Startup Financing Case Studies Don Kavi Entrepreneurship

Entrepreneurship

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Startup Financing Case Studies In this assignment we’ll cover eight scenarios that ideally use a combination of eight different types of financing. Many of these scenarios are real. First read the summary of the different types of financing you may choose from. Then read each startup scenario and pick which one fits best. Here are your options: Crowdfunding: Presell your product on Kickstarter or another platform at a discount. This allows customers to buy your product early and for you to get money to use to make the production. Seller financing: When buying a business from someone else you can often finance part of the purchase with a note from the seller. Typically, this is combined with your own cash down payment and a loan. Commercial Loan: This is a bank loan for starting or buying a business. The interest rates will be higher than you are used to because there is more risk. For equipment the loans tend to be 5-10 years and if there is real estate involved you might be able to get them to go 20 or 25 years maximum. Angel Investors: These investors tend to put $25k to $100k into your startup for equity (stock). They are hoping to get back 5x-10x in 5 years. This is risky so they make many bets for a few to pan out well. Venture Capital: This is similar to Angel Investors but the money comes from institutions (insurance funds, etc) where a group professionally manages the investments. The investment size can be $500k to several million. They tend to invest in companies that are further along than what Angels invest in. Savings and Credit Cards: The most common source of funds for an entrepreneur to start their business is their own wallet. Be careful with credit cards, only use them if you have a secure plan for revenue to come in quickly. Purchase Order Financing: This type of financing is done by banks or other lending organizations to companies that have an order to produce a product but do not have the sufficient funds to produce the product. These loans will have a higher interest rate.

Entrepreneurship

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Clocky

You are a typical college student and getting out of bed it tough! That 8am class might as well be 5am because it is just impossible for you to wake up. You were brainstorming solutions when you came up with the idea of an alarm clock that rolls off your nightstand when it’s time to get up. It rolls around your room and you have to catch it to make it from stopping a racket…by that time you will be up! You have built a prototype and it works! Now…you need to raise $100,000 to start the company and begin manufacturing and selling Clockys. What type of financing would you go after?

Entrepreneurship

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Yoga Studio

You have graduated college and been working your 9-5 day job for the past few years. Your job is getting stale and while you’re sitting at your desk all you can dream about is Yoga. Two years ago you passed your Yoga teacher certification and you have been teaching classes at a local gym. Word has gotten out about how good you are and now you have a dedicated following of yoga nuts. You’ve made the decision to open your own Yoga studio. You believe it will cost $15,000. What type of financing would you go after?

Entrepreneurship

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Resort

It’s mid July again and it’s time for your annual trip up to the lake with your family. The three-hour drive up to Northern Minnesota flies by because you are always so excited for this trip. You have been going ever since you can remember…and now at the ripe age of 30 it feels like even more fun because you are away from your boring day job. Mr. Anderson is the resort owner and has known you since you were a kid. While you were launching the boat Mr. Anderson grabbed your attention and asked if you could join him for a cup of coffee afterwards. As you two caught up Mr. Anderson dropped a bomb, he asked you if you knew anything about selling resorts. He is getting too old for this business and wants to retire. You’ve been thinking about this now for a few weeks and want to try and buy the resort from Mr. Anderson. You know he wants $400,000. What type of financing would you go after?

Entrepreneurship

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HidrateMe

On a recent international trip you became very ill. Upon seeing a doctor they told you it was because you were extremely dehydrated… The doctor suggested you have to keep up with drinking 8 cups of water every day. You are terrible at tracking things manually…why can’t your smart phone do it. Oh wait, great idea! You have thought of an app that can connect to your water bottle to track how much water you drink every day! You want to launch your new product HidrateMe and you believe it will cost $500,000 to do this. How would you go about financing your start-up?

Entrepreneurship

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Otium Outdoors

You are a young entrepreneur who has invented a new type of portable rack for carrying skis, snowboards, paddleboards and kayaks. It’s called the Otium Rack. You launched the product by preselling racks on a website called CrowdSupply. This went great because you are just out of college and couldn’t finance a company on your own. Now that your product is out there and being used the news media has written about you and large retail distributor has approached you for an absolutely huge order. You are thrilled! As you talk with the salesperson they want the product in 30-60 days because of Christmas. You need $100,000 to make this order happen. The distributor wants the order and has signed off, but you need to advance the manufacturer money to make the product. How do you finance this?

Entrepreneurship

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Kidizen

You’re a hip mother of 3 and always dressing your kids in fashion forward styles. Everywhere you go you get compliments on how great your kids look! Recently however you’ve been noticing it’s quite a pain in the wallet to keep your kids looking so good… While watching one of their soccer games you and another mom started buying and selling each other’s kids clothes when they grew out of them. You quickly realized this could and should be done on a larger scale… You think this should be done via mobile apps across the country. A market place for high quality used kid stuff… You call it Kidizen. You believe you will need $700,000 to start this company. How will you go about financing your startup?

Entrepreneurship

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SportNgin

While attending Winona State University in your spare time you participated in many club sports like soccer, baseball, and flag football. You were always the “techie” on the team and when it came to making a website for everyone to communicate on that was your job. Your websites did the job for the first few years but you knew they needed a lot more features and functionality. Your intuition is telling you sports clubs across the country could use exactly what you have been making and if it was fully functional, they would pay for it. To build a large scalable solution you believe you need $2 million of financing. How will you go about financing your startup?

Entrepreneurship

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Northbound Brewery

A local restaurant recently went out of business. At a neighborhood party you were chatting with your neighbors, and everyone thought the location where the restaurant went out of business would be a perfect spot for a brewery. You and two other neighbors decide you are very serious about opening a brewery and begin learning how to brew beer and touring other breweries to learn how the operations work. By your best estimates the team thinks it will take $300,000 to start the brewery. The three of you have some down payment money but are not sure how much you will need. You have a feeling you will not be able to fund the entire startup-up with a loan. What other options might you have? What type of financing would you go after and why? Be Creative!

Entrepreneurship

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Answers: Clocky Crowdfunding is likely the best option. However, this is a real product and crowd funding wasn’t a thing at the time it was invented. The entrepreneur started the company with $80k from family and friends. Yoga Studio Personal savings are the best choice. A credit card could even be used in this scenario without too much risk as the entrepreneur already has clients. Resort Commercial loan. Typical commercial loans are 5-10 years but since this one involves real estate you might be able to get a 20- or 25-year loan. Seller financing for a small percent of the business would likely be involved in this scenario. HidrateMe Crowdfunding…this is a real Minnesota startup by U of MN undergrad students and they raised over $600k on Kickstarter. Otium Outdoors Inventory or PO (purchase order) financing. This is an alternative method of financing…it typically costs more money in interest rates, but allows the entrepreneur to get going with production. Kidizen Angel financing. This is a scenario where equity should be sold to Angel investors who are looking to get an exit 5-10 years down the line. This is a real MN company that did raise angel financing. SportNgin Venture capital. Because the dollar amount is so high venture capital is really the only realistic way to raise financing for this company. NorthBound Brewery These entrepreneurs got really creative and presold lifetime beer memberships. The memberships allowed for a free beer with a minimum food purchase. This fundraising mechanism combined with a regular loan allowed them to get their operations off the ground.