Does Venture Capital Spur Entrepreneurship?

A new paper by Steven Kreft and Russell Sobel, “Public Policy, Entrepreneurship, and Economic Freedom”(Cato Journal, Fall 2005), examines the causal relationship between venture capital (VC) and entrepreneurship. Do increases in venture funding lead to increases in entrepreneurial activity, or does VC flow to areas in which entrepreneurship is already taking place? Kreft and Sobel apply Granger causality testing to state-level panel data from 1992 to 2001 and conclude that VC follows, rather than leads, entrepreneurial activity.

I’m largely in agreement with the second part of their paper, showing that economic freedom (measured by a version of the Gwartney et al. index) is the primary determinant of state-level entrepreneurship. I have reservations about the main part, however. First, knowing the direction of Granger causality doesn’t necessarily tell us much about (what Roger Garrison calls) “Webster-causality.” Is there a reasonable explanation for the finding? One interpretation suggested by Kreft and Sobel is that VC is more mobile than labor, so the binding constraint on entrepreneurial is the availability of human, rather than financial, capital. But VC is heavily concentrated geographically (in the US, primarily on the East and West coasts), as isinnovation more generally, and it’s not clear that VC can flow freely to those areas that need it. Location matters, for obvious Hayekian and other reasons. Second, state-level measures of entrepreneurship and VC (and, for that matter, economic freedom) miss the within-state variation in entrepreneurship and VC, both of which are heavily concentrated in urban, rather than rural areas.

Third, the results contradict those in Samuel Kortum and Josh Lerner’s influential paper on the causal relationship between VC and innovation (“Assessing the Contribution of Venture Capital to Innovation,” Rand Journal of Economics, Winter 2000). Kortum and Lerner use a 1979 law allowing pension plans to invest in venture funds as an instrument for VC and find a significant effect of VC on patent rates. I find their instrumental-variables approach more convincing than Kreft and Sobel’s Granger causality test.

Tahir Masood
11K-3043

Venture Capital and Entrepreneurship by Jahanzaib (11K-3031)

Venture Capital and Entrepreneurship

         Dear readers, in my course of second semester “Academic Writing” my instructor provided me topic of "venture capital/Entrepreneurship". After reading some success stories related to “venture capital/Entrepreneurship” I rested on one story which make up my mind quite enhanced. I found out that how social vision secured venture capital. Helping man kind in the process of one’s business can take to the greater success.  Loyalty with the work is also one of core asset of one’s success. Hope this story settled our path that honesty, hard working and honesty with human kind can make you winner in your business.

 

Before move into the  success story we need to know about Venture Capitalism and Entrepreneurship.

Venture Capital:

“Capital invested in a project in which there is a substantial element of risk, typically a new or expanding business.”

Funds flowing into a company, generally during pre-IPO process, in the form of an investment rather than a loan. Controlled by an individual or small group known as venture capitalists, these investments require a high rate of return and are secured by a substantial ownership position in the business.

Entrepreneurship:

The concept of entrepreneurship has a wide range of meanings. On the one extreme an entrepreneur is a person of very high aptitude who pioneers change, possessing characteristics found in only a very small fraction of the population. On the other extreme of definitions, anyone who wants to work for himself or herself is considered to be an entrepreneur.

The word entrepreneur originates from the French word, entreprendre, which means "to undertake." In a business context, it means to start a business. The Merriam-Webster Dictionary presents the definition of an entrepreneur as one who organizes, manages, and assumes the risks of a business or enterprise.

Success Story:

Fashion-forward friends Neil Blumenthal, David Gilboa, Andrew Hunt and Jeffrey Raider aren't your bargain-basement eyewear types. The four University of Pennsylvania Wharton School of business alumni always preferred designer frames and lenses that ran about $500 per pair--a fact they lamented.

"Most glasses are marked up between 10 and 20 times what they cost to manufacture, and that just didn't make any sense to us," Blumenthal says. So they set out to refocus the industry.

The four started New York-based Company Warby Parker (named for literary iconoclast Jack Kerouac's characters Zagg Parker and Warby Pepper) and set out to design, manufacture and distribute high-quality eyeglasses that would compete with those of major designers, with a retail price of only $95.

The former director of the New York nonprofit Vision Spring, Blumenthal had spent five years giving away glasses to impoverished people. Those industry contacts not only helped him line up manufacturing and distribution resources, but that philanthropic focus also led the partners to adopt a one-for-one donation model: For every pair of eyeglasses sold, one pair would be donated to someone in need.

