Investor Relationship Marketing for Start-ups

Table of Contents

TABLE OF ABBREVIATIONS

TABLE OF SYMBOLS

TABLE OF EXHIBITS

1. IN SEARCH OF CAPITAL START-UPS FACE A MULTITUDE OF CHALLENGES
1.1 THE QUALITY OF RELATIONSHIPS BETWEEN NEW VENTURES AND INVESTORS IS CRUCIAL FOR ENTREPRENEURIAL SUCCESS - AND VITAL FOR ECONOMIC PROSPERITY
1.2 START-UPS AND INVESTOR RELATIONSHIP MARKETING - DEFINITION OF RELEVANT TERMS
1.3 GOALS AND COURSE OF THIS STUDY

2. DEVELOPMENT OF THE REFERENCE FRAMEWORK FOR INVESTOR RELATIONSHIP MARKETING FOR START-UPS AND DERIVATION OF WORKING HYPOTHESES
2.1 DEVELOPING THE REFERENCE FRAMEWORK OF INVESTOR RELATIONSHIP MARKETING FOR START- UPS
2.2 OBJECTIVES AND TARGET GROUPS
2.2.1 Objectives
2.2.2 Target Groups
2.2.2.1 Business Angels
2.2.2.2 Venture Capitalists
2.3 DECISION VARIABLES OF THE INVESTOR RELATIONSHIP MARKETING MIX FOR START-UPS
2.3.1 Product-related Decision Variables
2.3.2 Price-related Decision Variables
2.3.3 Distribution-related Decision Variables
2.3.4 Communication-related Decision Variables
2.4 SEQUENTIAL ELEMENTS OF INVESTOR RELATIONSHIP MARKETING FOR START-UPS
2.4.1 Contacting potential Investors
2.4.2 Presentation
2.4.3 Due Diligence
2.4.4 Structuring the Deal
2.5 DERIVING THE WORKING HYPOTHESES

3. DESCRIPTION AND RESULTS OF THE SURVEY
3.1 DEVELOPMENT OF THE QUESTIONNAIRE
3.2 DATA COLLECTION AND SAMPLE DESCRIPTION
3.3 OBJECTIVES AND TARGET GROUPS
3.3.1 Objectives
3.3.2 Target Groups
3.4 DETERMINING DECISION VARIABLES OF THE INVESTOR RELATIONSHIP MARKETING MIX FOR START-UPS
3.4.1 Product-related Decision Variables
3.4.2 Price-related Decision Variables
3.4.3 Distribution-related Decision Variables
3.4.4 Communication-related Decision Variables
3.5 DETERMINING SEQUENTIAL ELEMENTS OF INVESTOR RELATIONSHIP MARKETING FOR START-UPS
3.5.1 Contacting Potential Investors
3.5.2 Presentation
3.5.3 Due Diligence
3.5.4 Structuring the Deal
3.6 CONSOLIDATED INTERPRETATION OF RESULTS

4. SUMMARY AND OUTLOOK

APPENDIX WITH TABLE OF APPENDICES

TABLE OF REFERENCES

Table of Abbreviations

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Table of Symbols

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Table of Exhibits

Exhibit I: Process of setting up a new business

Exhibit 2: Elements of Investor Relationship Marketing for Start-ups

Exhibit 3: Typology of Investment Focuses of potential Investors

Exhibit 4: Differentiation of Business Angel Types

Exhibit 5: Relative bargaining power of the Entrepreneur

1. In Search of Capital Start-ups face a Multitude of Challenges

1.1 The Quality of Relationships between new Ventures and Investors is crucial for entrepreneurial Success - and vital for economic Prosperity

The declining stock markets in 2000 and 2001 have made it more difficult for entrepreneurs to obtain the financing for new ventures and have had an impact on existing relationships between young companies and their investors. Investor relationship marketing addressing the specific and varying requirements of investors is crucial as professional investors in particular apply stringent criteria for investments¹ and as it is becoming increasingly difficult for start-ups to raise funds². Entrepreneurs face significant difficulties when acquiring capital for a start-up³. Having at their disposal a variety of potential sources founders sometimes fail to chose the optimal alternative. This can impose considerable limitations on growth and development potential, increase the susceptibility to crises and threaten the very existence of the company⁴. Professional management of relationships to potential and actual investors ought to be one of the main focuses of entrepreneurs’ attention as inappropriate financing has been identified as the most frequent reason for the failure of new ventures⁵.

Entrepreneurial activities considerably influence the growth of an economy⁶ and have a positive effect on prosperity⁷. In the Federal Republic of Germany (FRG) small and medium-sized enterprises⁸ (SME), which most new ventures are⁹, account for more than half of the gross value added of all businesses¹⁰ and for over two thirds of all jobs¹¹. The impact of new ventures on the economy is as also highlighted by the fact that between 1980 and 1999 in the United States of America (USA) over 34 million (mio.) new jobs have been created, while at the same time the largest 500 US companies reduced their staff by over five million¹². The EUROPEAN OBSERVATORY FOR SMES also demonstrated a significant impact of SMEs on the creation of jobs in the European Community¹³. SMEs are not only essential for labour markets. Because they can react faster and more flexibly to changing market situations they contribute to an economy’s ability to compete internationally. Since only a limited number of them survives - in Germany approximately 50% of new companies fail within the first five years¹⁴ - an economy must dispose of a sufficiently large base of young and growing ventures¹⁵. A systematic investor relationship marketing for these ventures is essential for their survival and prosperity, because they help them to acquire the capital for sustaining loss-incurring periods and consolidating their operations.

Investor relationship marketing for start-ups is particularly important because the investment can be a prerequisite for the establishment of the venture and ultimately a determinant for an economy’s base of new ventures.

1.2 Start-ups and Investor Relationship Marketing - definition of relevant terms

Before the objective and course of this study will be elaborated relevant terms shall be defined and explained. These are start-up and because of the understanding of the term investor relationship marketing as it is applied in this study the terms investor relationship or investor relations and relationship marketing.

COLLIN and WEILAND define a start-up as “the beginning of a new company”¹⁶. The definition does not specify whether the beginning of the company is to be understood in a legal sense, i.e. the legal establishment of the company, the first economical transaction or any other constituent act that would allow to classify the new entity as a company¹⁷. Likewise it is difficult to differentiate the single phases of the process of new venture creation¹⁸. Within the framework of this study the term start-up shall refer to a venture that has passed the very early stage¹⁹ of its development and is in the process of being set up as a previously not existing economic system²⁰. This includes the time period for the realization of the foundation including all measures that are taken immediately before and after the start of the company²¹. General characteristics of this particular stage of the foundation process as well as the previous and subsequent stage are outlined in exhibit 1. The new economic system can evolve through creating a new good or improving the quality of a good, the application of a new production method, the development af a new market, the exploitation of a new source of raw material or semi-finished products, or the implementation of a new organizational method²².

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Exhibit 1: Process of setting up a new business²³

The definitions of the term investor relationship or investor relations are inconsistent²⁴. The NATIONAL INVESTOR RELATIONS INSTITUTE (NIRI) defines investor In Search of Capital Start-ups face a Multitude of Challenges relations as a “[...] strategic, executive function of corporate management [...] to provide present and potential investors with an accurate portrayal of the company’s performance and prospects”²⁵. Investor relations in the narrower sense of the word²⁶ include only the communication policy²⁷ whereas the broader definition of the term comprises the measures of product, pricing, distribution and communication policies²⁸. It is the understanding of the term in the broader sense that shall be applied in the course of this study.

Finally, the term relationship marketing shall be defined. In accordance with BRUHN relationship marketing “comprises all measures for the analysis, planning, execution and control that serve the purpose of initiating, stabilizing, intensifying and re-initiating business relationships to stakeholders [...] of the company with the aim of mutual benefit”²⁹. Consistend with this definition the term investor relationship marketing as it is used in this study points to the measures initiating, stabilizing and intensifying relationships to one or more investors with the purpose of obtaining capital for the survival or the development of the start-up.

1.3 Goals and Course of this Study

Entrepreneurs are subject to a venture-specific environment, which substantially affects their chances of success. This environment contains characteristics such as the availability of capital, infrastructure or specifications of the labour market (for example the expertise in research and development (R&D) at a particular location) and the current situation of an economy within the economic cycle³⁰. This study is confined to the aspect of relationship marketing between the start-up and potential investors as one of those environmental elements.

