This course is for aspiring or active corporate entrepreneurs who wants to understand how to secure and manage funding for their corporate venture. We will demystify key accounting and financing concepts to give corporate entrepreneurs a guide to developing the business case for their ideas, and securing funding to translate ideas into reality. This course focuses on four key areas: • Learning the fundamentals and how to create financial statements for new ventures within the corporate environment; • Examining valuation techniques for understanding how to assess and grow the value of the corporate venture; • Exploring the different sources of internal and external financing for the corporate venture; and • Applying lessons learned in the course to structure a funding deal and pitch the corporate venture. Try this course for FREE at https://www.coursera.org/learn/corporate-entrepreneurs-financing
Joint ventures
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En provenance du cours de University of Maryland, College Park
Financing and Profiting from Innovation for Corporate Entrepreneurs
21 notes
University of Maryland, College Park
21 notes
Cours 4 sur 5 dans Specialization Corporate Entrepreneurship: Innovating within Corporations
À partir de la leçon
Sources of Financing for Corporate Ventures
In this module, we will explore the different sources of internal and external financing for the corporate venture.
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Michael R. PrattLecturer of Technology Entrepreneurship
Maryland Technology Enterprise Institute (Mtech)
Hi, welcome back.
So we're talking about alternative sources of financing.
So now let's talk about joint ventures.
So joint ventures,
it's basically an alternative to a way of generating capital, right.
Typically a joint venture is,
in other words, you're not using capital budget funds per se.
You're actually teaming up with someone, another organization,
a partnership, typically [COUGH] or co-owned corporation or an LLC.
So two or more organizations joining forces to achieve a kind of
joint strategic and financial objective.
A joint venture can be either short term
joint venture where you have a specific thing you're going to do, and
then once you've achieved that specific thing, the joint venture is wound down.
Or it could be a long term joint venture where, let's say, back in the day when I
was in the interview business, a lot of the terminals and
depots were joint ventures that were shared between the various oil companies,
energy companies that use the services of the terminal.
So one of the things that's important to do is understand the type of
partner that you want to bring into the joint venture and
what contributions each of the partners can bring to the table.
So the reason you might form a joint venture is that you can
either enter a new market or develop a new market.
You can build a new product,
and they have a special joint venture specifically to build the product.
You might want to share technology with someone,
and hopefully then develop products from the technology that you've shared, or
you could take complementary technology.
Let's say an organization has technology which compliments what you're doing,
you can perform a joint venture, put the two technologies together, and
then you have, as the saying goes, the sum is greater than the individual parts.
And then it also enables you to pool resources so
it takes less resources, generally, for each partner.
They pool their resources and they can do production and distribution.
And it's another way of acquiring capital that
doesn't take it all out of your capital budget fund.
A lot of times people will form joint ventures when they're working on
a specific government contract because the government contract will have
specific terms and conditions about what each organization's bringing to the table.
So they form this joint venture and
everything is kind of run through the joint venture so
they can all have accountability for what they're doing on the contract.
And then it also helps that, let's say you have a product or
service that you have created and then the partner has a distribution arm or
a sales and marketing function that is let's say cognizant of the markets and
or have distribution arms that you don't currently have.
You can form a joint venture and then access that information,
that distribution, that sales and marketing capability.
So the essential factors to form a joint venture,
that you have to have complimentary reasons to join them but
there have to be a unified purpose of the joint venture.
You can't have more competing partners, competing for different purposes.
You have to have a committed management team.
When I say committed, what I mean is, you have to more or less
assign people to be the manager team for the joint venture during this operation.
You can't have people doing this part time.
When you form a joint venture there should be synergies created.
If there's not,
then you may want to question why the joint venture even makes sense.
And in every case when you're working with partners you have to have a culture of
cooperation and working toward a common goal.
You also have to have the flexibility needed to react to market or
technology changes, which is actually probably easier in a joint venture,
assuming that the operating agreement gives you flexibility,
versus being in a corporate environment where,
oftentimes, things are not quite as flexible as one would like.
And then obviously the people that run the joint venture have to have similar styles
from the management standpoint and the operations standpoint and
there must be focus on the team.
The team has to focus and
you really need good leadership in the joint venture to be successful.
And I've kind of made this chart here that talks about what's the difference or
maybe how do I look at whether or not I want to form a joint venture or
do I just want to have a strategic alliance?
People hear about strategic alliances, which is a kind of a joint venture, but
it's more like a non-formal
joint venture that doesn't have an organizational existence.
So here's kind of the comparison of the two.
So for one thing, a joint venture tends to be mid to long term most of the time,
and strategic alliances often are short term.
Now this is not always, but this way this is kind of the,
this is just some food for thought.
The strategic objective of a joint venture is sometimes it's a precursory
to a merger and acquisition event, meaning you work together as a joint venture and
eventually you come together and merge with the company that's your partner.
Strategic alliances are more flexible and
not really committed to a merger agreement, a merger acquisition agreement.
They're just working on a common goal.
The legal agreements are, in a joint venture there's actual agreements written,
operating agreements, joint venture agreements,
there's a corporate entity created, all through legal documents.
Where a strategic alliance is generally contract driven,
tere's rarely a corporate entity involved in a strategic alliance.
The extent of the commitment of both are in the joint venture you have what they
call shared equity meaning that you both have equity in the joint venture and
you, hopefully when the thing does well and it grows, you're both benefiting.
And I'm saying both, there can be more than two partners but
generally the ones I've seen have been primarily two or three partners.
And on a strategic alliance you have basically shared objectives, so
you're not really growing in an equity in the strategic alliance.
You're individually benefiting the strategic alliance
partners through increased revenues or something similar to this one.
Maybe product development benefits.
And then from a capital standpoint and resources standpoint on the joint venture,
each party of a joint venture contributes capital and also resources.
In a strategic alliance this basically depends upon what the agreements are.
There's nothing specific but they may budget some money for
the strategic alliance with their marketing.
But there's no expectation that both may
necessarily contribute capital or resources.
The past ramifications of a joint venture is that I think that
the joint venture will in fact avoid double taxation issues that some
corporations run into by having separate corporate entities.
And but the strategic alliance there's really no corporate entity to talk about
so there are no really no direct tax ramifications
if you get into a strategic alliance.
So that one of the things you have to do in a joint venture is find a good partner
and you have to have common goals and objectives.
And you have to compare what your goals and
objectives are to the candidate partners that you're thinking about.
You have to do a lot of due diligence to make sure that the partner that you're
going to bring into the venture is going to meet your fit,
is going to fit operationally.
And that hopefully they have some prior experience and
a track record of having worked well in joint ventures before.
And you have to be comfortable in the feeling that your partner,
once you agree to the partner, they will be able to, what they say they will do,
they would deliver to you.
And if you have doubts about that,
if you're not certain at the partner's the right partner, continue to do diligence.
But essentially you might have to decide that the joint venture's not
the best solution and find the alternative ways to meet your objectives.
But joint ventures are an interesting way to kind of provide financing and
work on common goals.
Just one more alternative source of financing that
you as a corporate entrepreneur can access.
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