Today, Warby Parker offers 50 upscale eyeglass and sunglass designs, plus one monocle design. The challenge over the past year has been keeping product in stock, according to Blumenthal. Editorial coverage in Vogue, Vanity Fair and GQ has helped orders to skyrocket, Gilboa says, as has word-of-mouth. In fact, more than 50 percent of new orders come through referrals.

But the team has resisted raising funding beyond its initial efforts from a variety of high-powered angel investors, including Joel Horowitz, former CEO of Tommy Hilfiger; Ashton Kutcher; Lady Gaga manager Troy Carter; and Ari Emanuel, CEO of talent agency William Morris Endeavor. Ironically, the more Warby Parker turned down venture interest, the more it was pursued, Gilboa says.

At the same time, Lee Fixel, managing director of New York VC firm Tiger Global Management, heard friends raving about Warby Parker. He reached out through his contacts and was impressed by Gilboa and Blumenthal. "They had developed great products and figured out new and cost-efficient ways to build and market them," Fixel says. "This is a large industry that has been starved for innovation."

In turn, the Warby Parker team was impressed with Tiger Global's experience with e-commerce companies. Tiger Global led Warby Parker's $12 million Series a funding round, which closed in September.

Gilboa says the money will be used to build out the company's technology, including enhancing the buying experience for customers. Investment will also be made in the supply chain, in a move to reduce delivery times and ensure that inventory keeps up with demand. The firm is working on forming "deep partnerships" with suppliers and has reduced the typical turnaround time for a new frame order from 150 days to half that, with ambitions to move even faster. Warby Parker is also working to ensure that suppliers have dedicated production facilities to meet the growing order volume.

Meanwhile, the company's philanthropic commitments remain strong:

It recently became a certified B Corporation and purports to be one of the few carbon-neutral eye wear brands in the world. "It was important to the four of us," Blumenthal says, "that if we were going to dedicate our life savings and our time to building an organization, we wanted to have a positive impact."

I hope you found this story an interesting one, provide your feedback.

Entrepreneurship

Entrepreneurship is defined as the process of making money, earning profits and increasing the wealth while posing characteristics such as risk taking, management, leadership and innovation. The term Entrepreneurship is a complicated term and gives various meaning depending on the situation. Nevertheless there are certain characteristics of Entrepreneurs differentiate them and those characteristics are explained below.

§  Entrepreneurship vs leadership-

Entrepreneurs need certain level of leadership skills to direct their employees to achieve goals and objectives to make money. But not all leaders are considered as Entrepreneurs. As an example. Mahathma Gandhi is a leader but not an Entrepreneur. His leadership can be seen as benevolent leadership which aimed at directing the society to make well-being of the society. On the other hand the aim of leadership practiced by Entrepreneurs is to make wealth for themselves.

§  Entrepreneurship vs management-

Entrepreneurs need managerial skills to run their business and make sure they create incremental wealth for themselves. On the other hand not all managers are Entrepreneurs. There are managers who manage businesses of others as employees of Entrepreneurs.

§  Entrepreneurs vs innovators-

Entrepreneurs need to have innovating skills to identify market opportunities and find out a way to make money out of them. They need to be innovative to come up with solutions for problems in the market to make profits. This is called Entrepreneurial innovation. On the other hand, not all innovators can be called Entrepreneurs. As an example Thomas Alva Edison is the greatest innovator of the 20th century who invented the electric bulb and his innovations were purely based on scientific motives. He did not have the motive of profit/making money and therefore he cannot be called as an Entrepreneur.

§  Entrepreneurship vs Risk Taking-

Entrepreneurs need to accept risk to exploit market opportunities to make money. They need to try different tactics which carries a risk component in it. But point to note is  that Entrepreneurs always accept calculated risk which is directly linked/pegged to the return they receive. Entrepreneurs are based on fundamental of “Higher the risk higher the return” and vice versa. On the other hand not all risk taker are Entrepreneurs. As an example, the biggest risk takers are gamblers but the risk they accept is not calculable and not directly pegged to the return they earn. In other words gambles do not make conscious decision about risk and accept large risks. The risk accepted by Entrepreneurs can be mitigated and absorbed by the Entrepreneur. (As opposed to gamblers, Entrepreneurs make conscious decision on risk where they know the limit of risk that they can absorb)

Venture Capital

What is venture capital?

