Entrepreneurial Finance

Cover Page......Page 1
Title Page......Page 4
Copyright Page......Page 7
Dedication Page......Page 8
Brief Contents......Page 10
Contents......Page 12
THE LIFE CYCLE APPROACH......Page 22
DISTINCTIVE FEATURES......Page 23
INTENDED AUDIENCE AND USE......Page 24
Instructor’s Manual with Test Bank......Page 25
Acknowledgments......Page 26
PART 1: Background and Environment......Page 30
CHAPTER 1: Introduction and Overview......Page 32
1.1: The Entrepreneurial Process......Page 34
1.2: Entrepreneurship Fundamentals......Page 35
1.3: Sources of Entrepreneurial Opportunities......Page 38
1.4: Principles of Entrepreneurial Finance......Page 43
1.5: Role of Entrepreneurial Finance......Page 48
1.6: The Successful Venture Life Cycle......Page 49
1.7: Financing Through the Venture Life Cycle......Page 52
1.8: Life Cycle Approach for Teaching Entrepreneurial Finance......Page 57
CHAPTER 2: From the Idea to the Business Plan......Page 66
2.1: Process for Identifying Business Opportunities......Page 68
2.2: To Be Successful, You Must Have a Sound Business Model......Page 69
2.3: Learn From the Best Practices of Successful Entrepreneurial Ventures......Page 71
2.4: Time-To-Market and Other Timing Implications......Page 74
2.5: Initial “Litmus Test” for Evaluating the Business Feasibility of an Idea......Page 75
2.6: Screening Venture Opportunities......Page 77
2.7: Key Elements of a Business Plan......Page 92
PRODUCTS......Page 104
MANAGEMENT TEAM......Page 105
CSC ASSESSMENT......Page 106
PART 2: Organizing and Operating the Venture......Page 108
CHAPTER 3: Organizing and Financing a NewVenture......Page 110
3.1: Progressing through the Venture Life Cycle......Page 111
3.2: Forms of Business Organization......Page 113
3.3: Choosing the Form of Organization: Tax and Other Considerations......Page 122
3.4: Intellectual Property......Page 125
3.5: Seed, Startup, and First-Round Financing Sources......Page 133
CHAPTER 4: Measuring Financial Performance......Page 148
4.1: Obtaining and Recording the Resources Necessary to Start and Build a New Venture......Page 150
4.2: Business Assets, Liabilities, and Owners’ Equity......Page 151
4.3: Sales, Expenses, and Profits......Page 155
4.4: Internal Operating Schedules......Page 157
4.5: Statement of Cash Flows......Page 160
4.6: Operating Breakeven Analyses......Page 162
APPENDIX A: NOPAT Breakeven: Revenues Needed to Cover Total Operating Costs......Page 176
EXERCISES/PROBLEMS......Page 178
CHAPTER 5: Evaluating Financial Performance......Page 180
5.1: Users of Financial Performance Measures by Life Cycle Stage......Page 181
5.2: Using Financial Ratios......Page 183
5.3: Cash Burn Rates and Liquidity Ratios......Page 185
5.4: Conversion Period Ratios......Page 190
5.5: Leverage Ratios......Page 195
5.6: Profitability and Efficiency Ratios......Page 198
5.7: Industry Comparable Ratio Analysis......Page 203
5.8: A Hitchhiker’s Guide to Financial Analysis......Page 204
PART 3: Planning for the Future......Page 216
CHAPTER 6: Financial Planning: Short Term and Long Term......Page 218
6.1: Financial Planning Throughout the Venture’s Life Cycle......Page 220
6.2: Surviving in the Short Run......Page 221
6.3: Short-Term Cash-Planning Tools......Page 223
6.4: Projected Monthly Financial Statements......Page 228
6.5: Cash Planning from a Projected Monthly Balance Sheet......Page 230
6.6: Beyond Survival: Systematic Forecasting......Page 231
6.7: Estimating Sustainable Sales Growth Rates......Page 238
6.8: Estimating Additional Financing Needed to Support Growth......Page 241
6.9: Percent-of-Sales Projected Financial Statements......Page 245
CHAPTER 7: Types and Costs of Financial Capital......Page 260
7.2: Financial Markets......Page 262
7.3: Determining the Cost of Debt Capital......Page 264
7.4: What Is Investment Risk?......Page 273
7.5: Estimating the Cost of Equity Capital......Page 279
7.6: Weighted Average Cost of Capital......Page 286
EXERCISES/PROBLEMS......Page 296
CHAPTER 8: Securities Law Considerations When Obtaining Venture Financing......Page 298
8.1: Review of Sources of External Venture Financing......Page 300
8.2: Overview of Federal and State Securities Laws......Page 302
8.3: Process for Determining Whether Securities Must Be Registered......Page 305
