University X - 25733 Finance for Entrepreneurs: Assignment Report

This assignment report delves into the realm of entrepreneurial finance, examining the application of artificial intelligence (AI) in startups, with a specific focus on machine learning. The report analyzes how companies like Alation utilize AI, detailing their funding rounds and valuation trends. It identifies several startups leveraging AI and their value propositions. Furthermore, the report addresses critical financial considerations, such as the implications of startup pivots, the concept of down rounds, and the impact of anti-dilution clauses on ownership. It explores various forms of equity compensation for employees and examines the considerations for both startups and employees when designing remuneration packages. The report also discusses the effectiveness of equity remuneration over time and provides an overview of the entrepreneurial ecosystem in Sydney, Australia.

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Financing for entrepreneurs

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INTRODUCTION...........................................................................................................................1
Part 1................................................................................................................................................1
1. How machine learning works in the area of artificial intelligence.....................................1
2. How start-up Alation is using artificial intelligence in their company..............................1
3. Identify 4 different start-ups that are using artificial intelligence......................................2
Part 2................................................................................................................................................3
1. Is a start-ups pivot considered to be a failure.....................................................................3
2. What is down round?..........................................................................................................3
3. How does an anti-dilution clause affect ownership in a down round.................................3
Part 3................................................................................................................................................4
1. What remuneration is typically paid to a founder at the time of starting a company.........4
2. Three different forms of equity that can be given to employees........................................4
3. Considerations from a start-up and from an employee perspective when designing
remuneration for selecting between a mix salary & equity....................................................5
4.Will equity remuneration be more or less effective once you have in business for 5 years5
Part 4................................................................................................................................................6
Entrepreneur Ecosystem in Sydney........................................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

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INTRODUCTION
Entrepreneurial finance is a term which engaged in studying the value and resource
allocation that has applied to new ventures. Its main objective is to addresses key questions that
may challenge all the entrepreneurs such as; what is the amount of money that can be raised;
when it should be raised; from whom; identify the reasonable valuation of new start-up
henceforth (Seghers, Manigart and Vanacker, 2012). Therefore, this assignment is throwing
lights on various financial areas of new entrepreneur and tools which are used by new start-ups
for handling several accounting sections. Thus, initially, the project will outline significant areas
of artificial intelligence and its uses for new entrepreneurs while handling financial activities.
Moreover, factors that need to be considered while financing things go wrong and employee
remuneration are further explained in this project. Lastly, ecosystems related to an entrepreneur
in Sydney are also covered in the report for understanding the entire process.
Part 1
1. How machine learning works in the area of artificial intelligence
Machine learning is a digital application of artificial intelligence whose main objective is
to provide potentiality to a system for automatically learning and enhancing from experience
without being unambiguously programmed. Mainly, machine learning is entirely focussed on the
growth of computer programs that can access relevant information and use by entrepreneurs for
own learning (Nobel, 2011). Along with this, the machine also provides intelligent insights via a
sophisticated utilization of learning algorithms. However, an organization always tries to train
the machine for acquiring learning patterns from facts to proceed autonomously on reformations
of data. This can use by firms for image, video, text recognition and helping as a power behind
suggestion engines. In the present era, this tool is used by entrepreneurs for fortifying
cybersecurity, ensuring public protection and enhancing medicinal results. Through this tool, it
can improve customer service and trying to make automobiles safer (Kwong, Jones-Evans and
Thompson, 2012).
2. How start-up Alation is using artificial intelligence in their company
By applying tools of artificial intelligence, an organization can easily gather more or
more information, processing it and come to know about its users as well as learn behavior
patterns in a better manner. This aids new start-ups in updating overall policies for the
appropriate functioning of entire business practices. Alation is a team that is passionate about
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designing a more curious and rational world by offering various tools to consumers for building
a data culture. Mainly, Alation is a data catalog where every individual in an organization trying
to identify the information that needs for collaboration. However, Alation automatically indexes
data through sources and accumulate knowledge about acquired data. Just like Google, Alation
also uses machine learning for continuous enhancement of human understanding. Applying
alation in artificial intelligence aids in working together, using information with full confidence,
improving productivity and indexing entire information knowledge (Mason and Kwok, 2010).
Alation offering machine learning data for helping people in finding, understanding and
recently it has raised a total of nearly $50M in funding almost 4 rounds. Along with this, the
company uses funding rounds for representing the valuation of an association overtime period
because this tool understands the data and find nearly results (Park, 2015).
