FIE457 Entrepreneurial Finance

• Topics

  The course is organized into three parts relevant to entrepreneurial finance.

  Part 1 - Modelling and valuation

  The first part focuses on modelling and valuation of new ventures, typically characterized by high growth potential and uncertainty. In this setting, a lack of historical financial data and relevant comparable firms represent common challenges. This course will discuss alternative approaches to overcome these challenges. Relevant topics are financial modelling, the discounted cash flows (DCF) valuation framework, the venture capital (VC) method, decision trees and (real) option valuation.

  Part 2 - Funding sources and deal structure

  The second part focuses on funding sources and the structure of financing arrangements between investors and entrepreneurs.

  • Students will become familiar with cap tables and the key terms and conditions found in term sheets and investment agreements.
  • We will discuss alternative funding sources and deal structures, including convertible preferred stock, and their implication for the allocation of control- and value.
  • We will discuss entrepreneurs’ and investors’ incentives and motivations and devices for dealing with a potential conflict of interest between entrepreneurs and investors, such as staged financing, liquidation rights and anti-dilution clauses.

  Part 3 - Exit strategies

  The third part focuses on strategies for exiting/liquidating investments. Regarding exit options, we mainly focus on initial public offerings (IPOs) and trade sales. Relevant topics are IPO underpricing, the "hotness" of IPO markets and deal negotiation.

• Learning outcome

  Upon successful completion of the course students will be able to:

  Knowledge

  • Describe various sources of funding in the market for entrepreneurial finance and discuss their relevance.
  • Highlight challenges central to assessing the value of new business ventures.
  • Understand the alternative valuation approaches covered in the course.
  • Explain commonly applied contractual arrangements to minimize risks and maximize firm outcomes in new venture financing.
  • Explain central issues and considerations that pertain to different types of exit strategies.

  Skills

  • Assess the relevance of different valuation approaches in new venture cases and apply appropriate methods to model and value new business ventures.
  • Assess the implication of different deal structures for allocation of control and value to investors and entrepreneurs.
  • Assess how different financing arrangements serve to minimize risks and maximize firm outcomes in new venture financing.

  General competencies

  On a more general level, the learning activities of this course will offer opportunities for students to use and improve their competencies related to problem solving, team work, presenting in front of a large group of people, discussion and self-assessment.

• Teaching

  The course is case-based and will be taught in-person. The course is based on active participation by students and the main teaching format is class discussions supported by lectures. Students are expected to prepare for class discussions by working on assigned cases. As part of class discussions, students will present cases to the class.

  The learning activities in this course will require students to work within groups. Groups, of up to four students, will be formed at the beginning of the semester. Learning activities include case studies, on cases to be selected by the instructor. On selected cases, groups will be required to write and hand in written reports.

  Classes will be carried out in English and hand-ins can only be written in English.

• Recommended prerequisites

  Previous knowledge and experience in investment (including financial derivatives) is recommended.

• Required prerequisites

  Students taking this course are required to have taken a master-level course in Corporate Finance (FIE402) or equivalent courses at other institutions.

• Credit reduction due to overlap

  None

• Compulsory Activity

  Attendance is mandatory. Students are expected to attend every class in-person unless the permission has been given to miss a class for a valid reason (when relevant, documentation will be requested). This course builds on active participation by students during classes and in-class participation is a component of overall assessment (see assessment).

  Mandatory case study reports (group work). For three cases selected by the instructor, student groups are required to conduct case studies and submit written case-study reports within given dates. The first report serves as (compulsory course approval) preparation for the two additional case study reports on which assessment is based (see assessment). The completion of course approval activity is only valid for the semester in which it is completed.

  Reflection note. Students will submit a brief note, in which they reflect upon their learning and development over the course of the semester.

  The course will be closed for registration after the 3rd class session.

• Assessment

  The grade is based on a portfolio consisting of participation in case discussions, two written case-study reports and a reflection note. Each student receives an individual grade based on their entire portfolio.

  Case studies are carried out in groups (of up to four students), while participation in case discussions and the reflection note are individual efforts. Evaluation of participation in discussions will reflect the quality and intensity of a student’s participation and there is no way to make up for a missed class.

  As the assessment in this course is based on a combination of written and oral elements, it is by nature non-reproducible. Because of this, awarded grades may not be appealed.

  Given the nature of a case-based course, students are not allowed to retake the course unless they fail the course.

  Classes will be carried out in English and hand-ins can only be written in English.

• Grading Scale

  A - F.

• Computer tools

  Spreadsheets.

• Literature

  "Cases" will be available for students to purchase via a course webpage.

  No textbook is required. The following "book" is recommended (not required) as a guide for topics covered in this course: Entrepreneurial Finance - Strategy, Valuation & Deal structure (by Smith, Smith & Bliss).