8.4: Registration of Securities under the Securities Act of 1933......Page 308
8.5: Security Exemptions from Registration under the 1933 Act......Page 311
8.6: Transaction Exemptions from Registration under the 1933 Act......Page 313
8.7: SEC’s Regulation D: Safe-Harbor Exemptions......Page 316
8.8: Regulation A Security Exemption......Page 320
APPENDIX A: Schedule A......Page 324
Regulation D’s “Preliminary Notes”......Page 328
Rule 501: Definitions and Terms Used in Regulation D......Page 329
Integration......Page 331
Information......Page 332
Solicitation......Page 333
Resale......Page 334
Rule 508: Reg D Insignificant Deviations Clause......Page 335
Rule 144 (§230.144)......Page 336
Rule 1001......Page 339
Regulation SB......Page 340
PART 4: Creating and Recognizing Venture Value......Page 342
CHAPTER 9: Valuing Early-Stage Ventures......Page 344
9.1: What Is a Venture Worth?......Page 345
9.2: Basic Mechanics of Valuation: Mixing Vision and Reality......Page 348
9.3: Required Versus Surplus Cash......Page 354
9.4: Developing the Projected Financial Statements for a DCF Valuation......Page 356
9.5: Just-in-Time Equity Valuation: Pseudo Dividends......Page 360
9.6: Accounting versus Equity Valuation Cash Flow......Page 367
CHAPTER 10: Venture Capital Valuation Methods......Page 390
10.1: Brief Review of Basic Cash Flow-Based Equity Valuations......Page 392
10.2: Basic Venture Capital Valuation Method......Page 393
10.3: Earnings Multipliers and Discounted Dividends......Page 397
10.4: Adjusting VCSCs for Multiple Rounds......Page 399
10.5: Adjusting VCSCs for Incentive Ownership......Page 401
10.6: Adjusting VCSCs for Payments to Senior Security Holders......Page 402
10.7: Introducing Scenarios to VCSCs......Page 404
PART 5: Structuring Financing for the Growing Venture......Page 434
CHAPTER 11: Professional Venture Capital......Page 436
11.1: Historical Characterization of Professional Venture Capital......Page 438
11.2: Professional Venture Investing Cycle: Overview......Page 442
11.3: Determining (Next) Fund Objectives and Policies......Page 443
11.4: Organizing the New Fund......Page 444
11.5: Soliciting Investments in the New Fund......Page 447
11.7: Conducting Due Diligence and Actively Investing......Page 448
11.9: Distributing Cash and Securities Proceeds......Page 456
CHAPTER 12: Other Financing Alternatives......Page 460
12.2: Commercial and Venture Bank Lending......Page 462
12.3: Understanding Why You May Not Get Debt Financing......Page 465
12.4: Credit Cards......Page 467
12.5: Small Business Administration Programs......Page 468
12.6: Other Government Financing Programs......Page 474
12.7: Receivables Lending and Factoring......Page 475
12.8: Debt, Debt Substitutes, and Direct Offerings Vendor Financing: Accounts Payable and Trade Notes......Page 477
Available Statewide: Economic Development Commission......Page 482
The Venture Capital Authority......Page 483
Colorado Film Incentives Cash Fund......Page 484
Planning and Feasibility Study Grants......Page 485
CHAPTER 13: Security Structures and Determining Enterprise Values......Page 486
13.2: Preferred Stock or Preferred Equity......Page 488
13.3: Convertible Debt......Page 495
13.4: Warrants and Options......Page 496
13.5: Other Concerns about Security Design......Page 501
13.6: Valuing Ventures with Complex Capital Structures: The Enterprise Method......Page 502
PART 6: Exit and Turn around Strategies......Page 522
CHAPTER 14: Harvesting the Business Venture Investment......Page 524
14.1: Venture Operating and Financial Decisions Revisited......Page 526
14.2: Planning an Exit Strategy......Page 527
14.3: Valuing the Equity or Valuing the Enterprise......Page 528
14.4: Systematic Liquidation......Page 532
14.5: Outright Sale......Page 533
14.6: Going Public......Page 540
CHAPTER 15: Financially Troubled Ventures: Turnaround Opportunities?......Page 558
15.2: The Troubled Venture and Financial Distress......Page 560
15.3: Resolving Financial Distress Situations......Page 565
15.4: Private Workouts and Liquidations......Page 573
15.5: Federal Bankruptcy Law......Page 575
PART 7: Capstone Cases......Page 592
CASE 1: Eco-Products, Inc.......Page 594
CASE 2: Coral Systems, Inc.......Page 624
CASE 3: Spatial Technology, Inc.......Page 650
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