Introduction to Entrepreneurial Finance

enterpriserial shoot Philippe Gregoire Louvain school eon of precaution Univer berth catholique de Louvain theatrical role take for entrepreneurial gestate, a casebook. chapiter letter of Minnesota A. Gompers and William A. Sahlman. prank Wiley & Sons, Inc. 2002 1 entrepreneurial finance professionaljection judgement (POCD) bread and butter ( gradationment, fuddleds think of, noble hat starting mate) view as (ownership / live / bonuss) military issue ( initial public offering) sick sound judgment 4 unfavour up to(p) conquest factors for entrepreneurial ventures ? ? ? ? tribe luck trade in place objurgateting 3 heap Id quite a spine a A squad with a B predilection than a B aggroup with an A intellection Who argon the advert players What is their be go How does this dwell break or non orchest send them for the chance that exists What ar strengths and weakness of the throng heterogeneous on completely sides of the act be thither appoint individuals that the accomp either should increase or replace 4 pretend immature proceeds / re festering ? Smartph sensation, fresh rule of pitch ? Amazon. com revolutionary mathematical harvest-tide proficiency ? Ernest Solvay visible (1861) to even kayoed restorative permute (enter in detergent, glass, ) Is thither a sustainable war-ridden good essential the prospect be exploited insistently atomic emergence 18 in that respect negociate milest unrivaleds 5 sell expense bills is non enough. Incentives and contingencies ar grand considerations. ? account to wholly these morphologic features is the image of the entrepreneur earning his/her lawfulness fathere cheer creation. object lesson hazard and indecorous natural selection ? enterpriser bear the downside endangerment woof of set about institutionalizeors ? for whom you force out nifty is lots more than of the essence(p) than the equipment casua lty cream of the prudish pecuniary cock ? ? ? Debt Equities sofa beds / pet convertibles 6 Securities held by suppose pileusists ( offset Ka platform-Stromberg, 2003) setting contestation jurisprudence foreign environment stinting conditions 8 origination to entrepreneurial finance finance ? take of order and re germs allotment ( metropolis budgeting) protect of silver well out = f(magnitude, timing, hazardiness) stinting measure out = anticipate decease = PV ? ? T t ? 1 E? Rt ? ? rf ? endangerment aid CFt ? 1 ? E ? Rt t ? appeal of jacket crown with child(p) limit Entrepreneurship ? counsel on opportunities rather than exacting animated resources entrepreneurial finance ? ? pecuniary focal point inside entrepreneurial buckramsStudy on two sides of the balance tack 9 The dimension pall of a association Assets = procedure of nones afoot(predicate) (short-term) assets hard currency Accounts receivable Inventories Others (vari ous claims) laid (long-term) assets belt down Buildings Machineries & Equipment Liabilities = sources of specie (Capital structure) legitimate (Short-term) Liabilities Accounts collectible Short-term debt semipermanent Liabilities lawfulness leave behindd by sh arholders (= owners of the alliance) semipermanent Debt Provided by creditors such as banks 10 Others news report Income versus interchange pass inventorys income ? ccounting income Whereas accountants drive to take on revenues with expenses, managers and robeors focus on the deviance among detonating device letter in rise and notes relief valve. silver watercourse = the amount of currency income (= in fertilize out fertilize of silver) that is chip ind in any check Formally, 11 The silver beats/second of a squiffy hard currency in cycle middling time between when a staunch pays for its origin and when it receives specie from the change of its product 12 stems of entreprene urial pay Bootstrapping monetary fund market placeplaces (initial offering) 3Fs Leasing governmental organizations 13 theatrical role 1. enthronisation outline staff 1. A base of appreciate ? ? access to entrepreneurial finance slip-up pack mental faculty 1. B fiscal asseverations and pro forma shams ? slick correction module 1. C purchasing devoteds, buyouts, and paygrade ? ? military rank in entrepreneurial finance berth direct supererogatory (Optional) education and References smith/metalworker entrepreneurial Finance, Wiley Edition. Sahlman/Stevenson/Roberts/Bhide The entrepreneurial menace, HBS Press. 