Читать книгу Entrepreneurial Finance - Robert D. Hisrich - Страница 10

Abhay Panjiyar, a young engineer in his second year of engineering school, had an idea while he was creating an effective administration process for Bhopal, an India-based education nongovernmental organization (NGO). Along with three friends who “believed in creating everything out of nothing” (hence the name CEON), Abhay developed an analytical problem-solving software for use in India's schools. He started participating in business plan competitions with his revolutionary idea of educational process management (EPM) software and received an invitation from IIM Ahmedabad's Centre for Innovation Incubation and Entrepreneurship (CIIE) to be their first incubator company.

Improving the quality of education is an important issue in India and other emerging countries. Abhay saw the major obstacle being the nonsharing of information among teachers, students, and parents. He filled this gap by developing software that connects all parties and helps parents become involved effectively in their students’ success.

Education is a knowledge-driven sector, and it is a growing market with schools competing to improve education. In that competition, CEON's software enables better education process management for schools.

Abhay began his startup by borrowing money from his family. He ran his business at the lowest possible cost. He paid salaries out of borrowed money and got Rs. 1 lakh (USD $2,000) from his very first client. With the help of this funding, Abhay was able to double his client base and convinced GVFL, a venture capital firm, to invest additional money up to Rs. 3 crores (USD $600,000).

Today, with this software, parents are able to see whether their children have missed classes, how many questions they asked in class, whether they are showing more interest in sports than classes, and if there is a parent-teacher meeting at school. It allows personalized tools for assessment of a student with instant feedback to parents about their child's performance in school.

CEON Solutions now has two more products available—an NGO resource planning solution and police inventory management software—and is looking to expand its client base.

Abhay thinks that of the 1.2 million schools in India, at least 10% would benefit from his software. Even though CEON is creating this new market, its growth is difficult to predict. CEON's approach to use minimum resources, dedicated manpower, a research-oriented business structure, and direct marketing to quality schools is a key factor for its success.

The entrepreneurial landscape is rapidly changing. Fast-growing companies take longer to go public, secondary venture capital markets are flourishing, and new financing options such as crowdfunding are emerging. We are facing a new era in capital strategy. Private money has never been so abundant and is creating opportunity for innovation and faster company growth. In short, entrepreneurs and investors are facing both exciting and challenging times (Savitz, 2011).

However, after listening to hundreds of entrepreneurs pitching their ideas to attract funding for their business concept, we have come to understand that a large majority of entrepreneurs lack an in-depth understanding of financial management. Entrepreneurs make a wide variety of mistakes when trying to apply financial concepts to their nascent businesses. They attach an unjustified certainty to the valuation numbers that they generate and, as a result, irritate potential investors; they fail to understand the uncertainty that is inherent in the financial projections they make for their firms and, as a result, do not capture the full range of potential outcomes with respect to future revenue and cash flow needs; they think of financial ratios as being mere statements of numeric comparison rather than insights into management's style and capability, and when they do this, they lose the opportunity to use the ratio analysis to hold management accountable for its actions; and finally, they fail to appreciate that in an environment of uncertainty (as distinguished from mere statistical risk), the application of financial principles needs to be made in concert with a hefty dose of skill and judgment.

Our belief that financial principles are not given enough attention by entrepreneurs is what motivated us to write this book. Our objective is to provide entrepreneurs from all backgrounds and industries with a practical guide on how to use a better understanding of financial principles to raise capital, manage the firm, and negotiate effectively with investors or buyers. This book is targeted at both entrepreneurs and investors seeking to improve the financial lens through which they view a venture.

Before we explore in detail the financial aspects of entrepreneurship, we will briefly introduce the entrepreneurship field through a global lens.

Chart 1.1 presents a schematic representation of the material covered in this chapter.