Entrepreneurial Finance: Strategy, Valuation, and Deal Structure applies the theory and methods of finance and economics to the rapidly evolving field of entrepreneurial finance. This approach reveals how entrepreneurs, venture capitalists, and outside investors can rely on academic foundations as a framework to guide decision making. Unlike other texts, this book prepares readers for a wide variety of situations and problems that stakeholders might confront in an entrepreneurial venture. Readers will find a unique and direct focus on value creation as the objective of each strategic and financial choice that an entrepreneur or investor makes. The authors specifically address the influences of risk and uncertainty on new venture success, devoting substantial attention to methods of financial modeling and contract design. Finally, the authors provide a comprehensive survey of approaches to new venture valuation, with an emphasis on applications. The book appeals to a wide range of teaching and learning preferences.
To help bring the book to life, simulation exercises appear throughout the text. For those who favor the case method, the authors provide a series of interactive cases that correspond with the book chapters, as well as suggestions for published cases. Finally, the book is organized to complement the development of a business plan for those who wish to create one as they read along. Entrepreneurial Finance is most effectively used in conjunction with a companion website, On this site, Venture.Sim simulation software, spreadsheets, templates, simulation applications, interactive cases, and tutorials are available for download.
For those teaching from the book, the authors also provide an invaluable suite of instructor's resources.
More Entrepreneurial Finance: Strategy, Valuation, and Deal Structure applies the theory and methods of finance and economics to the rapidly evolving field of entrepreneurial finance. This approach reveals how entrepreneurs, venture capitalists, and outside investors can rely on academic foundations as a framework to guide decision making.Unlike other texts, this book prepares readers for a wide variety of situations and problems that stakeholders might confront in an entrepreneurial venture. Readers will find a unique and direct focus on value creation as the objective of each strategic and financial choice that an entrepreneur or investor makes. The authors specifically address the influences of risk and uncertainty on new venture success, devoting substantial attention to methods of financial modeling and contract design. Finally, the authors provide a comprehensive survey of approaches to new venture valuation, with an emphasis on applications.The book appeals to a wide range of teaching and learning preferences. To help bring the book to life, simulation exercises appear throughout the text. For those who favor the case method, the authors provide a series of interactive cases that correspond with the book chapters, as well as suggestions for published cases.
Finally, the book is organized to complement the development of a business plan for those who wish to create one as they read along. Entrepreneurial Finance is most effectively used in conjunction with a companion website, On this site, Venture.Sim simulation software, spreadsheets, templates, simulation applications, interactive cases, and tutorials are available for download. For those teaching from the book, the authors also provide an invaluable suite of instructor's resources.
Lecture notes files. SES # TOPICS LECTURE NOTES 1 Introduction and overview of entrepreneurial finance 2 DermaCare Business Valuation 3 Discounted cash flow (DCF) and the venture capital method 4 Netflix 5 Real option valuation 6 Real option valuation (cont.) Deal Structure 7 Genzyme/Geltex 8 Deal structure 9 Walnut Venture Associates (A) and (D) 10 Deal structure (cont.) 11 Guest: John H. Chory (Partner, WilmerHale Venture Group) 12 Metapath Team Sheet Negotiation 13 BNI Video Guests: Conrad Clemson (Founder and CEO, BNI Video) and Carl Stjernfeldt (General Partner, Castile Ventures) 14 BNI Video Guest: Carl Stjernfeldt (General Partner, Castile Ventures) Venture Capital Funds 15 Guest: Dr. William Janeway (Senior Advisor, Warburg Pincus) 16 Portfolio and partnership Guest: Carl Stjernfeldt (General Partner, Castile Ventures) 17 VC Vignettes Guest: Carl Stjernfeldt (General Partner, Castile Ventures) 18 Grove Street Advisors - September 2009 Guest: Christopher E. Yang (General Partner, Grove Street Advisors) 19 Forte Ventures Exit 20 Initial public offering (IPO) Guest: Michael Szeto (Managing Director of Private Equity, WR Hambrecht) (Courtesy of Michael Szeto. Used with permission.) 21 Grand Junction Guest: Michael Szeto (Managing Director of Private Equity, WR Hambrecht) (Courtesy of Michael Szeto. Used with permission.) 22 Blackstone 23 Final review.