3. Identify 4 different start-ups that are using artificial intelligence
Artificial intelligence is a modern tool that is used by firms for designing various creative
solutions for the corporate world. Thus, four distinct start-ups which are using AI are discussed
as follows-
 Appen Limited- This company is indulged in providing the machine learning services
and having the high growth return profitability. The main objective of a firm is to
enhance the data utilized for the growth of machine learning and AI goods. There are
several services such as providing the speech recognition, maximizing the conversions in
e-commerce, delivering meaningful data and provides the implication of various tools
such as; chatbots and virtual assistants (De Fiore and Uhlig, 2011).
 BrainChip Inc.- It’s a leading enterprise offered of neuromorphic solutions of computer
which is motivated by the biology of a human neuron that involved in confounding neural
networks. Recently this firm revealed the Akida neuromorphic system-on-chip.
 Flamingo AI- It’s a firm involved in SaaS cognitive virtual assistants & knowledge
engines that assessed unstructured information for automating online sales & service
experiences (Ries, & Euchner, 2013).
 LiveTiles- It’s a software organization founded in almost 2014 and involved in offering
cloud-based intelligent software for a workplace in commercial, governments and
educational markets. In almost, 2018, the firm has increased more than A$50 million in
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overall funding. This company is having its headquartered in New York City and has
offices across the globe (Bajwa, et al. 2017).
Part 2
1. Is a start-ups pivot considered to be a failure
Pivot is a term that shows the fundamental reformation of an organization after
understanding that existing products are not fulfilling the demands of customers through market
research. Start-ups business is new for the overall market and consumers due to which they need
to consider distinct elements before implementing the pivot process at the workplace. However,
this procedure helps an association in introducing new things to existing customers for offering
alternative options to them (Mattos and Garcia, 2011). But for new start-ups, it’s hard to
convince end users for pivot because business is new at marketplace due to which none of the
customers wanted to try products whom they are unaware of. Therefore, somehow the pivot
process in new start-ups get failed as it a requisite large amount of funds, positive goodwill at the
market, awareness amongst society and many more.
2. What is down round?
Down round is a word which signifies the process in which a private company is offering
additional shares for selling purpose at a very minimum price that had been traded in previous
financing round. Simply, maximum capital is requisite and the firm realizes that their valuation is
very less as compared to before a past round of financing (Thursby, & Thursby, 2013).
3. How does an anti-dilution clause affect ownership in a down round
Anti-dilution provisions are set for preventing against down round by adjusting the cost
on which preferred stock converted into common stock. This influences ownership in the down
round because the price of share gets changed as compared to the last financing round due to
which ownership also changed. Mainly, the cost of share gets minimized which automatically
influences the ownership in a down round process. However, full ratchet works by reducing the
price of conversion of present preferred to price on which fresh shares are going to issue in a
future round (Pickernell and et. Al., 2011). On the other hand, broad-based weighted anti-
dilution is a method of computing a type of arithmetic mean on set numerical items in which few
factors of set carrying maximum importance as compared to others. For example; grades are
calculating with the use of weighted average like; homework is counting almost 10%, quizzes
nearly 20% and tests 70% (Bajwa, Wang, Duc, & Abrahamsson, 2017).
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Part 3
1. What remuneration is typically paid to a founder at the time of starting a company
An outstanding rule-of-thumb for founder salary states that he must be paid almost
$50,000 — $75,000 which somehow seen as the highest salaries in maximum cases and it
entirely relies on stage of an association. Anything with six-figures is not acceptable. However,
the CEO of an organization creates an average annual salary of nearly $130,000. Numerous
elements affect the salary of the founder such as; funds raised by a firm, cash in bank, industry,
and experience of CEO also considered (Dawson and et. Al., 2011).
2. Three different forms of equity that can be given to employees
Equity compensation is known as non-cash pay which highlights ownership in an
organization and permits the employees of an organization to share in business profits through
appreciation as well as motivate retention especially if there are conferring needs. Thus, three
different types of equity-related to employees are; stock options, stock appreciation rights, and
phantom stock (Dawa and Namatovu, 2014). Thus, the pros and cons of various equity options
are discussed as follows-
Stock options Pros-
 It’s a kind of free money type which shows that there are few real potential members are
present who can easily generate long term riches (Stock options, 2017).
Figure 1Stock Options
(Source: - Stock options, 2017) Risk free at some point. Great for cash flows Minimum or zero charges
Cons-
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 Small print warning in which raft of checks needs to design before committing such as;
“company is listed or unlisted”.
 Risk in share price
Stock appreciation rights (Pros)-
 Ignore issues associated with minority shareholders.
