Slot-2 of IBM-4, MBA-2, IBM-5

2018-2019

Entrepreneurial Finance

Fall

Dr Gaurav Kumar

Email id: gkumar@jgu.edu.in

INTRODUCTION TO THE COURSE

This course is for aspiring or active entrepreneurs who wants to understand how to secure funding
for their company. This course will demystify key financing concepts to give entrepreneurs and
aspiring entrepreneurs a guide to secure funding. Examine the many financing options available
to get your new venture funded. Learn the basics of finance, valuations, dilution and non-dilutive
funding sources. Understand capital structure for new ventures, term sheets and how to negotiate
them, and the differences between early-stage versus later-stage financing. Develop an
understanding of how to develop winning investor pitches, who and when to pitch, how to avoid
common mistakes that limit the effectiveness of the pitch, and how to ‘get to the close’. Key
questions answered within the course include:

* When to raise outside capital?

* What kind of investors invest by stage and where to find them?

* What are your fundraising options?

* What are the key components of the term sheet?

* How to perform company valuations?

* How to pitch to investors?

* What techniques help the entrepreneur ‘get to the close’?

COURSE OBJECTIVES

The objective of this course is to provide a better understanding of corporate finance issues
confronting entrepreneurial firms. The issues will be explored by considering the differences
between firms for which the standard corporate finance model is appropriate and firms for which
the investment and financing issues are interdependent. Class participants will be expected to use
developed financial principles and concepts to make business decisions. Specifically, you should
be able to: Forecast Financial Needs - Use simulation and scenario analysis to analyze strategic
financial options available to a firm, identify and communicate the optimal option, and estimate
and describe a firm’s financial needs based on the recommended course of action. This includes:
Develop and analyze venture pro-forma financial statements with the primary objective of
determining the financial needs for the venture.

 Determine the importance of various inputs (e.g., marketing, finance, competition,

production inputs) on the sustainability of the venture.
 Identify and Evaluate Real Options – Qualitatively identify real options available with
firms or projects, identify the parameters that are important to the valuation of the options,
indicate how these options will affect the value of the project or the firm, and use
quantitative techniques to provide approximate valuations for these options.
 Value the Venture – Understand and be able to explain the difference between the venture
valuation models and the standard corporate finance evaluation model from both the
investor and entrepreneur’s points of views.
 Identify situations where the theories of financial management can be applied to
developing decisions.
 Recommend and justify decisions, including decisions arising from ambiguous or
unfamiliar information. Orally present your analysis, recommendations, and justification.

A primary objective of this class is to further develop the framework you use for thinking about
finance issues and develop experience in applying this framework to making useful business
decisions. Although the learning objectives will be focused on entrepreneurial ventures, they have
direct application in more standard corporate, investments, insurance, and banking finance.

METHOD OF INSTRUCTION:
The majority of course material will be delivered through class discussions. I think that one of the
best ways to learn the material for this class is to be engaged in the topic. I will encourage
engagement by soliciting input as the material is presented in class.

You should prepare for class by reading the assigned chapter(s) carefully, taking time to work
through the examples. Students are strongly encouraged to ask questions about issues they do not
understand or wish to develop in more depth. The list of learning objectives at the beginning of
each chapter identifies the material you should understand from that chapter. The best way to
master most of the topics covered is to work through problems.

ATTENDANCE POLICY

Attendance to all the sessions is as per the university rules (minimum 75% excluding all leaves).
The following instances will also be treated as absence unless prior permission is taken

 Attending only part of the session, either entering or leaving during the break
 Arriving in class after the session is scheduled to begin
 Failing to display the name card

GRADING

The course grade will be determined on the basis of

Evaluation Item Weightage Nature Explanation

Written Assignments 10% Individual Students need to participate in each class and
and complete assignments regularly.
Class Participation
Class Quiz 30% Individual There will be three quizzes each carrying 10
marks.
Project Work 10% Group A group of 4-5 students will work on the
project assigned
End Term 50% Individual Written test based on whole syllabus