Venture capital provides long-term, committed share capital, to help unquoted companies grow and succeed. If an entrepreneur is looking to start-up, expand, buy-into a business, buy-out a business in which he works, turnaround or revitalise a company, venture capital could help do this. Obtaining venture capital is substantially different from raising debt or a loan from a lender. Lenders have a legal right to interest on a loan and repayment of the capital, irrespective of the success or failure of a business . Venture capital is invested in exchange for an equity stake in the business. As a shareholder, the venture capitalist's return is dependent on the growth and profitability of the business. This return is generally earned when the venture capitalist "exits" by selling its shareholding when the business is sold to another owner.

What kind of businesses are attractive to venture capitalists?

Venture capitalist prefer to invest in "entrepreneurial businesses". This does not necessarily mean small or new businesses. Rather, it is more about the investment's aspirations and potential for growth, rather than by current size. Such businesses are aiming to grow rapidly to a significant size. As a rule of thumb, unless a business can offer the prospect of significant turnover growth within five years, it is unlikely to be of interest to a venture capital firm. Venture capital investors are only interested in companies with high growth prospects, which are managed by experienced and ambitious teams who are capable of turning their business plan into reality.

For how long do venture capitalists invest in a business?

Venture capital firms usually look to retain their investment for between three and seven years or more. The term of the investment is often linked to the growth profile of the business. Investments in more mature businesses, where the business performance can be improved quicker and easier, are often sold sooner than 

investments in early-stage or technology companies where it takes time to develop the business model.

Where do venture capital firms obtain their money?

Just as management teams compete for finance, so do venture capital firms. They raise their funds from several sources. To obtain their funds, venture capital firms have to demonstrate a good track record and the prospect of producing returns greater than can be achieved through fixed interest or quoted equity investments. Most venture capital firms raise their funds for investment from external sources, mainly institutional investors, such as pension funds and insurance companies.

Venture capital firms' investment preferences may be affected by the source of their funds. Many funds raised from external sources are structured as Limited Partnerships and usually have a fixed life of 10 years. Within this period the funds invest the money committed to them and by the end of the 10 years they will have had to return the investors' original money, plus any additional returns made. This generally requires the investments to be sold, or to be in the form of quoted shares, before the end of the fund.

Venture Capital Trusts (VCT's) are quoted vehicles that aim to encourage investment in smaller unlisted (unquoted and AIM quoted companies) companies by offering private investors tax incentives in return for a five-year investment commitment.

What is involved in the investment process?

The investment process, from reviewing the business plan to actually investing in a proposition, can take a venture capitalist anything from one month to one year but typically it takes between 3 and 6 months. There are always exceptions to the rule and deals can be done in extremely short time frames. Much depends on the quality of information provided and made available.

The key stage of the investment process is the initial evaluation of a business plan. Most approaches to venture capitalists are rejected at this stage. In considering the business plan, the venture capitalist will consider several principal aspects:

• Is the product or service commercially viable? 
• Does the company have potential for sustained growth? 
• Does management have the ability to exploit this potential and control the company through the growth phases? 
• Does the possible reward justify the risk? 
• Does the potential financial return on the investment meet their investment criteria?

SUCCESS STORY

Najam Kidwai, is a young and vibrant personality and also a very successful businessman and entrepreneur. He is currently raising an early stage technology venture capital fund in Pakistan, called CleverThinking Ventures, which will be a $20M fund focused on making early stage investments in the enterprise software, medical devices, networking and wireless technologies.

Previously he has held a variety of roles such as CEO, VP, Director & General Manager with a sales focus and has built and launched a number of UK & US based technology companies in Europe and South East Asia. Najam has extensive experience in emerging technologies, specifically, wireless, CRM, Outsourcing iTV, enterprise software and natural-language.

Najam has raised over $55M in VC funds to date and has built and sold two technology/consulting companies for millions of dollars.

Najam was also heavily involved in the development of the first online funds supermarket of -www.egg.com (most successful online bank in the world)

Previously (1999 – 2002), a co-founder of AtomicTangerine (a Venture Consultancy and SRI International spin-off), Najam Kidwai led AtomicTangerine’s Commercialization practice and was responsible for taking the intellectual property from partner labs (SRI, Sarnoff, KRDL and alliances) and promising new business opportunities resulting in licensing the technology or creating new ventures to capitalize on the IP created. 

Najam Kidwai has been involved with many award-winning online businesses such as ESI (E*Trade UK) and Egg. In 2000/1, Najam Kidwai was instrumental in founding and building AtomicTangerine’s European operations, revenue ($10,000,000+ in UK).
As of December 2001, AtomicTangerine was acquired by RedSiren Technologies (www.redsiren.com). In June 2001, Najam Kidwai was responsible for facilitating and structuring the acquisition by BSG PLC of AtomicTangerine’s Experience Design Business, which he co-founded 

Najam Kidwai has a BSc(Hons) in Technology Management, an MSc in Business Innovation and is 34 years old. Najam Kidwai is a frequent speaker on technology issues and has presented at many global technology and venture capital conferences.