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Contents. The Problem Many entrepreneurs discover they need to attract money to fully commercialize their concepts. Thus they must find – such as their own employer, a bank, an, a, a or some other source of financing. When dealing with most classic sources of funding, entrepreneurs face numerous challenges: skepticism towards the business and financial plans, requests for large equity stakes, tight control and managerial influence and limited understanding of the characteristic of growth process that start-ups experience. On the other hand, entrepreneurs must understand the four basic problems that can limit investors' willingness to invest capital:. Drum kit free download for android. about the future: in terms of start-ups development possibilities, market and industry trends. The greater the uncertainty of a venture or project, the greater the distribution of possible outcomes.
Information gaps: differences in what various players know about a company's investment decisions. 'Soft Assets': these assets are unique and rarely have markets that allow for the measure of their value. Thus, lenders are less willing to provide credit against such an asset.
of current market conditions: financial and product markets can change overnight, affecting a venture's current value and its potential profitability. History Venture capital as the business of investing in new or young companies with innovative ideas emerged as a prominent branch of Entrepreneurial finance in the beginning of the 20th century. Wealthy families such as the, the and the Bessemer family began private investing in private companies. One of the first venture capital firms, was founded in 1946 and is still in business today. The formation of the American Research and Development Foundation (ARDC) by General Georges F.
Doriot institutionalized venture capital after the Second World War. In 1958, the (SBIC) license enabled finance companies to leverage federal US funds to lend to growing companies. Further regulatory changes in the USA –namely the reduction of capital gains tax and the pension reforms- boosted venture capital in the 1970s. During the 1980s and 1990s, the venture capital industry grew in importance and experienced high volatility in returns. Despite this cyclicality and crisis such as; venture capital has consistently performed better than most other financial investments and continues to attract new investors.
Sources of Entrepreneurial Financing Financial Bootstrapping Financial Bootstrapping is a term used to cover different methods for avoiding using the financial resources of external investors. It involves risks for the founders but allows for more freedom to develop the venture. Different types of financial bootstrapping include Owner financing, Minimization of accounts payable, joint utilization, minimization of inventory, delaying payment, subsidy finance and personal debt. External Financing Businesses often need more capital than owners are able to provide.
Hence, they source financing from external investors: angel investment, venture capital, as well as with less prevalence crowd funding, hedge funds and alternative asset management. While owning equity in a private company may be generally grouped under the term, this term is often used to describe growth, buyout or turnaround investments in traditional sectors and industries. Business Angels A business angel is a private investor that invests part of his or her own wealth and time in early-stage innovative companies. Apart from getting a good return, business angels expect to have fun. It is estimated that angel investment amounts to three times venture capital. Its beginnings can be traced to, widely credited to be the 'Father of Silicon Valley' (together with ), who invested $500 to help starting up the venture of and Fred Packard. Venture Capital Venture capital is a way of corporate financing by which a financial investor takes participation in the capital of a new or young private company in exchange for cash and strategic advice.
Venture capital investors look for fast-growing companies with low leverage capacity and high-performing management teams. Their main objective is to make a profit by selling the stake in the company in the medium term. They expect profitability higher than the market to compensate for the increased risk of investing in young ventures. In addition to this, there are also corporate venture capitalists that strongly focus on strategic benefits. Key differences between business angels and venture capital:. Own money (BA) vs. Other people's money (VC).
Fun + profit vs. Profit. Lower vs. Higher expected IRR. Very early stage vs. Start-up or growth stage.
Longer investment period vs. Shorter investment horizon Buyouts Buyouts are forms of corporate finance used to change the ownership or the type of ownership of a company through a variety of means. Once the company is private and freed from some of the regulatory and other burdens of being a public company, the central goal of buyout is to discover means to build this value. This may include refocusing the mission of the company, selling off non-core assets, freshening product lines, streamlining processes and replacing existing management. Companies with steady, large cash flows, established brands and moderated growth are typical targets of buyouts.
