Assignment on Concept of attracting investors to finance Startup Business

The Federal Communications Commission manages and oversees the administration of the Telecommunications Relay Service (TRS) fund. TRS compensates TRS providers for reasonable costs of providing interstate telephone transmission services that enable a person with a hearing or speech disability to communicate with a person without hearing or speech disabilities.

The costs of providing interstate TRS are recovered from subscribers of interstate telecommunications services.

The below diagram explains the concept chart for a TRS on how return on investment will relate to the financial condition of the project and how it would in the end benefit to the investors for their financing.

Example like this…

Furthermore, to examine the industry structure on startup valuation for telecommunication relay service, we focus on two key structural elements from industry organization economics, namely the degree of product orientation and industry growth rate.

Both factors were proposed to influence on firm valuation. Industry profitability and market size will be used as control variables in the observed test.

·       Product orientation - Research found that industries with high advertising intensity earn higher rates of return on equity. Another research argues that industries characterized by low product orientation require new entrants to attend to cost and capacity considerations, which encourages retaliation against entrants and decreases venture performance.

·       Industry growth rate – According to Peltzman (1977) [36, p. 229–63] notes that rapid market growth can be beneficial for small firms in lowering costs and enabling such firms to more rapidly assimilate critical skills and knowledge needed for electively competing in the marketplace.

Porter [35] argues that because rapid industry growth ensures that incumbents can maintain a strong financial performance, even though a new entrant takes some market share, an entrant into a rapidly growing industry may experience less retaliation.

Also, in early stages of the industry life cycle (when industry growth is usually rapid), the costs of entry may be much less than the costs would be for later entrants because of the minimum scale of entry is much smaller.

Considering this information, it can be summarized that for the increase in return on investment (ROI) Telecommunication Relay Service will make sure there is:

·         Availability of higher return on investment.

·         Reduction in the cost of operations and innovative solutions.          

Moreover, project cash flows will be totally controlled while developing a plan or proposal for proposed project investors.

There are proposed strategies and tactics that would be implemented for finance in TRS start-up projects, this include:

·         Higher return on investment

·         Short term payback period

·         High profitability over the useful life of the project

Therefore, Telecommunication relay service is the project that will be supported by the telecommunication company with the intention to promote relay services and earn financial benefits in return.

According to the market research and research findings presented in the literature review, project having positive and high net present value (NPV) are the great attraction for the investors in the telecommunication industry [37, 38].

Currently, analysis suggests that the telecommunication industry is highly competitive as the industry is growing and new entrants are entering in the market. Investors interested to invest in the telecommunication industry seek for the projects with higher NPV and return on investment (ROI).

Good relations with investors and vision of attracting investors with ethical strategies and policies will build a positive image for the company in the market. Such subjective values will not only benefit the telecommunication company for accomplishing sustainability goals but may also provide long term financial benefits as the company would be able to contact them directly for the next time, they would initiate a project.  

All these points presented above and discussion conclude that higher return, short payback period, and risk mitigated investment project is the great source of attraction for an investor.

Conclusion for this chapter 1.1, 1.2, 1.3

Conclusion

The chapter section of methodology explains about the financing in the business which is newly start up and deals with the risk of investment in the new business. It is concluded after the analysis of the challenges and risk which are related to the investment in newly start up business. The challenges are used to provide the validity of the investment to the investors in the new business which give potential to the investors to invest in the risk. Different types of business such as traditional funding, small business or any venture in which investment is making are risky as it is going to invest in the IPO’s which is to raise a substantial amount of money to further develop the product. In order to do that, they must make a strong argument, if not a prototype, that supports their claim that their idea is truly new or better than anything else on the market. There is also discussion about the problems which are creating problems in the investment such as telecommunication rely services which is analysis of competitors, attributes to the market, current trends and the miscellaneous elements which provides additional details. There is also lack of awareness of technological use in different regions and efficiency maintenance of the devices contributes in the stagnating and hinders the growth of global telecommunication relay service market. Investing in startups are essentially buying a piece of the company. They are putting down capital, in exchange for capital and equity of the company which is most likely to be based on liquid assets. There are some investors who could resale their portion of IPO’s but some restricted the investors to do so. To deal all these problems, finance department allocate the budget to invest in the specific project which is totally depend upon the sources of financing and investment. There are many benefits which are derived from the investment in new start up business and recommended that the telecommunication industry is highly engaged in it and could be successful in the investment (Kanniainen & Keuschnigg., 2004).

  CHAPTER 2. ANALYSIS AND ASSESSMENT OF PROJECT

2.1.    Analysis of entrepreneurial ecosystem in Ukraine

We discuss the innovation ecosystem for Ukraine’s companies in six sections. This section provides an overview of some data on innovation in Ukrainian companies:

·       industry and market structure;

·       leadership, governance, and policy;

·       access to knowledge and technology;

·       finance;

·       human capital;

·       supports.

There is no common approach to defining the term “start-up”, so this paper is based on the definition, which often occurs in the relevant literature. Start-up is a temporary structure, which is engaged in the search for scalable, repeatable, cost-effective business models.

The elements of a start-up ecosystem of the transformational economy, to which the Ukrainian economy belongs, are shown at Figure 2.1.

