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Instructor: Mr. Larry Rothenberg This is a jointly listed undergraduate and graduate course, and is available for both finance and EEE credit. It is being jointly offered by the Entrepreneurship and Emerging Enterprises Program and the Finance Department. Students should have had an introductory course in finance at the undergraduate or graduate level or receive instructor permission to enroll. Inquiries regarding qualifications to take the course should be director to the EEE Program at 443-3164. Course Overview Entrepreneurship is the "pursuit of opportunity without regard to resources currently controlled". This definition implies that successful entrepreneurs are able to utilize resources that they do not personally own or control. They must go beyond opportunity recognition and the creation of great business concepts and find creative methods for acquiring a variety of resources. Especially critical is their ability to find money for venture start-up and then to obtain money for ongoing venture growth. This course will focus on financing issues facing the entrepreneur. We will study the tools and methods used in determining how much money a venture actually needs in order to be viable. Further, we will explore tools and approaches used when selling an idea to potential investors. Attention will be devoted to the different types of financing alternatives available to new and early stage ventures. The venture capital market will be investigated in detail. In addition, we will explore issues involved in negotiating deals and in formulating deal structures. Students will be encouraged to understand financing issues and options from the vantage points both of the entrepreneur and the investor. Course Objectives: The course is designed to accomplish a number of objectives over the next fifteen weeks. Upon completion of the course, you should be able to: • Appreciate the critical role financing plays in new venture creation and the successful growth of emerging companies. • Understand how to determine the amount of money an entrepreneur requires to successfully start a new venture. • Construct, read and draw practical insights from the financial statements of an entrepreneurial venture, and especially the cash flow statement. • Appreciate the importance of bootstrapping and guerrilla approaches to financing a start up venture. • Recognize the multiple sources of financing available to the entrepreneur together with the characteristics of each source, and the factors they weigh most heavily in investment decisions. • Associate the appropriate sources of financing with the characteristics of a venture and an entrepreneur. • Calculate the value of a venture and appreciate the many roles valuation plays in the creation and growth of an entrepreneurial venture. • Formulate a deal structure for a start-up venture and grasp the multiple variables that can be introduced when structuring a deal. • Understand key tactics and approaches to negotiation when attempting to structure a deal for a new venture. • Recognize the value and potential problems with joint ventures as a means of financing new ventures and developing new products. • Texts (Required): Entrepreneurial Finance , Leach and Melicher, Thomson 2003. Student Assessment/Evaluation: Class Participation 20% Presentation and write up* 20% Midterm Examination 20% Final Examination 40% ____ 100% * Group presentation with the aim of obtaining financing including. Each group will make a presentation to the type of investor of their choice. Each group must produce:
• Attendance Policy: Attendance is required. It is not an option. You are allowed two unexcused absences. If you miss more than two times, you will forfeit one letter grade (10%) in the course. Participation Policy: You are expected to come to class prepared, and play an active in the discussions that take place during class periods. This means reading all assignments and preparing all cases in advance. The issue is the quality of your contribution more than the quantity. Participation/contribution includes asking questions, answering questions, agreeing or disagreeing with points made by the instructor or your peers, insights provided regarding the assigned cases, examples that you bring into class from your own life experiences that relate to issues we are discussing, and so forth. Teaching/Learning Style: The course will involve a lecture and discussion format with extensive interaction between students and the instructor. The teaching style will mix core content with practical applications. Students will be challenged to grasp a concept or idea, relate it to other concepts, and then apply it in real-world entrepreneurial contexts. • Academic Integrity All work in this course must be your own individual effort. Where you have a team assignment, the submitted or presented work must be solely that of the team members. Violations of this rule will be considered academic dishonesty and will be referred to the Academic Disciplinary Committee. The School of Management has adopted an Academic Integrity Policy emphasizing that honesty, integrity and respect for others are fundamental expectations in our School. The Policy requires all students who take SOM courses to certify in writing that they have read, understand, and agree to comply with the Academic Integrity Policy. SOM students should already have completed a certification statement. All non-SOM students enrolled in this course, including SOM minors, are also required to complete a certification statement available in the Undergraduate Office or the MBA Office. Completed statements are kept on file. The complete text of the SOM's Academic Integrity Policy can be found on the web at http://sominfo.syr.edu/degree/ai_policy.html. Other Interesting/Helpful Resources (also see the EEE Program website) Inc. Magazine Entrepreneur Magazine Fast Company Magazine Journal of Business Venturing www.entrepreneurmag.com Entrepreneurship Theory and Practice http://startup.wsj.com Journal of Small Business Management www.entreworld.com Journal of Developmental Entrepreneurship Some selected books: M. Van Osnabrugge and R. Robinson, Angel Investing W. Bygrave, The Portable MBA in Entrepreneurship Jeffry A. Timmons, New Venture Creation J. Lerner, Venture Capital and Private Equity: A Casebook J. Camp, Venture Capital Due Diligence: A Guide to Making Smart Investment Choices P.A. Gompers and J. Lerner, The Venture Capital Cycle J.S. Levin, Structuring Venture Capital, Private Equity and Entrepreneurial Transactions