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.