Entrepreneurial Finance
Entrepreneurial Finance Course Module in Entrepreneurship Course Modules help instructors select and sequence material for use as part of a course. Each module represents the thinking of subject matter experts about the best materials to assign and how to organize them to facilitate learning. Each module recommends four to six items. Whenever possible at least one alternative item for each main recommendation is included, as well as suggested supplemental readings that may provide a broader conceptual context. Cases form the core of many modules but we also include readings from Harvard Business Review, background notes, Core Curriculum Readings, and other course materials. I. Overview of suggested content (HBS cases unless otherwise noted) Title Author Product Number Publication Year Pages Teaching Note Entrepreneurship Reading: Financing Entrepreneurial Ventures 2. Sources of Financing Kerr, Nanda & McQuade 8072 2014 46 8073 Avid Radiopharmaceuticals and Lighthouse Capital Partners Rhodes-Kropf & Leamon 810054 2009 15p 812006 Alternative 1: Joseph Vigneault and the Capital Pool Company Program (Ivey case) Alternative 2: DermaCare: Zapping Zits Directly Southam & McDonald W10015 2011 8p 810N13 Hammermesh & Barley 808064 2007 21p 808122 Alternative 3: Working Capital Simulation: Managing Growth V2 (HBP simulation) Dahiya 7070 2014 45min 7071 1. Introduction 3. Venture Capitalists’ Principles and Due Diligence AudienceView (Ivey case) Rosenberg 907N06 2007 23p 807N06 Alternative 1: How Venture Capitalists Evaluate Venture Opportunities Roberts & Barley 805019 2004 19p 805055 Alternative 2: Good Money After Bad (HBR case) Mullins R0703X 2007 9p R0703Z Supplement: George Doriot and American Venture Capital Nicholas & Chen 812110 2012 21p -- Katz, Riedl & Deckinger Leleux, 110035 2009 11p 110036 IMD251 2009 17p IMD250 4. Valuing a Startup HurryDate Alternative: Venture Valuation AG: The Genedata Assignment (IMD case) Pahwa & Siebenburger Roberts 806058 2005 5p -- Hellmann E95 2001 14p -- Applegate, Kerr & Johnson Hatch & Zhang 811098 2011 32p 811109 909N25 2010 16p 809N25 Alternative 2: Term Sheet Negotiations for Trendsetter, Inc. Kuemmerle & Coughlin 801358 2001 10p 802226 Supplement 1: A “Rich-vs.-King” Approach to Term Sheet Negotiations (HBS note) Wasserman, Nazeeri & Anderson 810119 2012 19p -- Supplement 2: Deal Structure and Deal Terms (HBS note) Roberts & Stevenson 806085 2005 8p -- Supplement 1: Valuation, Financing and Capitalization Tables in the New Venture Context (HBS note) Supplement 2: A Note on Valuation of Venture Capital Deals (Stanford note) 4. Structuring Deals Internet Securities, Inc.: Path to Sustainability Alternative 1: Prairie Ventures Limited (Ivey case) 5. Splitting Equity and Compensation Smartix: Swinging for the Fences Alternative 1: Negotiating Equity Splits at UpDown (HBS role play) Wasserman 808116 2008 14p 809134 Wasserman & Malhotra 812701 2012 2 hrs 812048 Alternative 2: Sports in Your Pocket (Kellogg case) Rogers & Dame KEL084 2004 11p KEL086 Supplement: A Note on the Legal and Tax Implications of Founders’ Equity Splits (HBS note) Wasserman & Barley 809110 2011 15p -- II. Rationale for selection and sequencing the items in this module Section 1 and the HBP Core Curriculum Reading, Financing Entrepreneurial Ventures, introduce students to the key concepts and issues involved in financing entrepreneurial enterprises: bootstrapping, debt vs. equity, the choice between angels, VCs, and strategic investors, and the sequence of financing stages. Section 2 exhibits a range of entrepreneurial financing alternatives. Collectively the three cases look at a wide variety of those options, and focus (respectively) on: 1) venture debt; 2) the features of a capital pool company (CPC) program; and 3) angel investing. The third alternative selection, Working Capital Simulation: Managing Growth V2, depicts a situation familiar to many entrepreneurs: how does one best manage cash flow and growth when external funding sources are slim? This simulation challenges students to optimize the use of "internal" and external credit as they balance the desire for growth with the need for maintaining liquidity. Section 2 explores the question: what criteria do venture capitalists apply in evaluating a business plan, and what steps are covered in the process of analysis? The main recommendation, AudienceView, presents students with a view into the type of information available to a venture capitalist (VC) in the early stages of determining whether to pursue an investment opportunity. An intriguing supplementary reading for this segment is George Doriot and American Venture Capital, a case which provides students with historical background to the venture capital industry in the United States. Section 3 focuses on the calculation of what a business concept might be worth – its valuation. The main selection, HurryDate, illustrates a comprehensive valuation of a firm which, in this instance, specializes in the "speed dating" niche of the dating/entertainment industry. Either of the two alternative notes should provide students with a basic understanding of key issues in valuation, even if they haven’t yet studied valuation intensively in their finance courses. Section 4 examines the kinds of deals that entrepreneurs make with investors with a particular focus on term sheets. The section opens with the case Internet Securities, Inc., which contains a term sheet that can be reviewed to support analysis and decision making. The supplementary readings include a background note that offers students and entrepreneurs a framework to guide their term-sheet negotiations with venture capitalists; this is followed by a brief but substantive note on deal structure and terms. Section 5 includes cases that focus on how money will be distributed within the startup enterprise. In the main selection, Smartix, founding partners of a firm grapple with splitting equity amongst themselves while they are simultaneously engaged in other many internal and external negotiations with employees and investors. The first alternative, Negotiating Equity Splits at UpDown, provides a rich account of the relationship between three co-founders and of an early-stage negotiation regarding equity splits.
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