Najam Kidwai currently sits on the boards, as an advisor to www.primetext.co.uk, www.rockingfrog.com,www.ambientdevices.com,www.chicago.com and Epigraph Inc. Najam Kidwai is a member of the Institute of Directors, the British Computer Society and the Electronic Commerce Association.

Venture Capitals And Entrepreneurship

Venture Capital:

Venture capital means to provide money by investment companies known as venture capital firm for startup firms and small businesses that are seeking funds to cover operational expenses until profitability is achieved. The firm may also focus on rescuing established firms that are in financial trouble but demonstrate some potential for become profitable again after some retooling. It operates for the sole function of handling investments in business ventures that may be considered high risk. Although new companies present a high level of risk, they also have the potential for rapid growth and consequently high profits if the new business is successful.

Some venture capital or risk capital companies use their own funds to lend money to companies, but most of them raise capital from other financial institutions, some rich people, who banks call high net worth individuals, and who we call angels or angel investors also invest in start-ups.

Entrepreneurship :

So you have an idea? What’s next?!  The process of turning an idea into a commercially viable success does not happen overnight – it requires one to think like an entrepreneur.  Perhaps the knowledge and characteristics that make a successful entrepreneur can be summarized in two words Angry Birds.
In the game, players launch birds at structures with the goal of removing the pigs on the playing field.  As you move through the game, new birds appear that have special skills and abilities while the structures become more complex.  When think of successful technology entrepreneurs words like determination, passion, decision-maker and self-confidence come to mind.  Entrepreneurs are unique, like the game Angry Birds.  They have laser-sharp focus on what they want to achieve, which is driven by passion for their idea and determination to succeed.  Successful entrepreneurs have an ability to make clear and concise decisions in a short period of time and are willing to adapt and change to new environments.

Your entrepreneurial skills can go a long way to launching a successful business, yet it is not enough.  Clearly identifying the problem your idea is solving and researching your target market and potential competitors, are the foundation to commercialization success.

Success story (Angry Birds):

On March 10 the creators of Angry Birds (Rovio studios) announced that they had taken $42 Million in funding. They currently hold the record for the bestselling iOS game ever. There is talks of a movie being produced featuring Angry Birds. You can already buy stuffed animal versions of the birds.
As Wired Magazine eloquently put it: "Every day, users spend 200 million minutes  16 years every hour playing the mobile game. Three trillion pigs have been popped. It has filled billions of those interstitial moments spent riding the bus, on a plane or in important work meetings, and it is or has been the number-one paid app on iTunes in 68 countries, as well as the best-selling paid app of all time."
There is no denying that Angry Birds is a culture phenomenon, but one thing it’s not is an "overnight success".
Did you know that the guys at Rovio spent 8 YEARS working on other games before they finally caught a huge break? That takes dedication. For almost a decade they didn’t have any big wins. Sure they had some small to moderate success early on, but nothing massive. Heck when Angry Birds came out on the iOS app store sales were pretty slow for the first 3 months. The Rovio guys believed in their product and kept their nose to the grindstone. Through an iterative process they were able to grow Angry Birds into the massive success that it is today.
"Over night success" is often idolized in the startup world, but sometimes the glamor is based in myth rather than reality. Show up and work hard each and every day and remember that you’re getting closer. You can’t have a breakout hit if you never show up.

Venture Capitals & Entrepreneurship

Venture Capitals:

Every business needs some cash to run itself. There are some ways through which you can fund your business including:

a) Personal savings

b) Bank Loans

c) Venture Capital

The VC model is a great way to get your business running by acquiring a large amount of money from a Venture Capital firm. This is good for companies who want to grow dramatically very quickly or those companies whose nature of business demands heavy cash investment.

A VC is typically a firm that collects funds from wealthy individuals who wish to invest money in businesses for profit. This collected fund is then used to run the business for which it was collected. The idea is that when this company/business goes public or is acquired by someone else, it will be worth hundreds and millions of more money than what was invested. This profit is then distributed among the initial investors of the business.

A VC firm not only offers money but also vital advice on how to run the business from a financial perspective. The people in the VC might have more experience and exposure to markets than the new businessmen themselves. So that’s basically how it is a very good funding idea for startups.

The downside of such a model would be that the VC is depending a lot on the business for profit. One cannot guarantee if the business would show any return on investments or not. Secondly, what if the business does not want to liquidate its assets?

