Entrepreneurial Finance - Elective Module
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Prof. Christopher Ihl
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Dr. Hannes W. Lampe
Credit Points: 6 (2+4)
Semester: 1
Lecturers: Prof. Christoph Ihl, Dr. Hannes W. Lampe
Examination Form: Project work
Examination Scale: Presentations & case studies
The module Entrepreneurial Finance is divided into two courses:
Entrepreneurial Finance Lecture
Entrepreneurial Finance Seminar
This module examines the elements of entrepreneurial finance, focusing on technology-based start-up ventures and the early stages of company development. The course addresses key questions relevant to both startup and corporate entrepreneurs: How much money can and should be raised? When should it be raised and from whom? What is a reasonable valuation of the company? How should funding, employment contracts and exit decisions be structured? This course will focus on the finance principles related to the risk & return of venture capital, the valuation of high growth companies, the capital structure specific to venture capital-backed companies, and investment decisions under uncertainty. Three main topics will be covered:
(1) New business opportunity valuation: Most time will be devoted to the understanding and application of tools to valuate early stage business opportunities and high-growth companies versus mature companies. Standard tools for financial and liquidity planning as well as discounted cash flow valuation will be applied to startup situations. Furthermore, the venture capital method, analysis of comparables and the real options approach to valuation are introduced.
(2) Financing and employment contracts: We will discuss the main sources of financing that entrepreneurs can choose from. Particular emphasis will be put on venture capital funds and their fund raising process. The design of financial contracts will be analyzed in terms of addressing information and incentive problems in uncertain environments. Employment contracts will be motivated as a compensation device to attract and retain key employees.
(3) Growth and exit strategies: We will discuss entrepreneurs’ option to grow or exit. Liquidity events are considered such as initial public offering, sale or merger as compared to independent growth as a private company. We also examine later stage options such as mezzanine financing and buy-outs and the specifics of international growth.
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Entrepreneurial finance is at the center of a clash of two very distant worlds: that of entrepreneurship and that of finance. Finance is disciplined, based on numbers and logical thinking and looking for proven track records. Entrepreneurship is messy, based on intuition and experimentation and treading off the beaten track. Entrepreneurial finance is the provision of funding to young, innovative, growth-oriented companies. Entrepreneurial companies are young, typically less than ten years old, and introduce innovative products or business models. The younger are called “startups,” and are typically less than five years old.
There is a variety of investors who can finance entrepreneurial companies: family and friends, business angels, accelerators and incubators, crowdfunding platforms, venture capital firms, corporate investors, etc. The course provides a thorough understanding of what motivates them, of the way they invest, and of what support they can provide to a company at what stage in the fundraising cycle. The course addresses the following key questions: How much money can and should be raised? When should it be raised and from whom? What is a reasonable valuation of the company? How should funding, employment contracts and exit decisions be structured?
Learning Outcomes:
Upon completion of this course module, students will be able to:
Prepare a financial plan for a new venture or business opportunity
Engage in financial valuation for new ventures and business opportunities
Understand the design of financial contracts
Analyze and evaluate growth and exit strategies
Content:
Introduction: Evaluating Venture Opportunities
Financial Planning
Ownership and Returns
Valuation Methods
Term Sheets
Structuring Deals
Corporate Governance
Staged Financing
Debt Financing
Exits
Early Stage & Venture Capital Investors
Ecosystems
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The course provides an understanding of the whole fundraising cycle, from the moment the entrepreneur conceived his/her idea to the moment investors exit the company and move on. We examine the entrepreneur's signalling to investors of the qualities of the venture, the investors' evaluation of the venture, the various dimensions of contracting (cash flow rights, control rights, compensation, and other clauses), the negotiation of a deal and the provision of corporate governance, the process of staged financing, the financing through debt, and the exit process though liquidity events such as initial public offering, sale or merger.
Learning Outcomes:
This course module can prepare students for the following career paths:
Startup founder or early employee in a startup
Venture capital investing
Strategy & valuation consulting
Corporate finance
Content:
Introduction: Evaluating Venture Opportunities
Financial Planning
Ownership and Returns
Valuation Methods
Term Sheets
Structuring Deals
Corporate Governance
Staged Financing
Debt Financing
Exits
Early Stage & Venture Capital Investors
Ecosystems