In financing a business, the entrepreneur determines the amount and timing of funds needed. Seed or start-up capital is the most difficult to obtain, with the most likely source being the informal risk-capital market (angels). These investors, who are wealthy individuals, average one or two deals per year, ranging from $100,000 to $500,000, and generally find their deals through referrals.

Although venture capital may be used in the first stage, it is primarily used in the second or third stage to provide working capital for growth or expansion. Venture capital is broadly defined as a professionally managed pool of equity capital. Since 1958, small-business investment companies (SBICs) have combined private capital and government funds to finance the growth and start-up of small businesses. Private venture-capital firms have developed since the 1960s, with limited partners supplying the funding. At the same time, venture-capital divisions operating within major corporations began appearing. States also sponsor venture-capital funds to foster economic development.

To achieve the venture capitalist's primary goal of generating long-term capital appreciation through investments in business, three criteria are used: The company must have strong management; the product/market opportunity must be unique; and the capital appreciation must be significant, offering a 40 to 60 percent return on investment. The process of obtaining venture capital includes a preliminary screening, agreement on principal terms, due diligence, and final approval. Entrepreneurs need to approach a potential venture capitalist with a professional business plan and a good oral presentation.

Valuing the company is of concern to the entrepreneur. Eight factors can be used as a basis for valuation: the nature and history of the business, the economic outlook, book value, future earnings, dividend-paying capacity, intangible assets, sales of stock, and the market price of stocks of similar companies. Numerous valuation approaches that can be used were discussed.

In the end, the entrepreneur and investor must agree on the terms of the transaction, known as the deal. When care is taken in structuring the deal, the entrepreneur and the investor will maintain a good relationship while achieving their goals through the growth and profitability of the business.

Going public—transforming a closely held corporation into one in which the general public has proprietary interest—is indeed arduous. An entrepreneur must carefully assess whether the company is ready to go public as well as whether the advantages outweigh the disadvantages of doing so.

Once the decision is made to proceed, a managing investment banking firm must be selected and the registration statement prepared. The expertise of the investment banker is a major factor in the success of the public offering. In selecting an investment banker, the entrepreneur should consider reputation, distribution capability, advisory services, experience, and cost. To prepare for the registration date, the entrepreneur must organize an "all hands" meeting of company officials, the company's independent accountants and lawyers, and the underwriters and their counsel. A timetable must be established for the effective date of registration and for the preparation of necessary financial documents, including the preliminary and final prospectuses. Following the initial public offering, the entrepreneur should strive to maintain a good relationship with the financial community and adhere strictly to the reporting requirements of public companies.