A. Wilmerding, Term Sheets and Valuations: An Inside Look at the Intricacies of Venture Capital R. Hoagland, Funding and Financial Execution for Early-Stage Companies B. Hill, Attracting Capital from Angels: How Their Money and Experience Can Help You Build a Successful Company Course Structure and Reading Assignments: (please note that we may at times move at a slower or faster pace depending upon class circumstances, student questions, and comprehension) KEY: EF = Smith and Smith text G = Gladstone text All cases are in the case packet purchased at the Orange Bookstore Week One August 25: Course Intro - Distribute syllabus, discuss course format and grading procedure. What makes entrepreneurial finance different from other kinds of finance? August 27: What are the stages of development and what types of financing come into play in each stage? Overview of likely types of financing at each life cycle stage. Reading : EF pages 19 - 32. Week Two Sept. 3: Financing Tools - Introduction to cash flow - How to put together and read a cash flow statement. Reading : EF Pages 113 - 128, 135-160. Week Three Sept. 8/10: More on cash flow. How to use the cash flow statements and other planning tools to understand the financing needs of the business. Forecasting sales and revenues. Readings : EF Chapter 7 Cases: PC Build and Michael Healey Case Week Four Sept 15/17: The business plan and getting started - Understanding the value of the business plan as a planning tool and as a sales tool in obtaining financing. Discussion of the semester project. Readings : EF Chapter 2 and 3 Week 5 Sept 22/24: Bootstrap Analysis - Finding financing everywhere. Financing can be found in every part of the business. How to look for financing your cash flow statement by understanding items such as deferred salaries, stock options, commissioned sales, business incubators, credit with suppliers, etc. Readings : Guerrilla Financing Reading Case: Belkin Week 6 Sept 29/Oct 1: Valuation Analysis - How is a new venture valued? How do you know how much to give-up for an investment? Readings : EF Chapter 9 Case: Commercial Fixtures Week 7 October 8: Financing Options - Overview of financing alternatives. Review and compare the most common types of financing available to a new venture, and discuss why each type of financing is appropriate for a given stage of a new venture. How do the unique circumstances of a new venture and the market conditions affect the decision of what kind of financing to look for? Readings : EF Chapter 13 Week 8 October 13: Mid semester review class. October 15: Mid-term exam Week 9 October 20-22: Equity Structure in a new venture. Review the types of equity involved in a new venture, how to calculate the affect of future rounds of financing on equity structure, value of stock options and warrants. Readings : EF Chapter 11 Case: Three Fish Solutions Week 10 October 27-29: Venture Capital - Overview of the venture capital industry. How are VC firms organized, what are the steps an entrepreneur goes through in trying to get venture capital, common terms of a VC Agreement. Readings : EF Chapter 12 Case: Onset Ventures, JAFCO America Ventures Week 11 November 3-5: Venture Capital - Details of the Venture Capital Cycle. Examine examples of venture capital funded companies. Cases: Neverfail Computing Go Corporation Fogdog Guest Speaker Week 12 November 10-12 : Exit Strategies - How to anticipate an exit strategy. How to prepare for IPO/selling of a company. Reading : EF Chapter 15 Case: Diamond Technical Group Week 13 November 17-19: Practical Considerations - Dealing with brokers, lawyers, closing a deal. Deal structure and deal negotiations. How to deal with financial distress. EF Chapter 14 Cases: Solidworks Jon Hirschtick's New Venture Week 14 November 24: Venture Capital - Current Trends in Venture Financing - Open discussion of the current trends in the new venture financing area. Special attention will be given to the dot-com bubble, why it happened, what are the long and short-term consequences for the venture financing industry. Each student is responsible for bringing one article and summarizing the article to the class. Weeks 15 December 1-3: Group presentations Final Examination Scheduled: TBA (exams begin December 8) Lecture Notes -Week 1/ Lecture 1 Hand out Syllabus Go over office hours and how to contact me Grading Procedures • In-class - will be called on to answer questions about readings • Mid-term - short answer and essay • Group presentation - presentation to a potential funding source based on existing business plan. • Final What I am looking for • Understand key terms • Understand how financing of a new venture is affected by time, future rounds of financing and changing conditions • Understand the need for creativity in financial planning and the acquisition of financing Differences Between NVF and Traditional Financing of an existing business • High rate of failure • Require high rate of return • Assets • Existing ventures have assets to borrow against • Bank Loans at commercial rates • NV usually can only offer the entrepreneurs house • Income Stream in existing business • This can assure traditional creditors • Can attach receivables • Technology issues • Success of a new venture often dependant on unproven tech • Requires expertise on part of investor, limiting pool of investors • Potential for large rewards • Lowers labor costs • Managerial involvement of outsiders • Investors are involved in BOD • Often require even more input into company direction • Can have ability to take-over company to safeguard investment • Information/Communication • Need to sell an idea to an investor not just communicate rate of return • Limited to people who can understand the idea • Often even a subset of tech investors • Puts premium on creativity and deep knowledge of investor community • Value of options • High level of uncertainty puts high premium on valuing numerous options and constantly reevaluating them • Business plans require focus on alternatives • Harvesting • Liquidity must be planned since no open market for stock and usually there is insufficient free cash flow to pay dividends or interest • Liquidity event is often tied to management, creating potential conflicts with investors • Conflicts • Management and investors are two classes of shareholders with potentially conflicting interests • When to sell • Salaries/benefits • Risky growth plans v. safe plans • When to replace top management to prepare for growth/sale/IPO • When to replace loyal underlings who are under performing • Family issues |