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For complaints, use another form. Study lib. Upload document Create flashcards. Documents Last activity. Flashcards Last activity. Add to Add to collection s Add to saved. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
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Copyright Cengage Learning. Chris Leach, Ronald W. No part of this work covered by the copyright herein may be reproduced, transmitted, stored, or used in any form or by any means graphic, electronic, or mechanical, including but not limited to photocopying, recording, scanning, digitizing, taping, web distribution, information networks, or information storage and retrieval systems, except as permitted under Section or of the United States Copyright Act, without the prior written permission of the publisher.
Content Project Manager: Tamborah Moore For permission to use material from this text or product, submit all requests online at www. Windows is a registered trademark of the Microsoft Corporation used herein under license. For your course and learning solutions, visit www. Licensed to: iChapters User x Contents 5. Does the Past Matter? Licensed to: iChapters User Contents The challenge of envisioning a new product or service, infecting others with entrepreneurial zeal, and bringing a product to market can be one of the great learning experiences in life.
In the interim, the venture must manage its financial resources, communicate effectively with investors and partners, and create the harvest value expected by investors. We believe that, while much of traditional financial analysis may not be ideally suited to the venture context, there is great value in applying venture adaptations. This entrepreneurial finance text introduces the theories, knowledge, and financial tools an entrepreneur needs to start, build, and harvest a successful venture.
The successful entrepreneur must know how and where to obtain the financing necessary to launch and develop the venture. Successful ventures typically begin with an initial development stage where the entrepreneurial team generates ideas and assesses the associated business opportunities.
Most entrepreneurs realize that a business plan can greatly improve the chance that an idea will become a commercially viable product or service. Startup stage ventures focus on the formulation of a business model and plan. As marketing and selling products and services begins, survival stage ventures often refocus or restructure. Rapid growth stage ventures increase their momentum, and begin to demonstrate value creation.
Maturity stage ventures typically look for ways to harvest the value created and provide a return to their investors. Each stage in the life cycle requires a specific understanding of the financial management tools and techniques, potential investors and their mindset, and the financial institutions supporting that venture stage. Cash burn rates are very high and additional sources of financing are usually limited, making it critical for the successful venture to project and accommodate necessary operating costs.
The need to measure and adjust investment in working capital and property, plant, and equipment is evident. The process of anticipating and xvii Copyright Cengage Learning. Licensed to: iChapters User xviii Preface accommodating costs and asset investments begins with the analysis of historical financial experience and then projects future financial positions using projected financial statements or their proxies.
Successful ventures emerging from their survival stages can concentrate more on value creation and calibration. Consequently, our financial management emphases for this stage are valuation tools and techniques. Equally important as sound financial management practices is the need for the entrepreneur to understand the types and sources of financial capital and the related investment processes.
Business angels and venture capitalists are important financing sources during the startup stage. First-round financing from business operations, venture capitalists, suppliers, customers, and commercial banks may be initiated during the survival stage.
The rapid growth stage involves second-round, mezzanine, and liquidity stage financing from business operations, suppliers, customers, commercial banks, and investment bankers. Once a venture enters its maturity stage, seasoned financing replaces venture financing. Seasoned financing takes the form of cash flow from business operations, bank loans, and stocks and bonds issued with the assistance of investment bankers or others.
The successful entrepreneur must understand the legal environment regulating financial relationships between the venture, investors, and financial institutions including venture capital funds and investment banks. We cover the basic securities laws and regulatory agencies, particularly the Securities and Exchange Commission SEC , relevant to the entrepreneur when considering how to obtain financial capital at each stage. To summarize, we take a comprehensive three-pronged stage-sensitive approach to entrepreneurial finance.
It provides a unified example of traditional pre-money and post-money valuations and the shortcuts employed by many venture capitalists. Professional VCs: Chapter 11 Professional Venture Capital explores the historical development of venture capital and describes the professional venture investing cycle from determining the next fund objectives and policies to distributing cash and securities proceeds to investors.
Harvest: Chapter 14 Harvesting the Business Venture Investment considers a wide range of venture harvest strategies including private sales to outsiders, insiders, and family , transfers of assets, buyouts, and initial public offerings. For MBAs, the course can easily be conducted in two ways.
In the first, what we term the life cycle approach, we recommend the addition of illustrative cases, each at different life cycle stages. Recently, entrepreneurial finance cases have been available individually from the usual providers and in collected form in entrepreneurial case books.
The second, or what we term the venture capital approach, emphasizes the money management aspects of financing entrepreneurial ventures. For this approach, we recommend supplementing the text treatments with venture capital cases available individually or in collected case books and journal articles covering private equity venture capital and initial public offerings investment banking.
For an abbreviated mini-semester course or compressed executive MBA, we recommend concentrating on the text and using our capstone cases as focal points for integrating the venture financing perspective. Most academic business programs require students to take basic background courses in both accounting and finance prior to upper division courses such as entrepreneurial finance. Chapters 9, 10, and 13 present a rigorous and conceptually advanced approach to financial valuation.
