CAPITAL PROCESS:

There are five common stages of venture capital financing

1. The Seed stage

2. The Start-up stage

https://en.wikipedia.org/wiki/Private_equity






3. The Second stage

4. The Third stage

5. The Bridge/Pre-public stage

The Seed Stage

This is where the seed funding takes place. It is considered as the setup stage

where a person or a venture approaches an angel investor or an investor in

a VC firm for funding for their idea/product.

During this stage, the person or venture has to convince the investor why

the idea/product is worthwhile.

The investor will investigate into the technical and the economic feasibility

(Feasibility Study) of the idea. In some cases, there is some sort of prototype of

the idea/product that is not fully developed or tested.

If the idea is not feasible at this stage, and the investor does not see any

potential in the idea/product, the investor will not consider financing the idea.

However, if the idea/product is not directly feasible, but part of the idea is worthy

of further investigation, the investor may invest some time and money in it for

further investigation.

The Start-up Stage

If the idea/product/process is qualified for further investigation and/or investment,

the process will go to the second stage; this is also called the start-up stage. A business p lan is presented by the attendant of the venture to the VC firm.

A management team is being formed to run the venture. If the company has

a board of directors, a person from the VC firms will take seats at the board of

directors. While the organization is being set up, the idea/product gets its form.

The proto type is being developed and fully tested. In some cases, clients

are being attracted for initial sales. The management-team establishes a

feasible production line to produce the product.

The VC firm monitors the feasibility of the product and the capability of themanagement-team from the board of directors.

To prove that the assumptions of the investors are correct about the

investment, the VC firm wants to see result of market research to see whether

the market size is big enough, if there are enough consumers to buy their

https://en.wikipedia.org/wiki/Seed_funding



https://en.wikipedia.org/wiki/Angel_investor



https://en.wikipedia.org/wiki/Feasibility_Study



https://en.wikipedia.org/wiki/Business_plan



https://en.wikipedia.org/wiki/Board_of_directors


https://en.wikipedia.org/wiki/Market_research










product. They also want to create a realistic forecast of the investment needed to

push the venture into the next stage.

If at this stage, the VC firm is not satisfied about the progress or result from

market research, the VC firm may stop their funding and the venture will have to

search for another investor(s). When the cause relies on handling of the

management in charge, they will recommend replacing (parts of) the

management team.

The Second Stage

At this stage, we presume that the idea has been transformed into a product

and is being produced and sold.

This is the first encounter with the rest of the market, the competitors. The

venture is trying to squeeze between the rest and it tries to get some market

share from the competitors. This is one of the main goals at this stage.

Another important point is the cost. The venture is trying to minimize their

losses in order to reach the break-even.

The management team has to handle very decisively. The VC firm monitors the

management capability of the team. This consists of how the management team

manages the development process of the product and how they react to

competition. If at th is s tage the management team is proven their capability

of standing hold against the competition , the VC firm will p robably give a

go for the next stage.

However, if the management team lacks in managing the company or does

not succeed in competing with the competitors, the VC firm may suggest

for restructuring of the management team and extend the stage by redoing

the stage again. In case the venture is doing tremendously bad whether it is

caused by the management team or from competition, the investor will cut the

funding.

The Third Stage

This stage is seen as the expansion/maturity phase of the previous stage. The

venture tries to expand the market share they gained in the previous stage. This

can be done by selling more amount of the product and having a good marketing

campaign. Also, the venture will have to see whether it is possible to cut down their

production cost or restructure the internal process. This can become more visible by

doing a SWOT analysis. It is used to figure out the strength, weakness, opportunity and

the threat the venture is facing and how to deal with it.

https://en.wikipedia.org/wiki/Cost



https://en.wikipedia.org/wiki/Break-even


https://en.wikipedia.org/wiki/SWOT_analysis








Apart from expanding, the venture also starts to investigate follow-up products and

services. In some cases, the venture also investigates how to expand the life-cycle of

the existing product/service.

At this stage the VC firm monitors the objectives already mentioned in the second stage

and also the new objective mentioned at this stage. The VC firm will evaluate if the

management team has made the expected cost reduction. They also want to know how

the venture competes against the competitors. The new developed follow-up product

will be evaluated to see if there is any potential.

The Bridge/Pre-public Stage

In general, this is the last stage of the venture capital financing process. The main goal

of this stage is for the venture to go pub lic so that investors can exit the venture

with a profit commensurate with the risk they have taken.

