Tactus Technology's Craig Ciesla and Micah Yairi had a great idea and then were faced with the challenge of how to fund their start-up. So, and to learn more about their fund raising challenges, you will read the case study on page 194 -195 of our ebook that is focused on Tactus Tech. Once you do this and complete your additional outside research, address the following questions: (please note the questions here are slightly different than those in the ebook and you should only address the questions that follow here.)
1. Craig Ciesla and Micah Yairi eventually turned to friends and family for funding. Should they have done this first? What are the risks with raising money from such individuals?
2. What were the risks and benefits of waiting until they had been granted patents to ask for customer feedback?
3. The partners gave up equity in their company part of the ownership to get the help they needed. Was this a good idea? Why or why not?
4. Why do you think, even with such bad luck, Ciesla and Yairi stuck it out? What would it take for you to be so persistent?
5. Building upon the business you would like to open up, what funding source or sources would you take advantage of in order to initially fund your company? What are some of the advantages and disadvantages of choosing the funding source or sources you would use?
From the provided case study of Craig Ciesla and Micah Yairi, it can be seen that the initial amount funding for their business came from the investment of one of their friends, Nate Saal. In the initial stage, their considered the investment from friends and family, but their hesitated and cancelled the idea as they did not want to ruin relation with them. In case their asked that time, they did not have to struggle for getting the money. Thus, they should have done at the first stage (Abrams, 2017).
Certain risks are there in raising money from friends and family. There is a risk of losing the relationship with these people in case there is loss of business. At the same time, there is a risk of mixing the personal and professional affairs that can hamper the start-up. Most importantly, there can be conflict with these people related to the implementation of business strategies (Lee & Persson, 2016).
The risks and benefits are mentioned below:
Risks: There is always risk involved in the waiting process as one may come up with the similar idea that can harm the business plan. At the same time, the risk of not getting the required investment increases in the long waiting process.
Benefits: The main benefit is that the presence of granted patents provides the investors with the potential assurance of return from the investment. At the same time, the presence of patents provides the entrepreneurs with the required support or back-up to present their business idea to the investors (Abrams, 2017).
This idea has both advantage as well as disadvantages. This can be considered as a good idea as it was helpful for both Craig Ciesla and Micah Yairi to attract the angel investors for their business plan. At the same time, the main disadvantage of this process is that the investors use to sell their equities at the time of the drop in the share market. This hampers the investment process for the new business (Abrams, 2017).
The entrepreneurs are needed to catch the right transition points so that they can maximize the value of the company without putting it at risks. For this reason, they are needed to consider and try different investment options for this business as the entrepreneurs have to struggle even in the presence of good business plan. For this reason, they need to have the never give up attitude and it makes them persistent (Vesperi, Reina & Gentile, 2015).
The first option is Angel Investors which are wealthy and rich people provide required financing in exchange for share and equity. They are experienced and provide helpful guidance. However, the entrepreneurs are forced to give up some control to them in the business (Ding, Sun & Au, 2014).
The next option is investment from friends and family due to the presence of personal relationship. Quick funding can be obtained from them. However, there is a risk of losing relationship with them in case there is loss in business (Lee & Persson, 2016).
Abrams, R. M. (2017). Entrepreneurship: A Real-World Approach. Planning Shop.
Ding, Z., Sun, S. L., & Au, K. (2014). Angel investors’ selection criteria: A comparative institutional perspective. Asia Pacific Journal of Management, 31(3), 705-731.
Lee, S., & Persson, P. (2016). Financing from family and friends. The Review of Financial Studies, 29(9), 2341-2386.
Vesperi, W., Reina, R., & Gentile, T. (2015, September). Academic Knowledge Vs Enterpreneurship: The Spin off way. In European Conference on Knowledge Management (p. 828). Academic Conferences International Limited.
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