This chapter will go deep into the process of searching for a business to acquire as a way of becoming an entrepreneur in an existing business. Similar to Chapter 17 on management buyouts and buy-ins (MBOs and MBIs), the entrepreneur is not starting from zero, but looking to acquire an existing business that they can then run and enhance as an equity-owning CEO. Unlike what we saw in Chapter 17 with MBOs/MBIs, in the case of a ‘searcher’ the company to acquire has not yet been identified and most of the process is devoted to the search for the ‘dream’ company. In both cases, and as we have seen for startups looking for financing from external investors, the idea is to search for a business, acquire it, run it for some years, and then sell it, allowing the investors and the searcher to have a healthy internal rate of return (IRR), in general of around 30 per cent.

This chapter will act as your guide as you begin your journey in entrepreneurial finance. It will serve as a roadmap, allowing you to choose between reading the book from start to finish or, if you are looking for specific advice, to jump directly to the relevant chapter or topic. We will look at the differences and similarities between entrepreneurial finance and more traditional fields of finance, such as corporate finance. Finally, we will discuss the different stages that a new venture may go through as it grows, and some of the financial challenges that both the founders and investors in the business might meet along the way.

The logic is simple: you can be as thorough as you like with your due diligence or portfolio strategies – in the end, none of this will help you to reach attractive investment returns if your process is flawed from the very beginning. If the selection process was carried out poorly, then you will most probably either lose some money or lose a lot of money. You will lose some money if you find out in the course of due diligence that your target is not really a target. You may lose a lot of money, however, if you find out after the investment has been made that your portfolio company is unlikely to succeed. Thus, the process of deal sourcing and the screening process are of utmost importance. Let’s get started!

This chapter addresses ESG (environmental, social, and governance) requirements as they affect privately held investments. ESG has a complex and lengthy history in financial markets, stretching back to 2004, when the UN Global Compact published a report titled Who Cares Wins.

This landmark report called for the ‘better inclusion of environmental, social, and corporate governance (ESG) factors in investment decisions’ as investors, companies, regulators, and policymakers sought to grapple with a changing world shaped by a looming climate crisis, rampant social issues, and structural economic concerns.

This chapter explores deep tech investing, a field gaining traction for its pivotal role in developing pioneering academic research into impactful, widely adopted technologies responsible for driving social change, such as the microwave, RNA vaccines, mobile phones, and batteries.

Deep tech companies are characterized by extended periods of development due to the complex nature of their R&D efforts, often resulting in highly defensible differentiation of their product or service. A relevant aspect for both deep tech founders and investors that we will address is a checklist of possible business model challenges that need to be anticipated.

In this chapter, we explore crowdfunding as a valuable means of providing early funding and support for aspiring entrepreneurial ventures. Crowdfunding has emerged as an innovative source of early funding and support for entrepreneurial ventures, particularly in the early 2000s, coinciding with the rise of online crowdfunding platforms. This new avenue to financing allows entrepreneurial ventures to reach a larger pool of potential small investors, fostering financial growth and providing valuable resources for entrepreneurs’ business development. By examining the concept of crowdfunding, we aim to highlight the potential benefits for early-stage entrepreneurs. We will also explore the underlying aspects of crowdfunding in greater detail, comparing it to traditional fundraising methods. As will be evident, this method of funding is part of the broader strategy of obtaining funding (i.e., the ‘art’) that complements the more technical aspects (i.e., the ‘science’) of growing ventures.

This chapter introduces you to the concept and practicalities of intellectual property (IP): what it is and why it can be of importance to your new business venture. IP will be at the heart of most businesses and it is a key element in achieving competitive advantage, enabling cash flow, and justifying value. Sometimes it takes considerable financial investment to generate and develop IP; some types of IP can cost a great deal of money to protect; some types of IP protection are very low-cost. All in all, IP is a very important element in the finances of a new and growing business and management needs to understand the key issues surrounding the decisions that will need to be made.

In this chapter we will delve into the technical aspects of financial planning for a startup. A financial plan is the starting point of any financial strategy. Its first purpose is to realize whether the venture will have an external financing need and, if so, how much financing it will need and when. Next it will serve as the basis for the valuation of the venture. Third, and probably most importantly, the plan will give the entrepreneur and potential investors the means to critically assess and optimize the business model.

In this chapter, you will be walked through the concepts of venture capital and private equity funds, helping you to understand how they operate, who invests in these funds, and, most importantly, how they make money and why this is important for entrepreneurs.

Venture capital and private equity funds have emerged over the past decades as ideal vehicles for channelling private and public money into the financing of innovation. Since the creation of the American Research and Development Corporation (ADRC) in Boston in 1946 by French immigrant George Doriot, considered to be the first venture capital firm, the industry has evolved to provide risk capital to innovative entrepreneurs in a model that has barely changed and is adapted to the particularities of the underlying asset: startup companies.

This chapter considers the challenges and benefits of developing a proper corporate governance structure and policy while expanding as a venture. Although the public debate over corporate governance seems to focus on public companies, an effective governance structure is equally important for startups and private companies. In fact, given the stronger link between the financing and investment decision in startups as compared to public companies, the question of how to structure agreements between investors and entrepreneurs that ensure that their own benefits and responsibilities are met is particularly relevant.