There exists an extensive literature on the subjects investor relations and relationship marketing. Whilst the first deals primarily with the relationship between publicly traded companies and their shareholders³¹, the latter evolved around the question of how a company can tie customers to its products and services while increasingly embracing business relationships with stakeholders in general³². Although money can be regarded as one of the most vital resources of an enterprise, raising funds is omitted from the literature dealing with marketing to suppliers, or procurement marketing³³. Despite an expanding literature addressing start-ups in particular, little research is being done in the field of how to foster the relationships with investors in order to increase the chances of raising capital. The lack of research appears to be an even greater problem as new entrepreneurs are generally lacking in knowledge and experience in this field³⁴. It is this issue which this study is attempting to address, thus hoping to contribute through an interdisciplinary approach that integrates the entrepreneurial and marketing sciences and allows entrepreneurs to reduce the time and capital spent on demonstrating credibly the commercial feasibility³⁵ of a business idea and marketing the start-up to potential investors. By embracing financing as a predominant source of problems for start-ups and because of the vitality of raising money, this study will place emphasis on entering into an investment agreement rather than on post-investment relationships, and it shall seek to contribute to the research providing actual and prospective entrepreneurs with the opportunity to draw on the experience of experts. The survey for this study was conducted among experts from start-ups in Central Europe, i. e. Germany and Poland. The questions raised in the interviews have been designed to gain insight into how the start-up companies managed to establish and develop stable relationships with investors with the purpose of securing financing for the venture.

There are some restrictions regarding the scope of this study. Due to the restriction of time, it was not possible to interview experts from a sufficiently large number of companies that would allow for a bi- or multivariate analysis. The immanent limitations also appear to justify the restriction of the analysis to only a limited number of potential financing sources for start-ups. Personal savings, though one of the major sources of seed capital in earlier stages of the venture³⁶, shall not be discussed. This study shall also omit the relations with so-called “friendly investors”³⁷, such as friends and family, professional advisers, business acquintances, past employers and prospective employees. The reasons for such support vary considerably and lie in their personal ties to the founder rather than in the quality of the business. Also not taken into account in the analysis is the raising of debt capital as a financing source that might become available with the passage of time³⁸ but is usually not an alternative in the start-up stage because new ventures neither have the track record³⁹ nore are they in the position to provide the level of assets and securities generally required by banks⁴⁰. Likewise, public efforts to support new ventures shall not be taken into consideration because only a limited number of countries undertake public efforts to support new ventures. The motivation for these funds to be invested are the goals of public economic policy rather than of achieving returns on investment and the allocation of subsidies depends on the fulfilment of formal requirements which vary among countries⁴¹.

Therefore, this study can neither isolate the factors ultimately determining successful fundraising nore provide instructions regarding optimal design of the issues related to investor relationship marketing for start-ups as such a design depends on the situational context of the particular venture⁴². Rather this study will attempt to identify and elaborate on a theoretical basis relevant aspects of investor relationship marketing for start-ups and then evaluate their relative importance for securing a start-up’s financing in the opinion of the interviewed practicioners. This will be done by generating working hypothesis and validating them with help of expert judgements. Although the primary company objective for the new venture is not to raise funds but rather to achieve its corporate goals⁴³, start-ups must raise funds to achieve those goals. Hence the primary objective of investor relationship marketing, and the understanding of successful investor relationship marketing for start-ups that is applied in this study⁴⁴, is acquisition of the capital required.

To determine the main issues of investor relationship marketing in the start-up phase defined above, chapter 2 contains an elaboration of potential objectives of investor relationship marketing and the target groups that can be sought out by new ventures at that stage of development. The chapter will also include a discussion of how the marketing mix applies to the particular situation of start-ups seeking financing and the dynamical aspects of the stages in dealing with potential investors.

On the basis of the developed framework and the examination of its elaborated aspects in chapter 2 working hypotheses shall be generated to systematise the questions for the survey and to structure the evidence collected in the interviews.

Chapter 3 will outline the development of the questionnaire as well as present and describe the interviewed sample. It will also present the collected expert judgements and elaborate upon and the results of the expert survey within the framework of the structure developed in the previous chapter, and will conclude with a critical assessment of the insights gained.

The study is concluded in chapter 4 with a summary of the insight obtained and suggested prospects of investor relationship marketing for start-ups.

Development of the Framework for Investor Relationship Marketing for Start-ups and Derivation of Working Hypothesis

2. Development of the Reference Framework for Investor Relationship Marketing for Start-ups and Derivation of Working Hypotheses

Having defined the relevant terms and determined the goals of this study, now the reference framework for investor relationship marketing for start-ups shall be derived and elaborated upon. The development of the general framework in 2.1 is followed by a detailed discussion of its particular parts. Section 2.2 focuses on the objectives and target groups and 2.3 on the characteristics of the marketing mix of investor relationship marketing for start-ups. Section 2.4 takes a closer look at the stages of relations between potential investors and investment candidates. The chapter concludes with the derivation of the working hypotheses in 2.5.

2.1 Developing the Reference Framework of Investor Relationship Marketing for Start-ups

To apply a systematic approach to investor relationship marketing for start-ups and to derive an appropriate frame of reference, the specific characteristics of investor relationship marketing shall first be determined. In this section external and internal factors that impact management decisions⁴⁵ will be enumerated and discussed for this particular field. After a relatively brief treatment of external influences, the internal factors will be categorized and discussed, as these are the factors that can be influenced by the manager responsible for investor relationship marketing in a start-up⁴⁶.

Marketing takes place under the influence of external factors⁴⁷ to be systematized below, which where adequate are applied to the particular context of fundraising Development of the Framework for Investor Relationship Marketing for Start-ups and Derivation of Working Hypothesis for start-ups to give a comprehensive image of the environmental factors of a start-up’s investor relationship marketing⁴⁸. The macro environment can be categorized by differentiating the issues related to the political, economic, ecological, social and techological spheres⁴⁹. Here the macro-environement shall not be examined further as the consideration to invest in a particular economy is made by investors during the strategic evaluation of investment regions, before the assessment of particular ventures. Conclusively, those issues lie beyond the area of decision by investors that can be influenced by entrepreneurs unless they anticipate regional preferences of potential investors and found a business at a location preferred for investments⁵⁰.

In order to categorize the environment of the specific industry sector the five forces model by PORTER⁵¹ appears suitable. This model evolves around the issues related to the threat of entry, the rivalry among existing competitors, the pressure from substitute products as well as the bargaining power of suppliers and buyers.⁵² It appears noteworthy to emphasize that in the particular context of investor relationship marketing for start-ups, the industry sector cannot be understood as the industry of the generic business model of the venture⁵³ but rather as an industry in the sense of a market for venture capital investment opportunities. As main barriers of the entry to this market can be regarded the set-up costs for start-ups, namely seed financing⁵⁴, the prerequisite of a business idea

Development of the Framework for Investor Relationship Marketing for Start-ups and Derivation of Working Hypothesis and the readiness to take risk⁵⁵. The fact that the business idea is not necessarily required to be innovative⁵⁶ contributes to the reduction of this particular barrier. When viewing a start-up’s investment proposition as a kind of service⁵⁷ offered to potential investors, the development of this particular sector, with increasing volumes⁵⁸, corresponded to the evolution that was generally observed for the general service sector⁵⁹. Nonetheless the rivalry among start-ups searching for money is high and represents a considerable threat to entrepreneurs as there exists a large number of start-ups submitting their business plan to potential investors⁶⁰ and as few of them are actually being financed⁶¹. In addition, exit barriers are high owing to the fact that entrepreneurs often invest all their assets into the new venture⁶². As substitutes in this context can be regarded investments of a similar combination of risk and expected return⁶³. Suppliers of the start-up as an investment opportunity are those delivering the input for the mere existence of the company. Those are typically the founders, friendly investors⁶⁴ and key employees, who have a stake in the company and consequently an interest in the survival and success of the business and therefore do not represent a threat but are rather supportive. In contrast the pressure from “buyers”, in this context the potential investors, is considerable as investors receive a large amount of investment proposals and therefore apply a highly selective process when choosing in which business to invest⁶⁵.

External issues lie beyond the control of investor relationship marketing managers⁶⁶, their decisions influence mainly the affairs within the corporate sphere. The target market and target groups are to be identified and the proper marketing mix⁶⁷ and instruments to be selected. Each fundraising strategy commits the company to actions that incur costs and may enhance or inhibit future financing options⁶⁸. As investor relationships for start-ups typically are of an enduring kind, in particular when the efforts to acquire capital are successful⁶⁹, they contain a dynamic component and can incur changes over time in claims and preferences of potential investors during the process of evaluating prospective investments⁷⁰, making a systematic investor relationship marketing planning indispensible for start-ups. The interdependencies of the aspects of marketing planning⁷¹ are requiring their systematic interconnection⁷² and in the attempt to consolidate the factors it appears helpful to relate them within the frame of one model. MCCARTHY and PERRAULT have established a model integrating the aspects of targeting, the marketing mix and time-related details of marketing which has been chosen to be applied also to the context of this study. Exhibit 2 displays the framework connecting target groups, marketing mix and the dynamic component of investor relationship marketing, demonstrating their interrelation.