At this stage, the venture achieves a certain amount of market share. This gives theventure some opportunities, for example:

Merger with other companies

Keeping new competitors away from the market

Eliminate competitors

Internally, the venture has to examine where the product's market position and, if

possible, reposition it to attract new Market segmentation. This is also the phase to

introduce the follow-up product/services to attract new clients and markets.

Ventures have occasionally made a very successful initial market impact and been able

to move from the third stage directly to the exit stage. In these cases, however, it is

unlikely that they will achieve the benchmarks set by the VC firm.

UNIT-6:

STAGES OF ECONOMIC DEVELOPMENT:

The Rostow's Stages of Economic Growth model is one of the major historical models

of economic growth. It was published by American economist Walt Whitman Rostow in

1960. The model postulates that economic growth occurs in five basic stages, of varying

length:

Traditional society

Preconditions for take-off

https://en.wikipedia.org/wiki/Product_life_cycle_management



https://en.wikipedia.org/wiki/Positioning_(marketing)



https://en.wikipedia.org/wiki/Market_segmentation








Take-off

Drive to maturity

Age of High mass consumption

Below is a detailed outline of Rostow's five stages:

Traditional society

characterized by subsistence agriculture or hunting and gathering; almost

wholly a "primary" sector economy

limited technology

A static or 'rigid' society: lack of class or individual economic mobility, with

stability prioritized and change seen negatively

Pre-conditions to " take-off"

external demand for raw materials initiates economic change; development of more productive, commercial agriculture and cash crops not

consumed by producers and/or largely exported

widespread and enhanced investment in changes to the physical

environment to expand production (i.e. irrigation, canals, ports)

increasing spread of techno logy and advances in existing technologies

changing soc ial structure, with previous social equilibrium now in flux

individual social mobility begins

development of national identity and shared economic interests

Take off

Urbanization increases, Industrialization proceeds, Technological

breakthrough occurs

the "secondary" (goods-producing) sector expands and ratio of secondary vs.

primary sectors in the economy shifts quickly towards secondary

textiles and apparel are usually the first " take-off" industry, as happened in

Great Britain's classic "Industrial Revolution"

Drive to maturity

diversification of the industrial base; multiple industries expand and new ones

take root quickly

manufacturing shifts from investment-driven (capital goods) towards

consumer durables and domestic consumption

rapid development of transportation infrastructure

large-scale investment in social infrastructure (schools, universities, hospitals,

etc.)

https://en.wikipedia.org/wiki/Industrial_Revolution






Age of mass consumption

the industrial base dominates the economy ; the primary sector is of greatly

diminished weight in economy and society

widespread and normative consumption of h igh-value consumer goods (e.g.

automobiles) consumers typically (if not universally), have disposable income, beyond

all basic needs, for additional goods.

Difference between manager and entrepreneur:

Bases of difference

between

Entrepreneur Manager

Motive The main motive of anentrepreneur is to start a

venture by setting up an

enterprise. He

understands the venture

for h is personal

But, the main motive o f amanager is to render his

services in an enterprise

already set up by

someone else i.e.,

entrepreneur.

Status An entrepreneur is the

owner of the enterprise.

A manager is the servant

in the enterprise owned

by the entrepreneur.

Risk bearing An entrepreneur beingthe owner of the

enterprise assumes all

risks and uncertainty

involved in running the

enterprise.

A manager as a servantdoes not bear any risk

involved in the enterprise.

Rewards The reward an

entrepreneur gets for

bearing risks involved in

the enterprise is profitwhich is highly uncertain.

A manager gets salary as

reward for the services

rendered by him in the

enterprise. Salary of amanager is certain and

fixed.

Innovation Entrepreneur himself

thinks over what and how

to produce goods to meet

the changing demands of

But, what a manager does

is simply to execute the

plans prepared by the

entrepreneur. Thus, a



the customers. Hence, he

acts as an innovator also

called a ‘change agent’

manager simply

translates the

entrepreneur’s ideas into

practice.

Qualification An entrepreneur needs topossess qualities and

qualifications like high

achievement motive,

originality in thinking,

foresight, risk -bearing

ability and so on.

On the contrary, amanager needs to

possess distinct

qualifications in terms of

sound know ledge in

management theory and

practice.

Documents

ED Short Notes