1) What is meant by ‘investment ready’? (q.

3)

“Investment ready” means an SME’s state of preparedness and willingness to take on an

The finance gap has shifted from supply-side to demand-side deficiencies, so SMEs must make
themselves “worth investing in.”

2) Why is prompt payment by debtors so important to small enterprises? (q.4)

Prompt debtor payment protects liquidity and prevents a drain on financial resources.

 Slow-paying debtors can create cash flow stress; SMEs may need to offer payment
discounts to avoid liquidity issues.

 Enforcing credit terms is a persistent concern that can put major stress on liquidity.

3) Main sources of finance for small enterprises, with advantages and disadvantages (q.5)

SMEs draw on internal, bank, non-bank, leasing, and trade credit/factoring sources, each with
distinct pros/cons.

Internal Sources

 Key points:

 Major at start-up; often from owners, supplemented by family/friends.

 After establishment, retained profits become the largest source.

 Advantages:

 Control retained; no repayment obligations implied in pure equity form.

 Disadvantages:

Bank Finance

 Key points:

 The most important single source of external finance.

 Access hampered by a knowledge gap about newer instruments.

 Advantages:
  Scale and structure for loans; familiar to SMEs.

 Disadvantages:

 Awareness drops for merchant banking and NBFIs options; potential barriers.

Non-Bank Finance

 Key points:

 Growing demand; often more suitable once the business is established

 Advantages:

 Often no ongoing fees, potentially lower interest rates (less stringent capital
adequacy), and less red tape.

 Disadvantages:

 May be unsuitable for start-ups.

Leasing

 Key points:

 Common for SMEs; can beat borrow-and-buy in some cases.

 Advantages:

 Conserves capital, frees managerial time, speed, and definite cash flows.

Trade Credit & Factoring

 Key points:

 Accounts payables are a major funding source; credit purchases conserve cash.

 Factoring: loans against receivables via finance companies.

 Advantages:

 Immediate working capital relief; factoring converts receivables to cash.

 Disadvantages:

 Can become a drain if debtors pay slowly; enforcing terms is hard and risks
liquidity.
4) Why is it difficult to distinguish between debt and equity for a small enterprise, and why
are its capital structure decisions constrained? (q.6)

Debt–equity lines blur because the owner-manager and SME finances are intertwined, and
capital structure is constrained by limited access to equity markets.

 Blurred distinction:

 Equity gives residual ownership; debt does not—but owner injections can look
like either.

 Director’s loans may be non–interest-bearing with flexible repayment,

 Constrained decisions:

 Access to equity markets determines capital structure; small firms often lack
such access.

 Even though going public unlocks long-term debt, the process is difficult and
costly.

5) What is ‘venture capital’ and what is a ‘business angel’? (q.10)

Venture capital: Professional investors’ long-term, unquoted risk equity in new firms,
seeking capital gains (plus dividends).

Business angels: Private investors supplying equity in the informal venture capital market,
typically for smaller amounts unsuitable for VCs.

 VCs often specialize, conduct due diligence, and manage fiduciary duties.

 Angels have no fiduciary relationships, do limited due diligence, seek minority stakes,
and diversify across firms.

6) Roles a venture capitalist can play in helping small enterprises (q.11)

VCs add value through screening, credibility, governance, and strategic support.

 Filter and select viable opportunities via product/market expertise.

 Provide credibility for loan applications, management advice, and networks/contacts.

 Structure relationships to reduce information asymmetry and set clear contracts (e.g.,
performance standards, board governance, rights).
7) Criteria likely applied by venture capitalists when assessing a potential SME investee (q.12)

VCs typically look for a strong team, traction, market fit, strategy, competitive awareness,
clarity, and openness to outside equity.

 Solid track record and good management team.

 Proper market niche and sound marketing strategy.

 Full awareness of competition and a clear-cut proposal.

 Owner-manager’s ability to take on outside equity.

Serial entrepreneurs are people who start many businesses one after another instead of just
one.
They are likely to be creative, hardworking, risk-takers, goal-driven, and innovative. They also
have strong problem-solving skills and enjoy the challenge of starting new ventures — like
Geoff O’Reilly, who said, “Getting all the internal structures right and getting the product to
market involves seriously difficult challenges.”

2. Why are serial entrepreneurs attractive to venture capitalists?

Serial entrepreneurs are attractive to venture capitalists because they already have experience,
business knowledge, and a record of success.
They understand how to grow a company and deal with problems. As Tony Jantz said in the
case, “These guys are battle-hardened, practical businessmen, and have the scars to prove it.”
This makes investors trust them with funding.

3. Why has O’Reilly been so successful in his ventures?

O’Reilly has been successful because he:

 Learns from past mistakes and improves each time (he learned from Hypertec before
starting Platypus).

 Has strong technical and management skills.

 Focuses on innovation, like creating new products (QikDrive, QikCache, QikData).

 Has persistence and discipline, never giving up even after setbacks.

His experience, teamwork, and focus on innovation helped him achieve success in his business
ventures.