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Exhibit 2: Elements of Investor Relationship Marketing for Start-ups⁷³

The combination of target market and marketing mix determines the marketing strategy which together with time-related issues establishes the marketing plan for investor relationship marketing of start-ups. In the following sections the components of this marketing plan shall be developed through the elaboration of the single elements. The details of the components are being addressed and in order to contribute to lay a sufficiently operational basis for the interviews the subjects are discussed also on a more instrumental level⁷⁴ where it applies.

A particular challenge represents the classification of the affairs relevant for investor relationship marketing, as the interdisciplinarity of this study constitues a potential overlap not only of entrepreneurship and marketing sciences but also of the traditional categories for issues differentiated after general and time-related application. The appropriate communication policy and tools for instance change with the stages⁷⁵ and is also different for business angels and venture capitalists⁷⁶. To prevent the dilution of the structure of this study at first the characteristics of the particular target groups are dealt with in section 2.2, before in the subsequent sections 2.3 the general statements follow regarding the marketing mix and finally in 2.4 the dynamical aspects of investor relationship marketing for start-ups. Issues are assigned to the area in which they appear to have the highest significance or to which they appear to have closest relations to. The business plan for instance features mainly in section 2.3.4, the communication part of investor relationship marketing mix for start-ups, because of its significance as a communication tool⁷⁷ during all stages of relations to potential investors.

After the framework of investor relationship marketing for start-ups has been set up, a detailed elaboration of the apects of this framework is to follow to lay the basis for deriving the working hypotheses in chapter 2.5 and designing the survey.

2.2 Objectives and Target Groups

In this chapter at first possible objectives for a start-up’s investor relationship marketing shall be discussed and then the potential target groups determined, the first element of the reference framework developed above.

2.2.1 Objectives

Investor relationship marketing for start-ups, like general marketing⁷⁸, ought to be executed towards particular objectives. Marketing objectives are to be subordinated under and ought to contribute to the realization of corporate objectives⁷⁹. In the case of the investor relationship marketing for start-ups a multitude of objectives can be observed for founding a business. Among the entrepreneur-specific ones are power, independence, achievement, prestige, self- realization and satisfaction at work⁸⁰. The more company-specific objectives are turnover, profit, number of employees and market position⁸¹. In terms of marketing objectives generally economic and psychographic objectives are being differentiated. Economic marketing objectives are strongly connected to corporate goals, e. g. profitability, whereas psychographic objectives rather focus on mental processes of a buyer⁸² or, in the case of investor relationship marketing for start-ups, the investor. Classic economic marketing objectives like profit and marginal return do not apply in the case of a start-up’s investor relationship marketing because the aim of investor relationship marketing are not sales or marginal return of a particular product. In return appear objectives like increasing the valuation of the venture that is to be purchased partially by the potenital investor or increasing the amount of invested capital⁸³. On the other hand some of the psychographic marketing objectives are applicable: name recognition and reputation as well as enforcing the intention to purchase or to invest respectively. Name recognition in the investment industry, however, does not only have a positive effect. Dealing with a number of investors can result in the venture being classified as “shopworn” and discourage investors to further pursue the proposal⁸⁴.

In order to reach corporate and marketing goals of investor relationship marketing, rather investor-specific objectives can be to obtain assistance in recruiting key management members and gaining key industry and professional contacts, to find a confidant and investor with sufficient capital for subsequent financing rounds⁸⁵.

In order to categorize the investors a determination of potential target groups for investor relationship marketing shall be undertaken below.

2.2.2 Target Groups

On the basis of the constrictions applied in chapter 1.3 generally the total number of business angels and venture capitalists come into question for financing the start-up⁸⁶. Due to timely and factual limitations for a start-up‘s fundraising activities indeed a sophisticated treatment of potential investors can be more promising than engaging into relations with a multitude of possible financiers. In this context the question appears to which extent and under the application of which criteria the selection of a limited number of potential investors appears superior. The aim of selecting the target market is to identify those segments which it appears promising to engage into relationships to⁸⁷. Before a discussion on the singular target groups, it seems therefore appropriate to identify the target segments as well as to discuss which criteria dimensions can generally be applied in the selection process.

In order to develop a concept encompassing the investment criteria of potential investors can serve a model taking into account the differing investment focuses of particular financiers⁸⁸. Exhibit 3 contains an exemplary typology suggesting the differentiation of potential investors to be addressed, under the application of the three dimensions industry sector preference, stage-preference and preferred region of the investor.

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Exhibit 3: Typology of Investment Focuses of potential Investors⁸⁹

The area marked grey in the exhibit represents the segment of investors considering investments into ventures at the start-up stage in the European software industry⁹⁰. The limitation of the dimensions and parameter values to the number of three in the exhibit has been applied to allow a concise illustration of the concept⁹¹. Generally the multidimensional reference framework required for reproducing the preferences of investors can consist of more than three dimensions⁹². For the purpose of the reasearch conducted in the frame of this study five of the commonly used investment preference dimensions have been chosen after which investors can be targeted: industry, region, stage of the venture, technology and amount of capital to be invested⁹³. To the author´s opinion those dimensions allow an appropriate segmentation of the investment market for start-ups, identifying investor segments that are “internally homogeneous and heterogeneous among each other”⁹⁴.

Typical industries for investments into new ventures are communications, computer hardware and software, electronic related, biotechnology, medical and health related, industrial products and services, manufacturing, automation and consumer related industries, e-commerce and multimedia⁹⁵. In terms of regional classification, a start-up can concentrate its fundraising efforts for instance on investors in the immediate proximity of the venture or on investors with an investment focus in the particular region of the start-up⁹⁶, which can significantly enhance their access to potential investors⁹⁷. Stages considered by investors include the seed stage, the start-up stage and first stage in the earlier development of the company⁹⁸ as well as second and third stage (“expansion financing”) and fourth stage financing (“mezzanine financing” for ventures preparing the IPO) in the later life cycle of the company⁹⁹. The technology a start-up utilizes equally is of importance. A start-up in the retail industry for instance can open a traditional outlet, or employ technologies such as interactive television (TV)¹⁰⁰ or the Internet¹⁰¹ to explore new distribution channels, which can effect its eligibility for investment. The last dimension that shall be probed in the expert interviews is the amount of capital that is to be invested and which can also limit the number of potential investors coming into question¹⁰². In which segment the start-up is to look for business angels and representatives of venture capital investment companies depends on the position of the start-up in the five-dimensional frame derived above. For start-ups in almost all industrial sectors and many regions¹⁰³ the targeted segment of potential investors comprises of formal¹⁰⁴ and informal¹⁰⁵ investors. Considering the restrictions applied in chapter 1.3, this study in terms of target groups concentrates on business angels and venture capitalists. Below these two groups shall be given further examination.

2.2.2.1 Business Angels

The perception is held that the main source of funds for new and young ventures are venture capitals, when it is in fact the so-called informal venture capital market.¹⁰⁶ A part of this informal venture capital market comprises of business angels¹⁰⁷, representing the largest source of external capital for small businesses.¹⁰⁸ Although the group of business angels consists of heterogeneous investors and it is problematic to make any generalization, research reveals that they have some characteristics in common.¹⁰⁹ The majority of them invest their money locally¹¹⁰, typically not beyond a radius of 100 kilometres (km)¹¹¹ or miles respectively¹¹² even though recently, however, this appears to have changed in favour of larger distances at least in the case of Germany¹¹³. Business angels are mostly self-made high net-worth individuals¹¹⁴ and relatively infrequent investors making on average one investment every 18 months, although a minority of them are considerably more active, investing three or more times a years.¹¹⁵ More than half of them involve co-investors, investing in syndication with one or more other business angels.¹¹⁶ They contribute their commercial skill, business know-how and entrepreneurial expertise¹¹⁷ and their motives involve, apart from potential capital gains, altruistic considerations such as bringing a “socially useful product or service to market, assisting in the economic development of their community and supporting the free market system that enabled them to prosper”¹¹⁸. One of the strongest motivations for business angels executing this activity is to have fun¹¹⁹. In addition to serving as a sounding board and confidants for the management team they may also require to play an active role in the management of the venture.¹²⁰

Finding business angels can be a challenge for a start-up up as they are difficult to locate.¹²¹ In order to tackle this problem a start-up’s management can use their contacts to entrepreneurs, consultants, lawyers, accountants and other professionals, attend fairs and search the Internet¹²² or attempt to be placed in publications business angels subscribe to such as the “Venture-Capital Report” published in Oxford.¹²³ One reason for the difficulty in finding business angels lies in the fact that the majority of them are not active¹²⁴, constituting the group of potential angels¹²⁵. The group of active angels can be differentiated applying the two dimensions “Entrepreneurial Background” and “Level of Activity”, as exhibit 4 illustrates. For a start-up seeking advice and a network it appears preferable to have an entrepreneurial business angel investing in the company. Those are angels with a strong entrepreneurial background in terms of own experience and a high level of activity. For those seeking active managment support an income optimizing angel would fit better as those angels often occupy a position within the venture¹²⁶.