An important element of the start-up ecosystem remains the fully-functioned system of creating new knowledge and ideas. Scientific and educational complex of Ukraine has preserved its potential even under critical conditions. Now in Ukraine there are over 350 higher education institutions with 3-4th accreditation level. 5 research parks, 16 techno parks and 11 industrial parks were created, which generate and implement innovative products.

Today in Ukraine only 4 active business incubators work with start-up projects, managing about 50 start-ups per year.

The number of projects implemented in 2015 by incubators (accelerators) in Ukraine is summarized in Table 2.1, with their help 24 million UAH were drawn to Ukrainian start-ups.

 Over the last 10 years Ukrainian scientific environment has undergone significant changes. The number of R&D, as well as the number of scientists who participated in the research was reduced by 1,5 times. However, Data for 2010-2015 include regular and temporary employees (employees holding a second job and persons who work under the civil and legal contracts including the scientific and pedagogical employees).

Starting from 2016, the data are given without taking into account scientific and pedagogical workers who did not carry out scientific research and development.

Visualization of data on the number of organizations that perform research and development, as well as the number of scientists is shown in Table 2.2.

 Data exclude the temporarily occupied territory of the Autonomous Republic of Crimea, the city of Sevastopol and a part of temporarily occupied territories in the Donetsk and Luhansk regions.

Innovation activity at the state level is regulated by several laws, namely: “On innovation activity”, “On the scientific and technical activity”, “On the scientific and technical expertise”.

Ukrainian venture capital and private equity analysis (Figure 2.2). 

Ukrainian tech companies have been raising funds from the leading international funds (Table 2.4).

Global trends in the development of the economy of Ukraine - the transition of the innovative ecosystem to the startup ecosystem.

The 2018 Update presents HDI values for 189 countries and  territories  with  the  most  recent  data for 2017.1 Of these countries, 59 are in the very high human development group, 53 in the high, 39 in the medium and only 38 in the low. In  2010,  49  countries  were  in  the  low  human  development group.

The economy of Ukraine produces less than 1% of an innovative product that does not correspond to its modern innovation and intellectual potential. Ukraine is among the high human developed countries (88thplace) according to Human Development Index 2019 [16].

Progress  since  1990  has  not  always  been  steady.  Some  countries  suffered  reversals  due  to conflicts, epidemics or economic crises. For example,  many  countries  in  Eastern  Europe  and  Central  Asia  saw  their  HDI  values  fall  in  the  1990s  due  to  the  collapse  of  the  Soviet  Union and to military conflict, hyperinflation and  a  painful  introduction  (or  expansion)  of  market  mechanisms. 

The final selection of startups to represent Ukraine at CES 2019 took place on 11th of October at UNIT.City. Six companies, who will go to Las Vegas, were selected by a team of Ukrainian and foreign experts and investors. The exhibition will be held on January 8-11, 2019 in Las Vegas.

Talking about specific areas of start-ups in 2019, it should be noted that the leading positions are occupied by [17]:

The winners of this year are:

·       Jollylook - vintage instant cameras that are made from recyclable materials.

·       RAWR - consumer IoT startup on a mission to strengthen the bond between humans and their best friends - pets.

·       nuka - an eternal stationery.

·       FunLight - атракціон інтерактивних проекцій - Innovative attraction for shopping malls and theme parks.

·       Flasty - 3D food printer and others

·       Photon_LMS - featuring a modular design Photo Module X incorporates 3 main blocks powered by 2700 LEDs and are fully manageable by a smartphone or PC.

It is worth mentioning that the global start-up market in 2015 is characterized by an increase in the total number of investors (26%) compared to the previous year (Forbs). Especially popular for private investors is IT-sector [11].

Nowadays, improving the investment image and simplifying the business environment are the priorities of the national investment and innovative policy. In the “National Development Strategy - 2020” target of foreign direct investment inflow (FDI) at the level of 40 billion USD is declared. In line with general trends, modern Ukraine managed to declare about itself with IT-start-upsat the global level. Political instability in the country, hostilities in the eastern part, as well as the critical state of Ukrainian economy led to decline in the country’s investment opportunities. In particular, in 2014 the volume of business angels’ investments and venture capital funds in the Ukrainian start-ups decreased by half - to 40 million USD, compared to 2013.

However, IT-start-ups are able to change the situation because investors are discovering some benefits. In the first place, there is favorable tax climate for the development of the IT-industry. According to the Tax Code of Ukraine for the period of 2013 – 2023 ІT-companies are exempt from paying value added tax and the income tax rate is 18% from 2015. As a result, in 2014 there were held about 50 deals in the IT sector for a total amount of about 20 billion USD. And Ukrainian IT-specialists in the same year, despite military actions in the country, exported about 5 billion USD under contracts for their own products.

Base on the analysis of all elements of start-up ecosystem and their activity, in Ukraine, there are a number of significant shortcomings in the functioning model of innovation system, namely: the lack of a transparent and effective legal regulation; reduction in the amount of R&D; inefficiency of invested funds; lack of development organizations and institutions, aimed at the acceleration of high technology; the imbalance of the ecosystem, and so on.