Entrepreneurship

Entrepreneurship is the act of being an Entrepreneur who is defined as:

“One who undertakes innovations, finance and business acumen in an effort to transform innovations into economic goods” – Wikipedia

So technically, entrepreneurs are people who come up with a unique idea/business, take initiative to bring it forward, formulate strategies as to what resources would be required to implement that idea, and then put that idea into working.

In today’s world, entrepreneurship has become a very popular model. With so many students graduating all over the world each year there is no guarantee that all of them would have jobs waiting for them on a golden plate. The industries are moving at such fast pace that we need more unique ideas to come forward, more young people with bright minds to take initiative and come up with innovative ideas and contribute to the global economy that can solve many problems of our world!

Entrepreneurs have leadership characteristics. They envision a certain idea perceived from opportunities arising around them and take advantage of that fact to implement their idea. They are risk takers and decision makers. They speculate their opportunities and risks and form a strategy accordingly.

Entrepreneurship Success Story:  Instagram – photo sharing platform

Instagram is a free photo sharing application that allows its users to take photos and add customized filters to their pictures in order to enhance its colors and beauty and share it on different social networking platforms including instagram’s own social network. Launched in October 2010 by Kevin Systrom and Mike Krieger, this application has gained much popularity among its users.

Initially Instagram started as a mobile application for Apple devices only, but later due to its rapidly growing popularity they expanded towards Androids as well.

Instagram was formed by its entrepreneurs based on the Venture Capital Model. The company had only 13 employees. It was recently acquired by Facebook along with its 13 employees for approximately $1 Billion. This acquisition by Facebook, which is an entrepreneurship success story in itself, could do a lot good to instagram’s unique technology.

Instagram’s popularity can be measured by the number of awards it has received:

• In January 2011, Instagram was the runner-up for "Best Mobile App" at the 2010 TechCrunch Crunchies.
• In May 2011, Fast Company listed CEO Kevin Systrom at number 66 in the "The 100 Most Creative People in Business in 2011".
• In June 2011, Inc. included co-founders Systrom and Krieger in its 2011 "30 Under 30" list.
•  In September 2011, Instagram won "Best Locally Made App" in the SF Weekly Web Awards.
• 7x7 Magazine's September 2011 issue featured Systrom and Krieger on the cover of their “The Hot 20 2011” issue.
• In December 2011, Apple Inc. named Instagram "App of the Year" for 2011.

Venture capital

Venture capital is the money which is invested on the innovative ideas or research, especially in high technology. There is risk also regarding the future profit generation. It is the long –term financial support where investor has equal share or we can say the repayment of capital based on the profitability of business. If an Entrepreneur needs to initiate its business venture capital is great source.

                        Venture capitalist is that person who is going invest. It is necessary to consider which business can attract venture capitalist. Venture capital investors are only interested in companies with high growth prospects, which are managed by experienced and ambitious teams who are capable of turning their business plan into reality. The venture capital firms have also sources to obtain their money, like external sources includes institutional investors and so on.

Entrepreneurship

Entrepreneurship is the process of,

Implementing innovative ideas

 Or

 Building something by taking risk in order to improve economic conditions

Or

By using certain amount of resources with smartness and talent to generate big profit

 Or

 By analyzing the environment and its problems to produce solution.

Number of definitions are purposed by the people like joseph Schumpeter , peter Drucker, Frank Knight and so on. All of them defined this process in different ways but eventually numbers of characteristics are target; Decision making, Risk taking, Accepting challenges, Building organization, Skillful Management, Innovation, and Mobilization of resources.

                        Entrepreneurship process is carried out by key people who give the innovative ideas and take risk is the Entrepreneur. Entrepreneur see “problems” as “opportunities,” then take action to identify the solutions to those problems and the customers who will pay to have those problems solved. One of the example entrepreneurship is this in old time period combination of a steam engine and then current wagon making technologies to produce the horseless carriage. In this case the innovation, the car, was transformable but did not require the development of a new technology, merely the application of existing technologies in a novel manner. It did not immediately replace the horse drawn carriage, but in time, incremental improvements which reduced the cost and improved the technology led to the complete practical replacement of beast drawn vehicles in modern transportation.

Successful story of Entrepreneurship:

A.J. Scribante started off selling bleach to supermarkets and other stores around the Midwest. But Scribante had bigger things in mind. He wanted to find a better way to compare regional differences in retail prices, so that he could make more sales.