There are several variations of buyouts:. (LBO): combination of debt and equity financing. The intention is to unlock hidden value through the addition of substantial amounts of debt to the balance sheet of the company. (MBO), Management buy in (MBI) and Buy in management buyout (BIMBO): private equity becomes the sponsor of a management team that has identified a business opportunity with a price well above the team's wealth. The difference is in the position of the purchaser: the management is already working for the company (MBO), the management is new (MBI) or a combination (BIMBO). Buy and built (B&B): the acquisition of several small companies with the objective of creating a leader (highly fragmented sectors such as supermarkets, gyms, schools, private hospitals).
Recaps: re-leveraging of a company that has repaid much of its LBO debt. Secondary Buyout (SBO): sale of LBO-company to another private equity firm. Public-to-private (P2P, PTOP): takeover of public company that has been 'punished' by the market, i.e. Its price does not reflect the true value.
Major Entrepreneurial Financial Planning Importance Financial planning allows entrepreneurs to estimate the quantity and the timing of money needed to start their venture and keep it running. The key questions for an Entrepreneur are:. Is it worthy to invest time and money in this business?.
What is the cash burn rate?. How to minimize dilution by external investors?. Scenario analysis and contingency plan? A start-up's (CFO) assumes the key role of entrepreneurial financial planning.
In contrast to established companies, the start-up CFO takes a more strategic role and focuses on milestones with given cash resources, changes in valuation depending on their fulfilment, risks of not meeting milestones and potential outcomes and alternative strategies. Determination of the Financial Need of a Start-up The first step in raising capital is to understand how much capital you need to raise. Successful businesses anticipate their future cash needs, make plans and execute capital acquisition strategies well before they find themselves in a cash crunch. Three axioms guide start-up fund raising:. As businesses grow, they often go through several rounds or stages of financing. These rounds are targeted to specific phases of the company's growth and require different strategies and types of investors. Raising capital is an ongoing issue for every venture.
Capital acquisition takes time and needs to be planned accordingly. Four critical determinants of the financial need of a venture are generally distinguished:.
Determination of projected sales, their growth and the profitability level. Calculation of start-up costs (one-time costs). Estimation of recurring costs. Projection of (inventory, credit and payment policies. This determines the cash needed to maintain the day-to-day business) Typically, venture capitalists are part of a fund.
Their average size in Europe includes five investment professionals and two supports. They generate income through management fees (on average 2.5% annual commission) and carried interest ('Carry', on average 20–30% of the profits of the fund). Valuation in Entrepreneurial Finance Financial planning also helps to determine the value of a venture and serves as an important marketing tool towards prospective investors. Traditional valuation techniques based on accounting, discounting cash flows (, DCF) or do not reflect the specific characteristics of a start-up. Instead, the venture capital method, the First Chicago or the fundamental methods are usually applied.
What Is Entrepreneurial Finance
Venture capital method To determine the future value of a start-up, a venture capital investor is guided by the question: What percentage of the portfolio company should I have at exit to guarantee that I get the IRR committed with my investors? The valuation of the future company can be broken down into four steps:.
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Determination of company's value at exit. Requested fraction (percentage) of the VC at exit?. Number of shares to be bought in the current round of financing to get the desired percentage of the company.
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Estimation of maximum price per share willing to pay in current round of financing Usually there is more than one round of financing. Venture capital investors generally prefer staged investments to reduce the money invested at the higher risk and control entrepreneurs via milestones. Entrepreneurs benefit from dilution in future rounds by reducing the price of the shares to be exchanged for financing. University Education Entrepreneurial finance courses are offered in different universities, for example at, the, the, and.
Entrepreneurial Finance 5th Edition Leach
Special centers to promote entrepreneurship within universities also cover finance topics, for example the, which works to generate shared and sustainable prosperity in developing economies Notes.