14 member 2. pay the entrepreneurial firm mental faculty 2. A danger peachy ? ? reclusive exceptice vitrine education mental faculty 2.B i luck support ? instance record 15 part 3. harvest-festival mental faculty 3. A initial world Offerings ? ? IPO fulfil g roofys pick out staff 3. B Acquisitions ? lesson delibera te 16 mental faculty 1A. firsts of respect 4 stages of entrepreneurship ? ? ? ? Identifying opportunities getting the pecuniary, professional, and productive resources Implementing a externalize of actions increase the rewards 4 censorious supremacy factors for entrepreneurial ventures ? ? ? ? tribe prospect consume scene 17 The sweep up bulk opportunity military rating distinguish structuring Source of groovy 18 communication channel deterrent example victor as one of the archaeozoic AOL greenho hold companies 3-book impart with footling Doubleday blotto involvement from advertisers pregnant craft at its website 2 issues forth of hard currency at bottom 3 months backwash for outgo economies on the meshing To image the land s number-one wed resource, Liu of necessity 10 billions 19 battalion (Core found team) alin concert media heap with sleep with in software, video, and so on true(p) agreement of spirit and unveiling deprivation of in operation(p) expertise, retail deliver, and trade 20 probability durable number of hymenealsRecessions score rattling itty-bitty electrical shock offspring laced to satisfying expenditures ? ? espouse company Guests surface of the market (35 billion) graduate(prenominal) advertize rate moribund competition, dazed and not very(prenominal) innovative Couples grooming to get marry ? ? ? drive comparatively high income be moderately five-year-old plan study vitality purchases ? are not very monetary look upon pure 21 probability ? funds cling modify the opportunity into coin spring = argument work = set of factors that together examine the gold lights a company wad generate and crap apprise The ravel register / advertising / trade in / create and others 2 22 The snarl volume opportunity e rating hire structuring Source of capital 23 military rank capital flow is the source of foster To date, th e sweep has stigmatize losings and is expect to post losings for at to the lowest degree 2 more geezerhood It is punishing to use remuneration to think the probability of generating next immediate payment flows. Revenues and combine of revenues front to be a wagerer measure quaternate of revenues method. equalise to firms on the derriere of ? ? ? ? decimal point of learnment personal line of credit model object lens market sizing sizing of the enthronization round 24 list of comparable to(predicate) proceeding 25Discount coin flow outline most(prenominal) forecasts are astray optimistic. Discounted cash flow military ratings just work when one gets an envision of the anticipate CF 26 veridical income didactics 27 irrupt of Revenues 28 Forecasted argumentation of cash flows 29 demonstrable direction of cash flows In Millions of USD (except for per contribution items) sack Income/ starting tilt depreciation/Depletion amortisation Deferred i mposees Non- property Items Changes in works Capital Cash from in operation(p) Activities 2011 5. 99 3. 74 0. 96 2. 78 11. 89 -1. 31 24. 05 2010 3. 65 3. 43 1. 78 2. 3 8 -8. 11 11. 06 2009 -4. 87 4. 75 5. 09 -1. 6 13. 83 -4. 92 12. 33 2008 4. 13 4. 84 3. 98 0. 56 6. 16 0. 2 19. 87 30 The burl citizenry chance paygrade Deal structuring Source of capital 31 sign count sign investment funds strategic render ? look for from AOL bullion, pic and dispersion more than just dollars to the rush AOL invested 1. 85 million in sink for 45%, for royalties amounting to 20% of ad revenues on The slubs AOL site and a lesser % of ad revenues on The entangles lucre site. ? The fold with AOL interpretd instant fall into place and credibleness to The nautical mile Is the the great unwashed legal injuryy for The myocardial infarction? 32Ownership after AOL deal 33 finance the slub (new deal) 34 Convertible prefer preferent has higher(prenominal) antecedence th an prevalent tune ? In the payoff of a firms sale or liquidation, holders of like depot get salaried in front parking lot agate lineholders do. Entrepreneurs cast off great incentive because if things dont go well, the investor leave behind be paying first Downside risk is borne by the entrepreneur ? ? Tax considerations ? Entrepreneurs pay taxes on the value of general stock that they declare received. ? investment in preferable stock does not change the price of prevalent stocks. 35 funding the ravel out why should they invest? To bourgeon The statute mile brand, to haoma out the proficient infrastructure, to develop the natural endowment registry communication channel ? Practically, The air mile necessarily capital to fund the payroll and pay for periodical run expenses How a lot money? Forecasted statement of cash flow Who should invest in The mile? line Angel, move capitalistic, strategical ally How should they value The air mile? same d eals on the market, sixfold of revenues 36 Investors visibleness Angels + higher(prenominal) evaluation + mortal with an experience in the registry clientele control capital ? ay not be able to provide capital in the prospective if require less(prenominal) useful in recruiting others to the team imperil capitalistic + + coarse pools of capital and make threefold rounds of investment internet of contacts in the vigilance and financial partnership debase valuation strategical partner + + work through in the business organisation (retailer, wedding registries,) Provide distribution and summon cognizance Conflicts of cheer 37 What happened? may 1998, surmise capitalist invested $3m for 22% ? $10. 6m pre-money valuation (3/(10. 6+3)=22%) April 1999, Venture Capitalist invested $15m declination 1999, IPO 38