 Conferring schedules offer a performance-based retention equipment’s.
Cons-
 Employees are not able to acquire dividends.
 Absence of voting rights for employees which minimize their influence.
Phantom stock (Pros)-
 Ownership is not diluted with the use of phantom stock
 Executive can take part on stock plan.
Cons-
 Phantom equity is very expensive in cost.
 It requisite charges against the company’s income statement.
 Uncapped liability for firm.
3. Considerations from a start-up and from an employee perspective when designing
remuneration for selecting between a mix salary & equity
Many things need to be considered by start-ups and employee both while remuneration
designing to choose an appropriate option in between salary & equity are-
 It is indispensable to understand the difference between the short-term and how to pay off
down the road. As per start-up opinion salary is easier as compared to equity whereas few
employees feel that equity gives maximum profit as well as ownership in an organization
(Hassan and et. Al., 2011).
 Four year or five-year plan of the firm.
 The current status of the firm is also considering by start-ups whereas employees just
consider their maximum profit level.
4.Will equity remuneration be more or less effective once you have in business for 5 years
Equity needs to be less after involved in a business for 5 years in which almost 1000
employees are present because the risk is high and the situation is uncertain because the single
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fluctuation of a market affects the entire profit level of an association (Lindvert, Yazdanfar and
Boter, 2015).
Part 4
Entrepreneur Ecosystem in Sydney
The concept of an entrepreneurial ecosystem is simply new and has emerged from
various origins. These are the means to develop and maintain a dynamic local procedure of
entrepreneurship cumulative causation. However, this report aimed at the specific role of
business accelerators in Sydney Australia as a start-up ecosystem. It is a remarkable city not only
full of innovation but with an amazing start-up culture (Lee, Sameen and Cowling, 2015). There
are a lot of well-established business accelerators that exist and are present to support a wide
range of new ventures in their early phases. Some of them are listed below (da Silva, et al. 2019).
25fifteen: It has focused to develop start-ups that could be exit beneficially since 2013. It
consists of a group of successful entrepreneurs and subdivision veterans with years of execution
practice and access to resources as well as an enormous network of business relationships. The
primary aim is to develop industry value by building a successful business that can deal with
issues within the present Australian market.
ATP innovations: It operates with a well-qualified management team of highly capable
business developers. ATP tends to work with over 80 businesses and has achieved success over
$121 million. Because of specific initiatives in increasing capital, building strong teams and
growing revenues, it is no surprise that 25% of ATP innovation customer has doubled in size
(Chatterji and Seamans, 2012).
Blue Chilli: It is a well creative business accelerator assisting in developing, growing and
investing in new technology start-ups. They usually worked with non-technical entrepreneurs
and corporate clients. Its headquarters are located in Sydney with other locations consists of
Brisbane, Melbourne and other regions of Australia. By their accelerators program to provide
them with technical and advisory partners, they are required to assist them with their start-ups
(Hirvikoski, 2014).
Springboard: It is a well-known accelerator that tends to connect Australia’s female
entrepreneurs with the proper support and services they required to develop their venture through
their annual program. It offers various networking activities to facilitate plan connections that
provide women business builders with skilled advisors. It also delivers female entrepreneurs seed
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capital and partnerships for development with a large network of investors and domain experts
(Levinsohn, 2014).
Accelerators generally have a more passionate, time-compressed entrepreneurial program
by facilitating learning and network growth in new start-ups. After analysing the competing ideas
by comparing the performance implication of accelerators- backed new business to deal with a
set of non-accelerators starts-up. It has been suggested that top accelerators tend to provide a
unique form of learning and networking to operating their business in Sydney. There are certain
key contributions which are revealing certain evidence for time firmness economies in the new
business growth process, and unpacking forms of learning as well as networks that could aid
venture expansion and sustainable development. Henceforth, future research can integrate
variable related to learning and core competencies to test the perception that learning at a drastic
pace could be a valuable source of getting competitive benefits future competition. An
accelerator provides seed funding, co-location and mentoring to a new start-up. It helps the
customers to determine and accelerate ideas, while upskilling employees regarding the lean start-
up's methodology to increase motivation in their clients for a long-time success (Best Startup
Accelerators, 2012).
CONCLUSION
From the above report, it has been concluded that financing understanding is really
indispensable for new entrepreneurs while establishing new venture in order to understand every
factors in more effective manner. Thus, information about accounting and modern equipment’s
of financing helps start-ups in controlling the possibilities of heavy loss by gaining accurate
knowledge. Along with this, it helps an association in gaining maximum profit through
competitive advantage by applying financing applications at workplace.