He started collecting newspaper grocery store ads from various cities to show to grocery stores in different markets. He put all those ads into a single booklet. He realized how valuable the information was when companies started requesting price data for competitors. Thus, the idea for MAJERS, what would become a multi-million dollar marketing Information Company, was born.

9 Rules to deal with VENTURE CAPITALISTS

Well most of us have already defined and talked about what is venture capital and entrepreneurship, I have rather opted to highlight practical aspects venture capital and for those who would like to initiate a new business will get more benefits by reading this. This article was originally published here and talks what actually one should know when dealing with Venture Capitalists and the dos and don’ts before pursuing a new business or making changes in already exiting one. I have tried to present its summary to extract relevant points below,

#1: When Venture Capital is good and when it is bad.

“Is venture capital a good or bad thing? Well it is purely depends on the circumstances It is bad when you don’t need capital. An entrepreneur doesn’t like to lose its autonomy by selling part of his own company to raise capital so it’s a big deal when someone does it. Think before making this decision and let the right time come when you actually need to take this step. So it’s all about the time and situation which makes an entrepreneur’s decision bad good when it comes to raise capital.

# 2: Realizing the need of Venture Capital.

It is very important to realize what kind of business one has instantiated and whether it need venture funding or not? One of the examples might be of phone network (let’s say making acceptable-quality voice calls on the untamed Internet which was common back in 90s) which involves capital for getting critical mass. You need to need to know the level and scope before going for a big borrow or public funds because then again you might be taking huge risk at the very start. One can try to finance it on his own capability and available funds to gradually progress towards bigger funding opportunities

#3: Opt for it as late as possible.

Never go for taking venture capital when there is no need of it. It is also important to have a plan or homework ready before taking offers from VC. One may get offers from venture capital people may be because of the publicity or your initial success that attracted the VCs to offer their support but it is important to analyze the need of it first. Normally if one passed through his startup phase of a company, he may not need it but even then halt them for a period instead of rejecting and go with a new business plan or make some changes if you want to avail the opportunity.

#4: Knowing about VCs.

It is significant to research and invest some time to know about VCs you would like to go with or if they are coming themselves to offer you their support. There may be some of them who don’t have any idea about the business you do but still willing to invest may be because of your references and track record, but dealing with them would involve a risk factor sine they won’t be having any idea about the issues and problems of this business because of zero experience in that domain. So going for an experience VC and choosing a right one will work out. The right VC will himself take initiative and will monitor the progress and would be helpful to broad his investment if he will find it beneficial.

#5: Keep a check on VCs strategies and decisions

VC may cut down or sell their shares if he will see no progress and you are failing to convince them. It is better to understand this before getting a shock. So you need to have your performance check and also need to know how down or high will influence your VC to take any decision no matter positive or negative.

#6: Knowing VCs previous and future references.

A VC will always monitor and learn about your company before making an investment. It is equally important to do the same at your end. One has to know where the funding company has already invested and what their plans for future investment are? So getting a complete life history of it and about the people involved in it will prove a great asset for you

#7: Trust Factor

Trust factor is very important when dealing with the VCs. Opting for a firm that doest gem well with you or you may don’t like their support or anything else will always involves a risk of losing them eventually or that the fear factor will keep haunting you every time.

#8: Your VCs reputation can benefit your company.

Your customers might be attracted more because of the VCs involved in your business rather than for your own efforts. It is not happy to hear this but it is not bad at all. What all you need to do is to make your VCs happy and involved them in your activities to float positive vibes to those customers. A good and famous VCs having business experience that you are in are always better to be pampered since they know the markets and existing customers and so as customers know them, so if customers are coming because of them, you don’t want to make them unhappy.

#9: Dealing with Limited Partners.

Limited partners are those who may directly or indirectly purchase you stock shares form the VCs that have invested in your business. VCs do provide occasionally a chance to know about them by inviting some of its shared companies. This is very significant to know about them and to have good relations with them so that when VCs are going to distribute share to them, they can purchase your shares to further invest in your company and that will be possible only when you have good relations with them.

Naveed Nizar Ali
11k-3010

SUCCESS STORY OF A START-UP BUSINESS OR ENTREPRENEURSHIP

Hearing other entrepreneurs' small business success stories can often inspire and give great guidance to those who are just starting out. The success story is about Harvard Business School

Back some years ago in 19^th century, Harvard Business School marked an important milestone. For 50 years, the School had waded through the rough waters of analyzing, defining, and teaching and learning about entrepreneurship. The journey began when Professor Myles Mace (MBA 38) first offered a course to returning World War II veterans titled Management of Small Enterprises. The success story begins after fifty year when the entrepreneurship became a vital component of the MBA program. Through these fifty years the School has untold many extraordinary stories in this journey and this became the inspiration for Shaping the Waves: A History of Entrepreneurship at Harvard Business School (HBS Press).