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Exhibit 4: Differentiation of Business Angel Types¹²⁷

The selection process business angels apply is very rigid, with rejection rates over 90% of investment propositions they receive.¹²⁸ The main reason for rejecting an investment proposition is the lack of trust in the management team, followed by doubts about the abilities of the management team and weaknesses in the business model.¹²⁹ But even if a proposition is rejected the business angel can refer the business plan to other angels and a company can at last find investment because, since many business angels syndicate, one contact leads entrepreneurs to contacts with several others.¹³⁰

The second large group in potential target segments are professional venture capital firms.

2.2.2.2 Venture Capitalists

Since its beginnings after World War II the venture capital industry had a significant impact on the world economy.¹³¹ The venture capital industry “supplies capital and other resources to entrepreneurs in businesses with high growth potential in hopes of achieving a high rate of return on invested funds”¹³² by selling the shares with a profit at the end of the investment period¹³³. Through their post-investment involvement¹³⁴ venture capitalists can contribute to the development of their fosterling, supporting the entrepreneurial management¹³⁵ for instance by recruiting key managment, making available industry know how and acting as a sounding board for the management team of the new venture and this way create additional value¹³⁶. This is in their own interest because those activities often make the difference between success and failure of an investment¹³⁷. Whereas the failure rate of young companies lies between 70 and 90%, the ventures who marketed themselves successful to private venture capital companies achieve a survival rate almost that high.¹³⁸

Professional venture capital investors apply a very selective process for their investments¹³⁹ and the equity cost for a new venture can be substantial, even Development of the Framework for Investor Relationship Marketing for Start-ups and Derivation of Working Hypothesis beyond 50%¹⁴⁰. The availability and cost of capital depend on the stage of a company’s development¹⁴¹ and factors like the perceived risk, the quality of the management team and the attractiveness of the industry, market and technology¹⁴², the competitive postition of the venture, the business plan and the time horizon in which a company can generate a positive cash flow¹⁴³.

When acquiring new investments, venture capitalists are typically advertising their investment strategy, reputation and value added services.¹⁴⁴ Where it is helpful for start-ups to know about the investment focus and the value added an investor provides, information on the reputation of an investor can be misleading. Simply targeting the best-known, most prestigous firms is considered a trap start-ups often fall into.¹⁴⁵ It is important for an entrepreneur to know about the consequences of venture capital as a way to finance a start-up¹⁴⁶ that largely depend on the venture capitalist it is obtained from. To efficiently select the venture capitalists to be approached the understanding of their value creation process¹⁴⁷ can be helpful. The objectives and investment policy of venture capitalists divide them into two sub-groups.¹⁴⁸

Professionally managed are venture capital corporations being organized in a fund-structure. Their investment focuses cover a variety of preferences in terms of size, maturity, location and industry of a start-up and the capital they invest can come from one or more wealthy families, one or more financial institutions and wealthy individuals.¹⁴⁹ Most venture capitalist corporations in the USA prefer investments between $ 500,000,-- and $ 1,500,000,-- and some larger funds with total amounts up to $ 100,000,000,-- under investment do not consider investments smaller than $ 1,000,000,-- to 2,000,000,--.¹⁵⁰

Strategic investors comprise of nonfinancial corporations that have set up their own venture capital operations. Besides the capital gains they are interested in growing the acquisitions to obtain new market opportunities, seize the potential of new technologies or open new distribution channels¹⁵¹. Advantages for start-ups can be that strategic investors tend to overinvest and that they are very patient with time horizons of 10 to 20 years for returns where corporate venture capitalists are operating in the range of 5 to 10 years¹⁵². Also the return on investment (ROI) required to invest into a venture can be lower than for the first sub-group.¹⁵³

Once the target segments are determined and group of potential investors identified, the decision is to be made on whether to treat them uniformly, for instance by submitting identical copies of the business plan to all addressees, or to distinguish between the handling¹⁵⁴ of potential investors.

Following the reference framework above derived, the second component of the marketing strategy for investor relationship marketing planning is the marketing mix. The investor relationship marketing strategy in combination with time-related elements that are to elaborated in 2.4 then establish the investor relationship marketing plan for start-ups.

After having identified and elaborated on the objectives and target groups, business angels and venture capitalists, of investor relationship marketing now the decision variables of the investor relationship marketing mix shall be explicated.

2.3 Decision Variables of the Investor Relationship Marketing Mix for Start- ups

The marketing mix contains strategic as well as operational elements¹⁵⁵. For a start-up’s investor relationship marketing those can range from strategic issues like the design of the company¹⁵⁶ to more operational ones like the construction of the business plan¹⁵⁷ or giving a presentation in front of potential investors¹⁵⁸. For a successful investor relationship marketing it is vital to integrate those elements in a way that matches the corporate strategy¹⁵⁹. In the following the variables of product-related, price-related, distribution-related as well as communicationrelated decisions shall be treated in more detail.

2.3.1 Product-related Decision Variables

The product dimension includes all decisions related to the market-oriented design of a company’s products or services offered to customers.¹⁶⁰ The “service” a start-up offers in this respect can be seen as the investment opportunity in a company that carries a number of features critical for an investment decision¹⁶¹. The customer, or the buyer respectively, in the specific context of start-ups searching for money in exchange for shares in the company are potential investors.¹⁶² Also because the nature of the start-up in the sense of a “good” to be offered to potential investors is an intangible one that supplies abilities in the form of personnel, material and immaterial resouces and is requiring the integration of the external factor, namely the potential investors, it appears to qualifiy for being classified as a service¹⁶³. In particular applies the process character¹⁶⁴ of services to the sale of shares in the start-up¹⁶⁵. It could be argued that if an investor buys a stake in a venture in the production industry, this investment rather carries the characteristics of a tangible asset. In reply of this argument can be stated that generally start-ups do not have many many assets and therefore the reasons for investors to purchase shares in the company is the growth and profit potential rather than the value of tangible assets¹⁶⁶.

Although start-ups as investment opportunities carry search attributes as well as experience attributes, as a service it primarily has the characteristics of reliance goods that services have¹⁶⁷. This is the reason for the competence¹⁶⁸ and image¹⁶⁹ of the executional forces related to the service, in this case the venture, to be of such essential an importance.¹⁷⁰

For the elaboration of product-related factors for successful acquisition of investment in the following the qualitiy and attributes of a start-up and its management shall be treated, the appropriate communication of which will be discussed in chapter 2.3.4. For an investment decision of business angels and venture capitalists alike the most critical factor is the management team¹⁷¹, namely its qualification to perform the tasks its members are potentially responsible for and the ability to work together as a team¹⁷². Investors are looking for start-ups with management team members disposing of complementary skills and headed by an entrepreneur with profit-and-loss management experience¹⁷³. Further success factors of entrepreneurial management are:

- Knowledge.
- Competence.
- Integration of knowledge from different areas.
- Desire for freedom and independence.
- Commitment.¹⁷⁴

ALBACH remarks that knowledge, competence and integration of knowledge from different areas are cognitive factors that can be summarized as “human capital” whereas commitment and the search for personal freedom and independence feature as emotional factors classified as “entrepreneurship”¹⁷⁵. Possessing these abilities investors expect entrepreneurs to be able to develop the company in which they are considering investing and to manage it successfully. An indicator for the existence of those abilities are a start-up’s accomplishments and performance to date.

[...]

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¹ Cf. BAUMGARTNER & PARTNER, AREA5F, VDI NACHRICHTEN (Ed.): Venture Capital Partnerschaft, Düsseldorf 2000, p. 12 and TIMMONS, J. A.: New Venture Creation, 5th ed., Boston 1999, pp. 445 and 447.

² Cf. Rensmann, J.: Geldhahn aufdrehen, in: Internet under: http://www.zdnet.de/internet/artikel/ ec/200012/startup_00-wc.html and http://www.zdnet.de/internet/artikel/ec/200012/startup_09- wc.html, date: 19.10.2001.

³ Cf. HISRICH, R. D., PETERS, M. P.: Entrepreneurship, 4th ed., Boston 1998, p. 378.

