finally, (3) Who should invest? While these three is¬sues are at the center of the management team's thinking, it is also important to remember that a smaller percentage of a larger pie is preferred to a larger percentage of a smaller pie. Or as one entre¬preneur stated, "1 would rather have a piece of a wa¬termelon than a whole raisin."2
After reviewing the Venture Opportunity Screen¬ing Exercises in Chapter 4, the business plan you pre¬pared in Chapter 12, and the free cash flow equations (including OOC, TTC, and breakeven) from Chapter 13, it may be easier to assess the need for additional capital. Deciding whether the capital infusion will be debt or equity is situation specific, and it may be help-
ful to be aware of the trade-offs involved; see Chap¬ter 16 for an introduction to debt capital. In the ma- joritv of the high-technology startups and early-stage companies, some equity investment is normally needed to fund research and development, prototype devel¬opment and product marketing, launch, and earl) losses.
Once the need for additional capital lias been iden¬tified and quantified, the management team must consider the desirabilitv of an equitv investment. As was mentioned in Chapter 11, bootstrapping contin¬ues to be an attractive source of financing. For in¬stance, IXC. magazine suggested that entrepreneurs in certain industries tap vendors' by getting them to extend credit.'
Other entrepreneurs interviewed by INC. sug¬gested getting customers to pay quickly.4 For in¬stance. one entrepreneur, Rebecca McKenna, built a software firm that did $8 million in sales in 2001 with customers in the health care industry. The robust¬ness of economic benefits to her customers justified a 25 percent advance payment with each signed con¬tract. This upfront cash has been a major source for her bootstrap financing. These options, and others, exist if the management team members believe that a loss ol equitv would adverselv affect the company and their ability to manage it effectively. An equitv. investment requires that the