TEXT BOOK, COURSE PACKAGE AND OTHER READINGS

1. Main Text Book: Entrepreneurial Finance: Strategy, Valuation, and Deal Structure by
Janet Kiholm Smith (Author), Richard L. Smith (Author), Richard T. Bliss (Author)
 2. Supplementary Book: Entrepreneurial Finance: United States Edition (Pearson Custom
Business Skills) by Philip J. Adelman (Author), Alan M. Marks (Author)
3. Website: http://www.sup.org/entrepreneurialfinance
4. Softwares: Venture.Sim simulation software, spreadsheets

CLASS SCHEDULE

SESSION PLAN

(Each session is of 90 minutes’ duration)

Session 1 Topic : Introduction 1

Why Study Entrepreneurial Finance?

What Makes Entrepreneurial Finance Different from

Corporate Finance?

Interdependence between Investment and Financing

Decisions Diversifiable Risk and Investment Value

Managerial Involvement of Investors

Information Problems and Contract Design

Incentive Alignment and Contract Design

The Importance of Real Options

Harvesting the Investment

Value to the Entrepreneur

Essential : Preface
Readings

Session 2 Topic : Introduction 2

Entrepreneurship and the Entrepreneur

The Finance Paradigm

The Stages of New Venture Development

 Measuring Progress with Milestones

Financial Performance and Stages of New Venture

Development

The Sequence of New Venture Financing

The New Venture Business Plan

Essential : Chapter 1
Readings

Session 3-4 Topic : New Venture Financing: Considerations and Choices

Sources of New Venture Financing
What’s Different about Financing Social Ventures?
Considerations When Choosing Financing: The
Organizational Form
Regulatory Considerations
What Is a Security?
Exemptions from Registration in the United States
The Deal

Essential : Chapter 2
Readings

Session 5-6 Topic : Venture Capital

Development of the Venture Capital Market

The Organization of Venture Capital Firms

How Venture Capitalists Add Value

Investment Selection and Venture Capitalist

Compensation

Venture Capital Contracts with Portfolio Companies

Venture Capital Contracts with Investors

The Role of Reputation in the Venture Capital Market

Reputation, Returns, and Market Volatility

 Essential : Chapter 3
Readings

Session 7-8 Topic : New Venture Strategy and Real Options

Product-Market, Financial, and Organizational Strategy

The Interdependence of Strategic Choices: An Example
What Makes a Plan or Decision Strategic?

Financial Strategy

Deciding on the Objective

Strategic Planning for New Ventures

Recognizing Real Options

Strategic Planning and Decision Trees

Rival Reactions and Game Trees

Strategic Flexibility versus Strategic Commitment

Essential : Chapter 4
Readings

Session 9-10 Topic : Developing Business Strategy Using Simulation

Use of Simulation in Business Planning: An Example

Who Relies on Simulation

Simulation in New Venture Finance

Simulation: An Illustration

Simulating the Value of an Option

Describing Risk

Using Simulation to Evaluate a Strategy

Essential : Chapter 5
Readings

Session 11 Topic : Methods of Financial Forecasting: Revenue

 Principles of Financial Forecasting

Forecasting Revenue

Estimating Uncertainty

Building a New Venture Revenue Forecast: An Illustration

Introducing Uncertainty to the Forecast: Continuing the

Illustration

Essential : Chapter 6
Readings

Session 12-13 Topic : Methods of Financial Forecasting: Integrated

Financial Modeling

An Overview of Financial Statements

The Cash Conversion Cycle

Working Capital, Growth, and Financial Needs

Developing Assumptions for the Financial Model

Building a Financial Model of the Venture

Adding Uncertainty to the Model

New Company: Building an Integrated Financial Model

Essential : Chapter 7
Readings

Session 14-15 Topic : Assessing Financial Needs

Sustainable Growth as a Starting Point

Assessing Financial Needs When the Desired Growth Rate

Exceeds the Sustainable Growth Rate

Planning for Product-Market Uncertainty

Cash Flow Breakeven Analysis

Assessing Financial Needs with Scenario Analysis

 Assessing Financial Needs with Simulation

How Much Money Does the Venture Need?

Assessing Financial Needs with Staged Investment

Essential : Chapter 8
Readings