⁴ Cf. DAFERNER, S.: Eigenkapitalausstattung von Existenzgründungen im Rahmen der Frühphasen- finanzierung, Sternenfels 2000, pp. 26-27.

⁵ Cf. COLLREPP, F. v.: Handbuch Existenzgründung, 3rd ed., Stuttgart 2000, p. 301; DAFERNER, S.: Eigenkapitalausstattung von Existenzgründungen, Sternenfels 2000, p. 83. This is not only a recent phenomenon but has also been observed before the turbulence on international technology stock markets (Cf. DEUTSCHE AUSGLEICHSBANK DtA (Ed.): Warum Existenzgründungen zuweilen keinen Bestand haben, Bonn 1988, pp. 25 and 32).

⁶ Cf. STERNBERG, R.: Entrepreneurship in Deutschland, Berlin 2000, p. 217.

⁷ Cf. FRANK, H., LANDSTRÖM, H.: Entrepreneurship and Small Businesses in Europe, in: Entrepre- neurship and Small Business Research in Europe, Ed.: LANDSTRÖM, H., FRANK, H., VECIANA, J. M., 2nd ed., Hants 1998, p. 2-3 and KOCH, L. T.: Unternehmensgründung als Motor der wirtschaftlichen Entwicklung, in: Gründungsmanagement, Ed.: KOCH, L. T., ZACHARIAS, C., München 2001, pp 30-33. On the impact of new ventures on the labour market also cf. BIRCH, D. L.: Job creation in America, New York 1987, pp. 7-16.

⁸ Companies are considered small and medium-sized enterprises if they employ below 250 employees, cf. EUROPEAN OBSERVATORY FOR SMES (Ed.): Sixth Report, Executive Summary, Luxemburg 2000, p. 4.

⁹ Cf. RICHTER, J., SCHILLER, R.: Hochschulabsolventen als Existenzgründer, Bonn 1994, p. 15.

¹⁰ Cf. BUNDESMINISTERIUM FÜR WIRTSCHAFT BMWi (Ed.): Starthilfe, 10th ed., Bonn 1997, p. 2.

¹¹ Cf. RICHTER, H.-J.: Geld für Gründer, in: Gummi - Fasern - Kunststoffe, vol. 5, 1994, p. 327.

¹² Cf. TIMMONS, J. A.: New Venture Creation: Entrepreneurship for the 21st Century, Boston 1999, p. 5.

¹³ Cf. EUROPEAN OBSERVATORY FOR SMES (Ed.): Sixth Report, Executive Summary, Luxemburg 2000, p. 5.

¹⁴ Cf. BUNDESMINISTERIUM FÜR WIRTSCHAFT BMWi (Ed.): Junge Unternehmen, 3rd ed., Bonn 1998, p. 2.

¹⁵ Cf. DAFERNER, S.: Eigenkapitalausstattung von Existenzgründungen im Rahmen der Früh- phasenfinanzierung, Sternenfels 2000, p. 25.

¹⁶ COLLIN, P. H., WEILAND, C., DOHN, D. S.: American Business Dictionary, Teddington 1996, p. 261.

¹⁷ Cf. BROCKHAUS: Die Enzyklopädie, vol. 22, 20th ed., Leipzig 1996, pp. 628-629.

¹⁸ Cf. UNTERKOFLER, G.: Erfolgsfaktoren innovativer Unternehmensgründungen, Frankfurt 1989, p. 39.

¹⁹ This stage can be referred to as the “seed stage”, cf. exhibit 1 and DAFERNER, S.:

Eigenkapitalausstattung von Existenzgründungen im Rahmen der Frühphasenfinanzierung, Sternenfels 2000, p. 32.

²⁰ Cf. SZYPERSKI, N., NATHUSIUS, K.: Probleme der Unternehmungsgründung, 2nd ed., Köln 1999, p. 25.

²¹ Cf. DAFERNER, S.: Eigenkapitalausstattung von Existenzgründungen im Rahmen der Früh- phasenfinanzierung, Sternenfels 2000, p. 32.

²² Cf. SCHUMPETER, J. A.: Theorie der wirtschaftlichen Entwicklung, 8th ed., Berlin 1993, p. 100.

²³ Own illustration following DAFERNER, S.: Eigenkapitalausstattung von Existenzgründungen im Rahmen der Frühphasenfinanzierung, Sternenfels 2000, p. 32 and 36. Cf. also COLLREPP, F. V.: Handbuch Existenzgründung, 3rd ed., Stuttgart 2000, p. 305 and KLANDT, H.: Gründungsmanagement, München, 1999, p. 30.

²⁴ Cf. SÄNGER, H.: Investor Relations im Internet, Frankfurt 2001, p. 15.

²⁵ NATIONAL INVESTOR RELATIONS INSITUTE NIRI (Ed.): Investor Relations, Vienna 1994, p. 2.

²⁶ Cf. LINK, R.: Aktienmarketing in deutschen Publikumsgesellschaften, Wiesbaden 1991, p. 10.

²⁷ Cf. DIEHL, U., LOISTL, O., REHKUGLER, H.: Effiziente Kapitalmarktkommunikation, Stuttgart 1998, p. 3.

²⁸ Cf. BECKER, F. G.: Finanzmarketing von Unternehmen, in: Die Betriebswirtschaft, yr. 54, iss. 3, 1994, pp. 304-307.

²⁹ This quotation represents a translation of a German definition of the term relationship marketing, cf. BRUHN, M.: Relationship Marketing, München 2001, p. 9.

³⁰ Cf. KNECHT, T. C.: Universitäten als Inkubatorenorganisationen für innovative Spin-off Unterneh- men, Oestrich-Winkel 1998, p. 17.

³¹ Cf. exemplary LINDNER, H.: Das Management der Investor Relations im Börseneinführungs- prozess, Bamberg 1999, pp. 16-18. LINDNER undertakes the attempt to extend the understanding of investor relations to the phase of an initial public offering (IPO) of a company. It is this approach which this study seeks to apply to an even earlier phase of a company’s development, the start-up stage.

³² Cf. chapter 1.2 of this study and for a selection of definitions of the term relationship marketing outlining its development in the scientific discussion cf. BRUHN, M.: Relationship Marketing, München 2001, p. 10.

³³ For an overview on goals and aspects of procurment marketing cf. KOPPELMANN, U.: Beschaf- fungsmarketing, Berlin, 1995, pp. 86-88.

³⁴ Cf. TIMMONS, J. A.: New Venture Creation, 3rd ed., Boston, 1990, p. 402.

³⁵ Cf. KELLY, P.: From Blueprint to Reality: Qhe Quest for Resources, in: Mastering Enterprise, Ed.: MUZYKA, D., BIRLEY, S., London 1997, p. 72.

³⁶ Cf. BYGRAVE, W. D.: Calling on Family and Friends for Start-up Cash, in: Mastering Enterprise, Ed.: BIRLEY, S., MUZYKA, D., London 1997, p. 71.

³⁷ Cf. TIMMONS, J. A.: New Venture Creation, 3rd ed., Boston 1990, p. 422.

³⁸ Cf. KELLY, P.: From Blueprint to Reality: The Quest for Resources, in: Mastering Enterprise, Ed.: BIRLEY, S., MUZYKA, D., London 1997, p. 74 and BETSCH, O., GROH, P. A., SCHMIDT, K.: Gründungs- und Wachstumsfinanzierung innovativer Unternehmen, München 2000, p. 21.

³⁹ Cf. BRETTEL, M., JAUGEY, C., ROST, C.: Business Angels, Wiesbaden 2000, p. 64.

⁴⁰ Cf. TIMMONS, J. A.: New Venture Creation, 5th ed., Boston 1999, p. 419.

⁴¹ Cf. DEUTSCHE AUSGLEICHSBANK DTA (Ed.): Wir fördern Existenzgründungen, Umweltschutz und neue Technologien, Bonn 1999, pp. 3-5 and pp. 17-19; EGGER, U.-P., GRONEMEIER, P.: Existenzgründung, Wiesbaden 1997, p. 35; HERZ, P.: Geldquellen für Existenzgründer, 2nd ed., Regensburg 1999, pp. 75-77; W. A.: Who is eligible for an SBA loan, in: Internet under: http://www.sba.gov/financing/fr7aloan.html#eligibility, date: 11.10.2001.

⁴² Cf. REMMERBACH, K.-U., MEFFERT, H.: Marketingstrategien in jungen Märkten, in: Die Betriebswirtschaft, yr. 48, iss. 3, Mai/Juni, 1988, p. 331.

⁴³ For an overview on potential corporate objectives cf. chapter 2.2.1 of this study.