In the mid of 1998, three young Harvard Business School graduates including two men and one woman turned down six figure salaries at the rise of big corporations.  By their ten-year reunion, their audacity had paid huge dividends. They'd made many millions of dollars, created hundreds of jobs—and left their mark on the world.

Crossing different interviews with highly successful entrepreneurs, Harvard Business School professors, and HBS alumni, The Intelligent Entrepreneur tells the compelling and instructive story of how these three young founders developed ideas, assembled teams, built ventures, and achieved their dreams. Because of what they teach you at Harvard Business School with the experience of a ferocious work and good timing, you can also be the next intelligent and successful entrepreneur.

REFERENCES:

1.       The Intelligent Entrepreneur: How Three Harvard Business School Graduates Learned the 10 Rules of Successful Entrepreneurship

2.       Teaching a 'Lean Startup' Strategy

3.       Harvard Business School Publisher

ENTREPRENEURSHIP & VENTURE CAPITAL

In the era of 21^st century, the Entrepreneurship has broader terms. At the earliest, dating from the eighteenth century, it was an economic term defining the process of bearing the risk of buying at certain prices and selling it at uncertain prices. Later on the ‘term’ is specifically defined by including the concept of bringing together the factors of production. Now think in your mind as this definition led to a question whether there was any unique entrepreneurial function or whether it was simply a form of management. Bringing down the concept of innovation, the new definition can be a process that involves market innovation, product innovation, factor innovation, and even organizational innovation. Later definitions described entrepreneurship as involving the creation of new enterprises and that the entrepreneur is the founder.

A person so called Entrepreneur with a brilliant idea can change ‘Everything’ in world. Referencing from Peter Killby once compared entrepreneurship to the imaginary animal, the Heffa-lump:

It is a large and important animal which has been hunted by many individuals using various ingenious trapping devices ... All who claim to have caught sight of him report that he is enormous, but they disagree on his particulari-ties. Not having explored his current habitat with sufficient care, some hunters have used as bait their own favorite dishes and have then tried to persuade people that what they caught was a Heffalump.

An entrepreneur is an individual who accepts financial risks and undertakes new financial ventures. The word derives from the French "entre" (to enter) and "prendre" (to take), and in a general sense applies to any person starting a new project or trying a new opportunity.

On the other side, Venture Capital is a form of ‘Capital Risk’. The Capital Risk is invested as shares (equity) rather than as a loan and the investor requires a higher "rate of return" to compensate him for his risk. Venture capital allows for long term and committed share capital to help the un-raised companies grow and succeed. If an entrepreneur is looking to start-up, expand, buy-into a business, buy-out a business in which he works, turnaround or revitalize a company, venture capital could help do this. Obtaining venture capital is substantially different from raising debt or a loan from a lender.

In the last few years the entrepreneurial class in Pakistan has been on the rise. This trend has been recognized by the media both in Pakistan and abroad as well as by quite a few bloggers. The interesting thing is that the trend of rising entrepreneurship continues despite of the growing political challenges and unstable business environment.

REFERENCES:

1. Emerging Entrepreneurship in Pakistan
2. Defining Entrepreneurship by Paul Di-Masi
3. Venture Capital by  Entrepreneurship Law Editorial Team

Enterpreneurship - An Art or Just a Skill!

Entrepreneurship

Being an Entrepreneur is not just a skill or talent but an art and also an intention to do something of your own. It’s not just some funding or good contacts that could create Entrepreneurs instead it’s a spirit that could be built into students during their academics. Take an example from MIT, we have seen and read that mostly MIT grads come out and go for their own startups instead of working for any firm.  Does this mean that only the students with entrepreneurship interests get admissions in MIT? Answer is no, it’s more related to what has been taught to them and how they are groomed for their professional career.

We can’t say that individuals with Entrepreneurship skills are just some extra ordinary people, of course they are human and created like we are do but at the same time they are sharp and intelligent enough who keep a close eye on global IT Business, what is currently happening, the kind of software product that should be rolled out into the software market to run the show for at least next 5 to 10 years.

Entrepreneurs not just think of a business but a complete business model of how they would start, how and what kind of resources would be required, till what time or duration they need to fly light to establish at least a stable setup.

