Small Business ManagementProfessor Hornaday,Lecture 4,Small Business Sources of Commercial Credit,Commercial Bank Loans - 36% Commercial Bank Mortgages - 25% Finance Companies - 23% Venture Capital - 10% SBA Loans - 6%,Source: SBA, 1996,Goals of Government Assistance,Economic Goals Increase Economic Efficiency Increase Economic Growth Provide Financing not Available from the Private Sector,Political Goals Provide Employment Increase Business Ownership Narrow Income Gap Provide a Forum for Small Firms,1995 Small Business Administration (SBA) Loan Programs,504 Development Loans - $2,500 7(a) Loan Guarantees - $7,700 SBIC Seed Money - $375,Source: SBA, 1996,($ millions),SBA Guaranteed Loans,Lender of Last Resort Independently Owned and Operated Not Dominant In Field Max $500K, Average $175K SBA Guarantees 85-90% of Loan Require Collateral and Personal Guarantees Prime Rate +2.75% for 10-25 Years,Source: SBA, 1996,1995 SBA Government Loans,Used by Less than 1% of Small Businesses 55,600 Loans Guaranteed Valued at $9 Billion Default Rate of 19%,Risks of Bank Lending,50% of U.S. Start-Ups Gone after 3 years Banks Use Depositor Funds for Loans Banks not Venture Capitalists Lack of Bank Industry and Market Expertise Bank Transaction Costs,The “5 Cs” of Bank Lending,Character Capacity Capital Collateral Conditions,Small Banks Lend to Small Businesses,Source: WSJ, 1996,% of Small Business Loans,Outstanding Loans in 1995,Large Banks - $71.9 Billion Small Banks - $212.3 Billions,Source: SBA, 1996,Early Financing StagesNo Revenues, No Profits,Seed Expansion Late Stage,Higher Risk,Lower Risk,Concept Development Commercialization,Inflows into US Venture Capital Funds,Source: The Economist, 2000,Billions,1995 Venture Capital Seed Money,Source: Business Week, 1996,$ Millions,Communications,Information & Software,Distribution,Products,Health Care,U.S. Start-Up Venture Capital1st Quarter 2000,Source: WSJ, 2000,Billions,Venture Capital and the Internet,Source: WSJ 1999,Billions,Irreducible Uncertainty,Investment,Bhids Investment -Uncertainty-Profit Diagram,Note: Size of Money Bag = Potential Profit,Irreducible Uncertainty,Investment,PROMISING START-UPS: Microsoft BASIC for the Altair (1975) Sam Walton franchised variety store (1945),TRANSITIONAL INITITATIVES: Microsoft Excel for the Macintosh (1985) Wal-Mart distribution centers (1968-69),CORPORATE INITIATIVES: Microsoft Windows 95 Wal-Mart JV in Mexico (1991),Bhids Investment -Uncertainty-Profit Diagram,Note: Size of Money Bag = Potential Profit,Irreducible Uncertainty,Investment,Distribution of Significant Initiatives,Opportunistic Adaptation Risk transfer/syndication Personal abilities,Research and planning Underwriting other risks Teamwork,Note: Size of Money Bag = Potential Profit,CORPORATE INITIATIVES,PROMISING START-UPS,Irreducible Uncertainty,Investment,Five Archetypal Initiatives,MARGINAL BUSINESSES Lawn care, hair salon,PROMISING START-UPS Hewlett-Packard (1948) EDS (1962),VC-BACKED START-UPS Intel, Lotus, Compaq, Staples, Genentech,CORPORATE INITIATIVES Windows 95, Pentium(Intel), Mach III (Gillette), Prozac (Lilly),REVOLUTIONARY VENTURES: Federal Express, Iridium (Motorola),Note: Size of Money Bag = Potential Profit,Professional Management Major Outside Financing,Irreducible Uncertainty,Investment,Stages of Funding,2nd STAGE VC Cisco (1987),BOOTSTRAPPED START-UPS Cisco (1984),VC-BACKED START-UPS Compaq (1982),PUBLIC MARKETS Cisco (1990) Compaq (1983),Note: Size of Money Bag = Potential Profit,Professional Management Major Outside Financing,Incremental Goals,Firm Size and Maturity,Goals - Audacious or Incremental,Audacious Goals,PROMISING START-UPS Survival Cash Flow,TRANSITIONAL INITITATIVES Justify Investment Secure Resources Promote Cooperation,CORPORATE INITIATIVES Limited by History and Size,Formal Planning,Firm Size and Maturity,Opportunistic Adaptation or Formal Planning,Opportunistic Adaptation,PROMISING START-UPS Experimentation Unexpected Situations Limited Planning Resources,TRANSITIONAL INITITATIVES Justify Investment to Outsiders,CORPORATE INITIATIVES Systematic Research Planning Resources Compete for Corporate Funding,Firm Size and Maturity,Risks Faced by Top Decision-Makers,Personal Risk,PROMISING START-UPS Low Initial Capital Founders Time Founders Reputation,TRANSITIONAL INITITATIVES Founders Equity Personal Guarantees,CORPORATE INITIATIVES Corporate Risk Only One CEO Decision of Many,演讲完毕，谢谢观看！,