⁴⁴ Success can be defined as the degree to which an objective is reached, cf. KLANDT, H.: Aktivität und Erfolg des Unternehmensgründers, Bergisch Gladbach 1984, p. 89. Cf. also TROMMSDORFF, V.: Innovationsmarketing, in: Marketing ZFP, Frankfurt 1996, p. 182.

⁴⁵ Cf. KÖHLER, R.: Beiträge zum Marketing-Management, 3rd ed., Stuttgart 1993, p. 140.

⁴⁶ Cf. MCCARTHY, E. J., PERREAULT, W. D.: Basic Marketing, 11th ed., Boston 1993, pp. 52-54.

⁴⁷ Cf. KIRCHGEORG, M.: Ökologieorientiertes Unternehmerverhalten, Wiesbaden 1990, pp. 61-62.

⁴⁸ For an illustrational framework systematizing the environment that determines the complexity of the foundation process cf. appendix I.

⁴⁹ Cf. MEFFERT, H.: Marketing, 9th ed., Wiesbaden 2000, p. 28.

⁵⁰ Cf. MUZYKA, D., BIRLEY, S.: What Venture Capitalists look for, in: Mastering Enterprise, Ed.: MUZYKA, D., BIRLEY, S, London 1997, p. 80.

⁵¹ Cf. PORTER, M. E.: Competitive Strategy, New York 1980, p. 4.

⁵² For an illustration of the five forces model by PORTER displaying the competitive foreces cf. appendix II.

⁵³ Cf. PORTER, M. E.: Competitive Advantage, New York 1985, p. 4.

⁵⁴ Cf. BETSCH, O., GROH, P. A., SCHMIDT, K.: Gründungs- und Wachstumsfinanzierung innovativer Unternehmen, München 2000, pp. 21-22.

⁵⁵ Cf. ALBACH, H.: Unternehmensgründungen in Deutschland, in: Unternehmensgründungen, Ed.: HAHN, D., ESSER, K., Stuttgart 1999, pp. 3-5.

⁵⁶ Cf. RENTROP, N.: Tips zur Unternehmensgründung, 12th ed., Bonn 1998, p. 210.

⁵⁷ Cf. chapter 2.3.1 of this study.

⁵⁸ Cf. BYGRAVE, W. D., TIMMONS, A.: Venture Capital at the Crossroads, Boston 1992, p. 266.

⁵⁹ Cf. BRUHN, M.: Qualitätsmanagement für Dienstleistungen, 3rd ed., Berlin 2001, p. 1.

⁶⁰ Cf. BAUMGARTNER & PARTNER, AREA5F, VDI NACHRICHTEN (Ed.): Venture Capital Partnerschaft, Düsseldorf 2000, p. 8.

⁶¹ Cf. GEIGENBERGER, I.: Risikokapital für Unternehmensgründer, München 1999, p. 118.

⁶² Cf. BYGRAVE, W. D.: Calling on Family and Friends for Start-up Cash, in: Mastering Enterprise, Ed.: BIRLEY, S., MUZYKA, D., London 1997, p. 71.

⁶³ Cf. DRUKARCZYK, J.: Unternehmensbewertung, 3rd ed., München 2001, pp. 300-303.

⁶⁴ Cf. chapter 1.3 of this study.

⁶⁵ Cf. MASON, C., HARRISON, R.: Business Angels - Heaven-sent or the Devil to deal with?, in: Mastering Enterprise, Ed.: BIRLEY, S., MUZYKA, D. F., London 1997, p. 89 and GEIGENBERGER, I.: Risikokapital für Unternehmensgründer, München 1999, p. 118.

⁶⁶ Cf. MCCARTHY, E. J., PERREAULT, W. D.: Basic Marketing, 11th ed., Boston, 1993, p. 56.

⁶⁷ The marketing mix comprises the “4-P-System” (Product, Price, Place, Promotion) developed by MCCARTHY, cf. BECKER, J.: Marketing-Konzeption, 7th ed., München 2001, p. 487.

⁶⁸ Cf. TIMMONS, J. A.: New Venture Creation, 5th ed., Boston, 1999, p. 418.

⁶⁹ MASON and HARRISON remark that the time from the first meeting to the reception of funds ranges from 2.5 to 4.5 months in case of private investors and venture capitalists respectively. cf. MASON, C., HARRISON, R.: Business Angels - Heaven-sent or the Devil to deal with?, in: Mastering Enterprise, Ed.: BIRLEY, S., MUZYKA, D. F., London 1997, p. 89.

⁷⁰ Cf. TIMMONS, J. A.: New Venture Creation, 5th ed., Boston 1999, p. 420.

⁷¹ Cf. MEFFERT, H.: Marketing, 9th ed., Wiesbaden 2000, p. 235.

⁷² Cf. KÖHLER, R.: Beiträge zum Marketing-Management, 3rd ed., Stuttgart 1993, pp. 102-104.

⁷³ Own illustration in the style of: MCCARTHY, E. J., PERREAULT, W. D.: Basic Marketing, 11th ed., Boston 1993, p. 54.

⁷⁴ Cf. MEFFERT, H.: Marketing, 9th ed., Wiesbaden 2000, p. 234.

⁷⁵ Cf. BYGRAVE, W. D., HAY, M., PEETERS, J. B. (Ed.): Das Financial Times Handbuch Risikokapital, München 2000, pp. 154-165 and 179.

⁷⁶ Cf. TIMMONS, J. A.: New Venture Creation, 5th ed., Boston 1999, pp. 439-447.

⁷⁷ Cf. SCHEFCZYK, M.: Finanzieren mit Venture Capital, Stuttgart 2000, pp. 169-175.

⁷⁸ Cf. RAFFÉE, H.: Marktorientierung der BWL zwischen Anspruch und Wirklichkeit, Die Unterneh- mung, yr. 38, no. 1, 1984, p. 5.

⁷⁹ Cf. MEFFERT, H.: Marketing, 9th ed., Wiesbaden 2000, p. 75.

⁸⁰ Cf. BUNDESMINISTERIUM FÜR WIRTSCHAFT UND TECHNOLOGIE BMWi (Ed.): Starthilfe, 16th ed., Bonn 2001, p. 3.

⁸¹ Cf. Cf. MÜLLER-BÖLING, D, KLANDT, H.: Unternehmensgründung, in: Ergebnisse empirischer betriebswirtschaftlicher Forschung, Ed.: HAUSCHILDT, J., GRÜN, O., Stuttgart 1993, p. 154.

⁸² Cf. MEFFERT, H.: Marketing, 9th ed., Wiesbaden 2000, pp. 76-78.

⁸³ Cf. BAUMGARTNER & PARTNER, AREA5F, VDI NACHRICHTEN (Ed.): Venture Capital Partnerschaft, Düsseldorf 2000, p. 13.

⁸⁴ Cf. TIMMONS, J. A.: New Venture Creation, 3rd ed., Boston 1990, pp. 430-431.

⁸⁵ Cf. TIMMONS, J. A.: New Venture Creation, 3rd ed., Boston 1990, p. 422. For the importance of venture capitalists in particular for key accounts and vendors cf. TIMMONS, J. A.: New Venture Creation, 5th ed., Boston 1999, p. 440.

⁸⁶ Cf. TIMMONS, J. A.: New Venture Creation, 5th ed., Boston 1999, p. 421.

⁸⁷ Cf. MEFFERT, H.: Marketing, 9th ed., Wiesbaden 2000, p. 1238.

⁸⁸ Cf. TIMMONS, J. A.: New Venture Creation, 5th ed., Boston 1999, p. 475

⁸⁹ Own illustration integrating a modified concept of ABELL, D., F.: Managing with Dual Strategies, New York 1993, p. 49 and TIMMONS, J. A.: New Venture Creation, 5th ed., Boston 1999, p. 447.

⁹⁰ For almost identical proceeding on a two-dimensional scale cf. MEFFERT, H.: Marketing, 9th ed., Wiesbaden 2000, p. 659.

⁹¹ For similar proceeding cf. ABELL, D., F.: Managing with Dual Strategies, New York 1993, pp. 49 and 65.

⁹² Cf. EUROPEAN PRIVATE EQUITY & VENTURE CAPITAL ASSOCIATION EVCA (Ed.): 2000 EVCA Directory, Bruges 2000, p. 2.

⁹³ Cf. TIMMONS, J. A.: New Venture Creation, 5th ed., Boston 1999, p. 475 and MUZYKA, D., BIRLEY, S.: What Venture Capitalists look for, in: Mastering Enterprise, Ed.: MUZYKA, D., BIRLEY, S., London 1997, p. 80 as well as supporting exemplary EUROPEAN PRIVATE EQUITY & VENTURE CAPITAL ASSOCIATION EVCA (Ed.): 2000 EVCA Directory, Bruges 2000, pp. 2-4.

