Business

in Module Four, you will outline the return on investment (ROI) that your financial sponsor can expect from the project. New ideas or concepts come from both entrepreneurship and intrapreneurship. The financial considerations are similar in both instances. In the case of entrepreneurship, a new idea or concept might be situated within an entirely new enterprise. In the case of entrepreneurship, funding for the idea or concept often comes from external sources. In the case of intrapreneurship, funding for the idea or concept may come from either internal sources or external sources (Campanella, Del Giudice, & Della Peruta, 2013). Regardless of whether the project is within entrepreneurship or intrapreneurship, financial sponsors invest money in projects because the projects offer an attractive return. In many cases, the returns are financial, which may be true both when a particular project has a quantifiable financial outcome and when a project has some more difficult-to-define organizational outcomes.

As an example, a particular project might bring the project sponsor an 11% ROI in the project, and it might also enhance needed organizational capabilities. In some cases, it might even be possible to quantify the value of the enhanced organizational capabilities. In other cases, however, this might be difficult or impossible to quantify. The quantifiable financial outcome of the project is “hard” ROI in the sense that it is quantifiable. In contrast, the more difficult-to-quantify returns are “soft” ROI elements.

As an additional consideration related to the financial aspects of ideas or concepts, some projects might not have a financial return at all. For instance, investments in nonprofit projects often do not bring funds back to the financial sponsors. In these cases, projects still need to outline the funding and financial consideration for the plan. Additionally, the projects should identify a different quantifiable metric or metrics that will matter to potential financial sponsors so that the plan helps the financial sponsors understand the return that they can expect on the investment.

The funding and financial consideration for ideas or concepts is important because often financial sponsors must selectively choose the projects in which they wish to invest. Often, the funds required to invest in available good projects exceeds the available investment funds. Chao, Kavadias, and Gaimon (2009) indicate that managers often must select between competing projects while balancing between incremental organizational improvement and innovative new ideas or concepts. The financial consideration will provide the necessary argument to support your idea or concept.

One of the elements of outlining the funding and financial considerations for an idea or concept is to understand the main kinds of financing available. Lam (2010) indicates that financing for ideas or concepts tends to be debt or equity financing. In the case of debt financing, the financial sponsor expects that the project will pay back the entirety of the invested funds along with appropriate interest. In contrast, equity financing involves an investment in the business in exchange for part ownership in the enterprise (Lam, 2010). In the case of debt financing, the financial backer tends to be a bit less connected to the enterprise and may view investment in the project as only a financial transaction. With equity financing, the financial backers may be more engaged in the idea or concept and they might even share more of the risk.

With new ideas or concepts in emerging firms, equity financing might be the only option. Goel and Hasan (2004) indicate that debt financing may not be available to organizations without a proven track record, because this financing typically evaluates the track record as one of the considerations to sponsor the project. Hsu (2007) posits that reputation and prior success tend to provide more financing options for ideas or concepts. With new enterprises, financial sponsors are more likely to provide financing to people with a successful track record. In contrast, new ideas or concepts proposed by those without a track record are more likely to have limited financing options. In these instances, obtaining financial backing for ideas or concepts may involve nontraditional financing options (such as equity financing).

Debt and equity financing have different advantages and disadvantages. From the perspective of the individual or individuals proposing a new idea or concept, debt equity offers the advantage of retaining 100% of the ownership in the idea or concept. On the other hand, the disadvantage of debt financing is that all of the funds, along with interest, must be repaid. In the case of equity financing, the individual or individuals proposing a new idea or concept have the advantage of an investment that might not need to be fully repaid. Even if the investment needs to be fully repaid, repayment terms might be more flexible with equity financing. Of course, the trade-off of equity financing is that the financial backer obtains an ownership interest in the idea or concept in exchange for funding the project.

This module explicates the funding and financial consideration for ideas or concepts. Outlining the quantifiable financial outcomes helps financial sponsors understand the potential return of ideas or concepts. Within this framework, debt or equity financing might be available. Equity financing is more likely to be the only financing option for projects that involve new enterprises or unproven concepts. From a funding and financial consideration perspective, you are organizing and presenting information in a way that will assist you as you seek financial sponsors for your project.

References

Campanella, F., Del Giudice, M., & Della Peruta, M. R. (2013, December). Informational approach of family spin-offs in the funding process of innovative projects: An empirical verification. Journal of Innovation and Entrepreneurship, 2(18), 1–23. doi:10.1186/2192-5372-2-18

Chao, R., Kavadias, S., & Gaimon, C. (2009, September). Revenue driven resource allocation: Funding authority, incentives, and new product development portfolio management. Management Science, 55(9), 1556-1559. doi:10.1287/mnsc.1090.1046

Goel, R., & Hasan, I. (2004). Funding new ventures: Some strategies for raising early finance. Applied Financial Economics, 14(11), 773–778. doi:10.1080/096031004200019680

Hsu, D. (2007). Experienced entrepreneurial founders, organizational capital, and venture capital funding. Research Policy, 36(5), 722–741. doi:10.1016/j.respol.2007.02.022

Lam, W. (2010). Funding gap, what funding gap? Financial bootstrapping: Supply, demand and creation of entrepreneurial finance. International Journal of Entrepreneurial Behavior & Research, 16(4), 268–295. doi:10.1108/13552551011054480

i

n Module Fou

r, you will outline the return on investment (ROI) that your financial sponsor can expect

from the project. New ideas or concepts come from both entrepreneurship and intrapreneurship. The

financial considerations are similar in both instances. In the case

of entrepreneurship, a new idea or

concept might be situated within an entirely new enterprise. In the case of entrepreneurship, funding

for the idea or concept often comes from external sources. In the case of intrapreneurship, funding for

the idea or con

cept may come from either internal sources or external sources (Campanella, Del

Giudice, & Della Peruta, 2013). Regardless of whether the project is within entrepreneurship or

intrapreneurship, financial sponsors invest money in projects because the projec

ts offer an attractive

return. In many cases, the returns are financial, which may be true both when a particular project has a

quantifiable financial outcome and when a project has some more difficult

to

define organizational

outcomes.

As an example, a p

articular project might bring the project sponsor an 11% ROI in the project, and it

might also enhance needed organizational capabilities. In some cases, it might even be possible to

quantify the value of the enhanced organizational capabilities. In other

cases, however, this might be

difficult or impossible to quantify. The quantifiable financial outcome of the project is “hard” ROI in the

sense that it is quantifiable. In contrast, the more difficult

to

quantify returns are “soft” ROI elements.

As an add

itional consideration related to the financial aspects of ideas or concepts, some projects might

not have a financial return at all. For instance, investments in nonprofit projects often do not bring funds

back to the financial sponsors. In these cases, pr

ojects still need to outline the funding and financial

consideration for the plan. Additionally, the projects should identify a different quantifiable metric or

metrics that will matter to potential financial sponsors so that the plan helps the financial s

ponsors

understand the return that they can expect on the investment.

The funding and financial consideration for ideas or concepts is important because often financial

sponsors must selectively choose the projects in which they wish to invest. Often, the funds required to

invest in available good projects exceeds the availa

ble investment funds. Chao, Kavadias, and Gaimon

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