Today, if we look around us, we can see hundreds of new names opened and even doing well with their business. Each day while at our work places we get to know an emergence of one or more new firm, a big question that really comes to our mind is, how these people are getting the business, finding and managing the required resources, continuously hiring and foremost still growing.

The point to note is most of the Enterpreneurs play safe and they are good enough to get and create the exact required resources around them. Since day one, they work and struggle for something of their own with a clear vision of what they intend to start. They either develop an organic fund by doing some offshore consultancies or other part time jobs or take some fast cash loans from any financial institutions if they are sure enough that they could return that in a timely manner.

Venture Capitalist:

Since last three to four years another concept that has really became quite common is of venture capitalism where some already established individuals or companies invest the required cost for any startup and become one of the stake holders. This model has allowed many new names to introduce themselves within the market with a proper setup.

After developing or creating some initial modules, usually, entrepreneurs look for venture capitalists to get some extra funding from them so that they could proceed with the remaining planned scoped out features and at the same time expanding the operations. Some individuals have just gone into Ventures to expand the geography of the firm to foreign regions to have presence other than Pakistan as well.

There companies and some big fishes within the market who are themselves a kind of pool of seven to eight different firms of the same domain or product line. Some of the examples are Tyler Technologies, that gets and outsource the business from Microsoft, SAP, Oracle and some other big names to some local vendors here in Pakistan. Dena Japan who last year acquired Game View Studios as Dena itself is a pool of companies who only developers Mobil Games and social networking Apps.

There are individual people who run their own firms and at the same time invest their profits to some other firm to create a second or third label for them. One of the examples of this particular Model is Secret builders, a silicon valley based firm that has some specific stake in one of local firms here in Karachi and also outsource their projects to them.

Success Stories:

There are many success stories if we see around us, one of them is MIXIT that started with only five individuals, took a very nervous start, main stake holders never wanted this to be started in Pakistan and wanted to give the opportunity to India but it was one Man, Mr. Yusuf Jan, who brought the Business intention here, seated the resources at his own home. Initially he paid salaries of the resources from his own pocket by teaching at different academic institutions and doing different consultancies. At one time, the setup seemed to be abandoned as they were struggling to get any clients but suddenly they got a US based client which actually triggered them. Now they have been acquired by a UK based firm known as PATS.

Game View studios just started back in 2010 with setup only in Lahore, today within a time of only 2 years, they are looking for a head count of around 1000 with offices in Lahore and Karachi and recruiting the resources with one of the most lucrative offers in town. It was just last year when a strategic acquisition turned the table for them and they became of the Giants in Karachi now.

Usman Rafique Zuberi.
Roll No: 11k-3003

Entrepreneurship, Skill or Luck ?

What makes entrepreneurs successful?  Is it skill or luck?   Many argue that an important component of entrepreneurship is the willingness of the venturesome to ‘assume’ or ‘insure’ the doubtful and timid by guaranteeing to the latter a specified income in return for an assignment of the actual results.” In this view, Luck is a big determinant of entrepreneurial success. It is the only determinant of entrepreneurial success: in their model entrepreneurs are simply less risk averse individuals who are willing to guarantee workers’ wages and bear residual risk.  Schumpeter argues just the opposite, claiming that “the entrepreneur is never the risk bearer,” but rather an innovator, one who discovers new production processes, finds new markets, creates new types of organizations, or introduces new products. Entrepreneurial success, in this view, flows from innovative skill.  Only suppliers of capital bear risk.

By examining the experience of serial entrepreneurs and the venture capitalists that fund them, we are able to provide insights into how important each is and what type of skill each possesses.  It is indicated that skill is an important determinant of success for entrepreneurial startups.  Successful serial entrepreneurs are more likely to replicate the success of their past companies than either single venture entrepreneurs or serial entrepreneurs who failed in their prior venture.  

More experienced venture capital firms are also shown to have higher success rates on their investments.  However, this is isolated to first time entrepreneurs and those who previously failed.  When experienced and inexperienced venture capital firms invest in entrepreneurs with a track record of success, there is no performance differential.  This evidence would seem to suggest that prior success is a signal of quality or that venture capital firms add little value to talented, successful entrepreneurs.  If prior success were pure luck, we would not see this pattern.   

While they are more likely to be successful, serial entrepreneurs are not able to extract all of the value from their superior ability.  We find that successful serial entrepreneurs do not achieve higher valuations than do other entrepreneurs.

This leads to higher deal returns for venture capitalists who invest in companies started by successful serial entrepreneurs.  Investing in serial entrepreneurs also leads to higher rates of return of the funds themselves.  

Waseem Chishti

11k-3033