⁹⁴ The quotation is a partial translation of the definition for market segmentation in MEFFERT, H.: Marketing, 9th ed., Wiesbaden 2000, p. 181. For a brief discussion on issues in segmentation that was likewise considered during the development of the segmentation for a start-up’s investor relationship marketing cf. SCHNAARS, S. P.: Marketing Strategy, New York 1991, pp. 168-170.

⁹⁵ Cf. EUROPEAN PRIVATE EQUITY & VENTURE CAPITAL ASSOCIATION EVCA (Ed.): 2000 EVCA Directory, Bruges 2000, pp. 4-15.

⁹⁶ Cf. MUZYKA, D., BIRLEY, S.: What Venture Capitalists look for, in: Mastering Enterprise, Ed.: MUZYKA, D., BIRLEY, S., London 1997, p. 80.

⁹⁷ Cf. Rensmann, J.: Geldhahn aufdrehen, in: Internet under: http://www.zdnet.de/internet/artikel/ ec/200012/startup_08-wc.html, date: 19.10.2001.

⁹⁸ Cf. BOEHM-BEZING, P. V.: Eigenkapital für nicht börsennotierte Unternehmen durch Finanzinter- mediäre, Berlin 1998, p. 293.

⁹⁹ Cf. BETSCH, O., GROH, P. A., SCHMIDT, K.: Gründungs- und Wachstumsfinanzierung innovativer Unternehmen, München 2000, pp. 23-27.

¹⁰⁰ Cf. GEPPERT, D., GREIPL, E, MÜLLER, S.: Interaktives Fernsehen als Kommunikations- und Distributionskanal: Kenntnisstand, Interessen und Akzeptanz der Verbraucher, in: Handelsforschung 1996/1997, Ed.: TROMMSDORFF, V., Wiesbaden 1996, pp. 167-169.

¹⁰¹ Cf. MEFFERT, H., BACKHAUS, K, BECKER, J. (Ed.): Erfolgsfaktoren und Eintrittsvoraussetzungen im Business-to-Consumer-E-Commerce, Münster 2000, p. 1.

¹⁰² Cf. TIMMONS, J. A.: New Venture Creation, 5th ed., Boston, 1999, p. 475 and EUROPEAN PRIVATE EQUITY & VENTURE CAPITAL ASSOCIATION EVCA (Ed.): 2000 EVCA Directory, Bruges 2000, pp. 39. For an overview on how much capital is generallly required by start-ups cf. appendix III.

¹⁰³ For the activities of business angels cf. MASON, C., HARRISON, R.: Business Angesl - Heaven- sent or the Devil to deal with?, in: Mastering Enterprise, Ed.: MUZYKA, D., BIRLEY, S., London 1997, pp. 87-88 and BRETTEL,. M., JAUGEY, C., ROST, C.: Business Angels, Wiesbaden 2000, pp. 116-120; for the distribution and range of investments of venture capitalists cf. EUROPEAN PRIVATE EQUITY & VENTURE CAPITAL ASSOCIATION EVCA (Ed.): 2000 EVCA Directory, Bruges 2000, pp. 2-438.

¹⁰⁴ Cf. BRETTEL,. M., JAUGEY, C., ROST, C.: Business Angels, Wiesbaden 2000, p. 66.

¹⁰⁵ Cf. MUZYKA, D., BIRLEY, S.: What Venture Capitalists look for, in: Mastering Enterprise, Ed.: MUZYKA, D., BIRLEY, S., London 1997, p. 86.

¹⁰⁶ Cf. MASON, C., HARRISON, R.: Business Angels - Heaven-sent or the Devil to deal with?, in: Mastering Enterprise, Ed.: BIRLEY, S., MUZYKA, D. F., London 1997, p. 86. For on overview of the sources of funds for emerging businesses in the 1980s and the 1990s cf. appendix IV.

¹⁰⁷ Cf. BRETTEL,. M., JAUGEY, C., ROST, C.: Business Angels, Wiesbaden 2000, p. 115.

¹⁰⁸ Cf. ZIMMERER, T. W., SCARBOROUGH, N. M.: Entrepreneurship and the new Venture Formation, New Jersey 1996, p. 383.

¹⁰⁹ Cf. MASON, C., HARRISON, R.: Business Angels - Heaven-sent or the Devil to deal with?, in: Mastering Enterprise, Ed.: BIRLEY, S., MUZYKA, D. F., London 1997, p. 87.

¹¹⁰ Cf. ZIMMERER, T. W., SCARBOROUGH, N. M.: Entrepreneurship and the new Venture Formation, New Jersey 1996, p. 383.

¹¹¹ Cf. GEIGENBERGER, I.: Risikokapital für Unternehmensgründer, München, 1999, p. 30.

¹¹² Cf. MASON, C., HARRISON, R.: Business Angels - Heaven-sent or the Devil to deal with?, in: Mastering Enterprise, Ed.: BIRLEY, S., MUZYKA, D. F., London 1997, p. 88.

¹¹³ A survey conducted in 2000 among 48 business angels representing an investment volume of almost DM 100 million (mio.) indicates that 52 % of their investments lay beyond 200 km from where they lived. Cf. BRETTEL,. M., JAUGEY, C., ROST, C.: Business Angels, Wiesbaden 2000, p. 176.

¹¹⁴ Cf. TIMMONS, J. A.: New Venture Creation, 5th ed., Boston 1999, p. 439.

¹¹⁵ Cf. MASON, C., HARRISON, R.: Business Angels - Heaven-sent or the Devil to deal with?, in: Mastering Enterprise, Ed.: BIRLEY, S., MUZYKA, D. F., London 1997, p. 86.

¹¹⁶ Cf. TONGER, T.: Unternehmensgründer und Business Angels, Lohmar 2000, p. 50.

¹¹⁷ Cf. TIMMONS, J. A.: New Venture Creation, 5th ed., Boston 1999, p. 439.

¹¹⁸ MASON, C., HARRISON, R.: Business Angels - Heaven-sent or the Devil to deal with?, in: Mastering Enterprise, Ed.: BIRLEY, S., MUZYKA, D. F., London 1997, p. 88.

¹¹⁹ Cf. BRETTEL,. M., JAUGEY, C., ROST, C.: Business Angels, Wiesbaden 2000, p. 144.

¹²⁰ Cf. TIMMONS, J. A.: New Venture Creation, 5th ed., Boston 1999, p. 439.

¹²¹ Cf. ZIMMERER, T. W., SCARBOROUGH, N. M.: Entrepreneurship and the new Venture Formation, New Jersey 1996, pp. 383-384.

¹²² Particularly helpful are the websites of business angel networks, for instance the European Business Angel Network (EBAN). This website also contains links to national business angel networks, cf. Internet under: www.eban.org, date: 01.12.2001. The website of the German business angel network (BAND) can be found under the unique resource location (URL): www.business-angels.de.

¹²³ Cf. GEIGENBERGER, I.: Risikokapital für Unternehmensgründer, München 1999, pp. 31 and 84- 85.

¹²⁴ Cf. HEMER, J.: Business Angels und Junge Technologieunternehmen, in: Finanzierung von KMU im Innovationsprozess, Ed.: KOSCHATZKY, K., ET AL., Stuttgart 1999, p. 106.

¹²⁵ Cf. HAPS, A.: Private Risikoübernahmen durch Business Angels, in: Gründungsmanagement, Ed.: KOCH, L., ZACHARIAS, C., München 2001, p. 200.

¹²⁶ Cf. BRETTEL,. M., JAUGEY, C., ROST, C.: Business Angels, Wiesbaden 2000, pp. 196-202.

¹²⁷ Illustration translated in almost identical reproduction of BRETTEL,. M., JAUGEY, C., ROST, C.: Business Angels, Wiesbaden 2000, p. 195. Cf. also LESSAT, V. ET AL.: Beteiligungskapital und technologieorientierte Unternehmensführung, Wiesbaden 1999, p. 159.

¹²⁸ Cf. MASON, C., HARRISON, R.: Business Angels - Heaven-sent or the Devil to deal with?, in: Mastering Enterprise, Ed.: BIRLEY, S., MUZYKA, D. F., London 1997, p. 89. A survey conducted in Germany confirms that figure, cf. BRETTEL,. M., JAUGEY, C., ROST, C.: Business Angels, Wiesbaden 2000, p. 153.

¹²⁹ Cf. BRETTEL,. M., JAUGEY, C., ROST, C.: Business Angels, Wiesbaden 2000, p. 157.

¹³⁰ Cf. TIMMONS, J. A.: New Venture Creation, 5th ed., Boston 1999, p. 439.