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REFERENCES
Books and Journals
Bajwa, S. S., Wang, X., Duc, A. N., & Abrahamsson, P. (2017). “Failures” to be celebrated: an
analysis of major pivots of software startups. Empirical Software Engineering, 22(5), 2373-2408.
Bajwa, S. S., Wang, X., Duc, A. N., & Abrahamsson, P. (2017). “Failures” to be celebrated: an
analysis of major pivots of software startups. Empirical Software Engineering, 22(5), 2373-2408.
Best Startup Accelerators, 2012. [Online]. Available through: <
http://www.businessconnector.com.au/uncategorized/the-10-best-startup-accelerators-and-
incubators-in-sydney/>.
Chatterji, A.K. and Seamans, R.C., 2012. Entrepreneurial finance, credit cards, and race. Journal
of Financial Economics, 106(1), pp.182-195.
da Silva, F. R., Fabrício, R., da Silva Pinto, R., Galegale, N. V., & Akabane, G. K. (2019,
January). Why technology-based startups fail? An IT management approach. In In Production
and Operations Management Society, POMS 26th Annual Conference.
Dawa, S. and Namatovu, R., 2014. Self-finance–application of the restricted pecking order
theory among Ugandan women entrepreneurs. International journal of entrepreneurship and
small business, 21(4), pp.513-526.
Dawson, C and et. Al., 2011. Entrepreneurs' perceptions of business networks: does gender
matter?. The international Journal of Entrepreneurship and innovation, 12(4), pp.271-281.
De Fiore, F. and Uhlig, H., 2011. Bank finance versus bond finance. Journal of Money, Credit
and Banking, 43(7), pp.1399-1421.
Hassan, N.B and et. Al., 2011. Financial constraints and opportunities of micro enterprise
entrepreneurs: A theoretical framework. In 2010 International Conference on Business and
Economics Research (Vol. 1, pp. 165-168).
Hirvikoski, K. (2014). Startups Pivoting Towards Value. Data-and Value-Driven Software
Engineering with Deep Customer Insight, 1.
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Kwong, C., Jones-Evans, D. and Thompson, P., 2012. Differences in perceptions of access to
finance between potential male and female entrepreneurs: Evidence from the UK. International
Journal of Entrepreneurial Behavior & Research, 18(1), pp.75-97.
Lee, N., Sameen, H. and Cowling, M., 2015. Access to finance for innovative SMEs since the
financial crisis. Research policy, 44(2), pp.370-380.
Levinsohn, D., 2014. The role of accelerators in the development of the practising social
entrepreneur. In Institute for Small Business and Entrepreneurship: The Future of Enterprise:
The Innovation Revolution; Manchester, UK November 5-6. 2014.
Lindvert, M., Yazdanfar, D. and Boter, H., 2015. Perceptions of financial sources among women
entrepreneurs in Tanzania. African Journal of Economic and Management Studies, 6(2), pp.197-
218.
Mason, C. and Kwok, J., 2010. Investment readiness programmes and access to finance: a
critical review of design issues. Local Economy, 25(4), pp.269-292.
Mattos, F. and Garcia, P., 2011. Applications of behavioral finance to entrepreneurs and venture
capitalists: decision making under risk and uncertainty in futures and options markets.
In Advances in Entrepreneurial Finance (pp. 141-172). Springer, New York, NY.
Nobel, C. (2011). Why companies fail--and how their founders can bounce back. Harvard
Business School.
Park, J. S. (2015). Opportunity recognition and product innovation in entrepreneurial hi-tech
start-ups: a new perspective and supporting case study. Technovation, 25(7), 739-752.
Pickernell, D and et. Al., 2011. Graduate entrepreneurs are different: they access more
resources?. International Journal of Entrepreneurial Behavior & Research, 17(2), pp.183-202.
Ries, E., & Euchner, J. (2013). What large companies can learn from start-ups. Research-
Technology Management, 56(4), 12-16.
Seghers, A., Manigart, S. and Vanacker, T., 2012. The impact of human and social capital on
entrepreneurs’ knowledge of finance alternatives. Journal of Small Business Management, 50(1),
pp.63-86.
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Stock options, 2017. [Online]. Available through< https://capital.com/six-top-pros-and-cons-of-
stock-options->.
Thursby, J. G., & Thursby, M. C. (2013). Industry/university licensing: Characteristics, concerns
and issues from the perspective of the buyer. The Journal of Technology Transfer, 28(3-4), 207-
213.
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