Our experience is that these chapters provide the greatest intellectual challenge and require relatively sophisticated spreadsheet skills. The fourth edition of this textbook has been written to support two different approaches to the undergraduate entrepreneurial finance course. The more rigorous approach challenges undergraduate students by covering all 15 chapters including all valuation materials and has a decision-making focus.
An alternative approach is to teach a more descriptive or conceptual course. For those preferring this latter approach, we recommend that Part 4 Chapters 9 and 10 and Chapter 13 from Part 5 be omitted or covered in a descriptive no modeling or calculations manner. Regarding the accounting and basic finance background material in Chapters 4 and 5, we provide it for student and instructor convenience when the material has not been covered in prerequisite courses or in instances when a review of the materials is warranted.
The remainder of the text can be used without explicit coverage of this review material. Additionally, for some adopters, it may be advantageous to alter the sequencing and coverage of the securities law and investment banking material, depending on student backgrounds and other course offerings. Discussion of the — financial crisis and resulting entrepreneurial venture opportunities was added.
Chapter 3 Organizing and Financing a New Venture includes updated personal and corporate income tax information and reorganized problems to follow chapter topics. Chapter 5 Evaluating Financial Performance was edited to improve the clarity of the cash burn discussion. We added new financial ratio problems and restructured the mini-case. Chapter 6 Financial Planning: Short Term and Long Term includes addition of problem materials on sustainable sales growth rates and additional funds needed.
The Pharma Biotech mini-case was restructured. Chapter 9 Valuing Early-Stage Ventures was reorganized consolidating the multiple approaches to free cash flow valuation methods.
Some of the materials were moved into a Learning Supplement. An alternative enterprise valuation method is now presented as Learning Supplement 13A. We added a new case for a company that produces and sells environmentally sound food service products from renewable resources.
The related early-stage financing decisions involve: a raising funds through a private placement memorandum, and b a proposed private placement with an investment firm utilizing a term sheet. Excerpts from the private placement memorandum and the term sheet are provided for student review and analysis. Licensed to: iChapters User Preface xxi PowerPoint Lecture Slides Created by the text authors, the PowerPoint slides present a point-by-point lecture outline, including graphics and equations, for instructors to use in the classroom.
They are available on the text Web site for instructors only. Excel Solutions Excel Solutions to end-of-chapter problems requiring Excel are provided for instructors on the text Web site. Text Web Site The text Web site at www. Acknowledgments During the several years we spent developing and delivering this material, we benefited from interactions with colleagues, students, entrepreneurs, and venture capitalists.
We thank the numerous sections of students who became the sounding board for our presentation of this material. We also thank the members of the Venture Capital Association of Colorado who opened their professional lives and venture capital conferences to our students.
Additionally, we have benefited from detailed valuable comments and input by Craig Wright and Michael Meresman. We recognize the valuable contributions of our editorial staff at Cengage Learning, including Michael Mercier, our original acquisitions editor who believed in our book enough to publish it; Mike Reynolds, our current Cengage Learning executive editor, and Adele Scholtz our developmental editor. We thank Andre Gygax, Hardjo Koerniadi, and Cody Engle who provided several important corrections to previous materials.
Hudson, St. Ruscher, University of Arizona Steven R. Chris Leach Ronald W. Melicher Copyright Cengage Learning.
He received a finance Ph. His teaching experience includes courses for undergraduates, MBAs, Ph. During his transition to the University of Colorado, he was the chairman of a New Mexico startup and later, as an investor and advisor, participated in a late s Silicon Valley startup that subsequently merged into a public company.
Entrepreneurial Finance, 4th Edition
This edition clearly focuses on sound financial management practices, showing students how and where to obtain the financial capital necessary to run and grow a venture. This edition explores the most important financial issues that entrepreneurs face, particularly the stages of financing, business cash flow models, and strategic positioning of the early-stage company. Students gain the knowledge to interact successfully with financial institutions and the regulatory agencies that are central to financing ventures as they grow and, ultimately, look for liquidity for their investors. A new capstone case and updated mini-cases, as well as engaging entrepreneurial ventures lifted from the latest headlines keep students involved and learning as they examine concepts such as venture capital funds, institutional investors, and strategic alliances. This edition also provides your student with a thorough understanding of the role of business angels, licensing agreements, and exit strategies. Chris Leach is the W. Leach received his Ph.
In doing so we hope to convey to you the importance of understanding and applying entrepreneurial finance methods and tools to help ensure an entrepreneurial venture is successful. We present a life cycle approach to the teaching of entrepreneurial finance where we cover venture operating and financial decisions faced by the entrepreneur as a venture progresses from an idea through to harvesting the venture. Who is an Entrepreneur? Basic Definitions C. Entrepreneurial Traits or Characteristics D. Societal Changes B. Demographic Changes C.
Entrepreneurial Finance, 4th ed.