¹³¹ Cf. BYGRAVE, W. D., TIMMONS, A.: Venture Capital at the Crossroads, Boston 1992, p. 1.

¹³² SAHLMAN, W. A., SOUSSOU, H. M.: Note on the Venture Capital Industry 1981, Boston 1985, p. 1. For an overview on the characteristics of a „Classic Superdeal“ in the view of venture capital investors cf. appendix V.

¹³³ Cf. DAFERNER, S.: Eigenkapitalausstattung von Existenzgründungen im Rahmen der Frühpha- senfinanzierung, Sternenfels 2000, p. 163.

¹³⁴ Cf. HARTFORT, D. N.: Due Diligence, Negotiation, Closing: What to expect?, Warsaw 2000, p. 10 and BYGRAVE, W. D., HAY, M., PEETERS, J. B. (Ed.): Das Financial Times Handbuch Risikokapital, München 2000, p. 226-230.

¹³⁵ Cf. GEIGENBERGER, I.: Risikokapital für Unternehmensgründer, München 1999, p. 9.

¹³⁶ Cf. SCHEFCZYK, M.: Erfolgsdeterminanten von Venture Capital-Investments in Deutschland, in: Zeitschrift für Betriebswirtschaft und Forschung, yr. 51, 1999, p. 1123.

¹³⁷ Cf. BYGRAVE, W. D., TIMMONS, A.: Venture Capital at the Crossroads, Boston 1992, pp. 207-211.

¹³⁸ Cf. TIMMONS, J. A.: New Venture Creation, 5th ed., Boston 1999, p. 34.

¹³⁹ Cf. GEIGENBERGER, I.: Risikokapital für Unternehmensgründer, München 1999, p. 118.

¹⁴⁰ Cf. TIMMONS, J. A.: New Venture Creation, 5th ed., Boston 1999, p. 421 and BYGRAVE, W. D., HAY, M., PEETERS, J. B. (Ed.): Das Financial Times Handbuch Risikokapital, München 2000, p. 205.

¹⁴¹ Cf. BYGRAVE, W.: How the Venture Capitalists work out the financial Odds, in: Mastering Enter- prise, Ed.: BIRLEY, S., MUZYKA, D., London 1997, p. 82.

¹⁴² Cf. TIMMONS, J. A.: New Venture Creation, 5th ed., Boston 1999, p. 445.

¹⁴³ Cf. SCHEFCZYK, M.: Erfolgsstrategien deutscher Venture Capital-Gesellschaften, 2nd ed., Stutt- gart 2000, p. 39.

¹⁴⁴ Cf. Bygrave, W. D., Hay, M., Peeters, J. B. (Ed.): Das Financial Times Handbuch Risikokapital, München 2000, p. 153.

¹⁴⁵ Cf. TIMMONS, J. A.: New Venture Creation, 5th ed., Boston 1999, p. 475.

¹⁴⁶ Cf. NATHUSIUS, K.: Eigenkapitalfinanzierung durch Venture Capital, in: Gründungsmanagement, Ed.: KOCH, L. T., ZACHARIAS, C, München 2001, p. 190.

¹⁴⁷ Cf. BETSCH, O., GROH, P. A., SCHMIDT, K.: Gründungs- und Wachstumsfinanzierung innovativer Unternehmen, München 2000, pp. 114-115.

¹⁴⁸ For the reason of exhaustive enumeration the small business investment companies (SBICs) shall be mentioned, a particularity of the U.S., which are licensed by the Small Business Administration and can obtain debt capital from that source to invest it in small businesses, cf. OWEN, R. R., GARNER, D. R., BUNDER, D. S.: The Arthur Young Guide to Financing for Growth, New York 1986, pp. 76-77. They shall not be treated further because SBICs tend not to invest into start-ups, cf. TIMMONS, J. A.: New Venture Creation, 3rd ed., Boston 1990, pp. 427-429.

¹⁴⁹ Cf. TIMMONS, J. A.: New Venture Creation, 3rd ed., Boston 1990, pp. 427-428.

¹⁵⁰ Cf. TIMMONS, J. A.: New Venture Creation, 5th ed., Boston 1999, pp. 446-447. For an overview about the funds invested by European venture capital corporations cf. EUROPEAN PRIVATE EQUITY & VENTURE CAPITAL ASSOCIATION EVCA (Ed.): 2000 EVCA Directory, Bruges 2000, pp. 2- 422.

¹⁵¹ Cf. BRETTEL,. M., JAUGEY, C., ROST, C.: Business Angels, Wiesbaden 2000, p. 80.

¹⁵² Cf. GEILINGER, U. W.: Venture-Capital, in: Schweizer Treuhänder, iss. 7/8, 1989, p. 313.

¹⁵³ Cf. TIMMONS, J. A.: New Venture Creation, 3rd ed., Boston 1990, p. 429.

¹⁵⁴ Cf. MEFFERT, H.: Marketing-Management, Wiesbaden 1994, p. 123.

¹⁵⁵ Cf. KÖHLER, R.: Marketing-Management, in: Handwörterbuch des Marketing, Ed.: TIETZ, B., KÖHLER, R., ZENTES, J., 2nd ed., Stuttgart 1995, col. 1600-1601.

¹⁵⁶ Cf. TIMMONS, J. A.: New Venture Creation, 5th ed., Boston 1999, p. 419.

¹⁵⁷ Cf. MCKINSEY & COMPANY, INC. (Ed.): Planen, gründen, wachsen, Zürich 2001, pp. 45-47.

¹⁵⁸ Cf. TIMMONS, J. A.: New Venture Creation, 3rd ed., Boston 1990, p. 432.

¹⁵⁹ Cf. MEFFERT, H.: Marketing, 9th ed., Wiesbaden 2000, p. 1109.

¹⁶⁰ Cf. MEFFERT, H.: Marketing, 9th ed., Wiesbaden 2000, p. 327.¹⁶¹ Cf. TIMMONS, J. A.: New Venture Creation, 5th ed., Boston 1999, p. 419.

¹⁶² Cf. SCHEFCZYK, M.: Finanzieren mit Venture Capital, Stuttgart 2000, pp. 169-170 and 197.

¹⁶³ Cf. MEFFERT, H.: Marketing, 9th ed., Wiesbaden 2000, p. 1160.

¹⁶⁴ Cf. BEREKOVEN, L.: Der Dienstleistungsmarkt in der BRD, vol. 1 and 2, Göttingen 1983, p. 23.

¹⁶⁵ Cf. also chapter 2.4 of this study.

¹⁶⁶ Cf. TIMMONS, J. A.: New Venture Creation, 5th ed., Boston 1999, p. 419.

¹⁶⁷ Cf. MEFFERT, H.: Marketing, 9th ed., Wiesbaden 2000, p. 1164.

¹⁶⁸ Cf. ALBACH, H.: Unternehmensgründungen in Deutschland, in: Unternehmensgründungen, Ed.: HAHN, Ed.:D., ESSER, K., Stuttgart 1999, p. 3.

¹⁶⁹ Cf. MUZYKA, D., BIRLEY, S.: What Venture Capitalists look for, in: Mastering Enterprise, Ed.: MUZYKA, D., BIRLEY, S, London 1997, p. 80.

¹⁷⁰ Cf. MEFFERT, H.: Marketing, 9th ed., Wiesbaden 2000, p. 1164.

¹⁷¹ Cf. MUZYKA, D., BIRLEY, S.: What Venture Capitalists look for, in: Mastering Enterprise, Ed.: MUZYKA, D., BIRLEY, S, London 1997, p. 80 and BRETTEL,. M., JAUGEY, C., ROST, C.: Business Angels, Wiesbaden 2000, p. 157.

¹⁷² Cf. BRETTEL,. M., JAUGEY, C., ROST, C.: Business Angels, Wiesbaden 2000, p. 53.

¹⁷³ Cf. TIMMONS, J. A.: New Venture Creation, 3rd ed., Boston 1990, p. 425.

¹⁷⁴ Cf. ALBACH, H.: Unternehmensgründungen in Deutschland, in: Unternehmensgründungen, Ed.: HAHN, Ed.:D., ESSER, K., Stuttgart 1999, p. 3.

¹⁷⁵ Cf. ALBACH, H.: Unternehmensgründungen in Deutschland, in: Unternehmensgründungen, Ed.: HAHN, Ed.:D., ESSER, K., Stuttgart 1999, p. 3. Cf. also RASNER, C., FÜSER, K., FAIX,. W. G.: Das Existenzgründer-Buch, 4th ed., Landsberg 1999, pp. 36-37 and HALLORAN, J. W.: The Entrepreneur’s Guide to Starting a Successful Business, 2nd ed., New York 1992, pp. 9-11.