Case Western Reserve University, Weatherhead School of Management
BAFI/ENTP 444 – Entrepreneurial Finance
Spring 2008
Professor:
Scott A. Fine
Contact Info:
WSOM Office:
WSOM Phone:
Cell Phone:
Home Phone:
E-Mail:
366 Peter B. Lewis Building
216.368.0909
216.533.3590 (voicemail available 24 hrs.)
216.751.7599 (8:00 am – 11:00 pm)
scott.fine@case.edu
Class Meeting Time: 8:15 p.m. – 10:15 p.m. Monday
Classroom:
Peter B. Lewis Building, Room 401
Office Hours:
By appointment.
COURSE OBJECTIVE AND TEACHING GOALS
The objective of this course is to introduce students to the issues of financial management
and capital formation in new ventures. The course will address issues of estimation of
cash requirements, development of pro forma financial plans, cash flow management, firm
and project valuation and the process and tools used in raising debt and equity financing.
While it is being taught by a professor in the Banking and Finance Department, the
emphasis is on the entrepreneur and how he/she can assess financial needs and develop
a sensible plan for acquiring financial resources in a manner that is consistent with their
financial needs and other strategic goals.
GRADING
Your grade will be based on the following:
Problem Sets
Case Write-ups
Final Exam
Class Participation
20%
30
35
15
(Four, each worth 5%)
(Three, each worth 10%)
(I will focus on both quality and quantity)
Problem Sets (20%)
During the semester there will be four problem sets. These will be due on the day
assigned. Late assignments will not be accepted. Due dates are listed on the schedule.
You may work in small groups (two to three people) if you choose to. However, you will
get more out of these assignments if you complete them on your own.
Case write-ups (30%)
Case write-ups are required for several of the designated cases, and are due at the
beginning of the class in which the assigned case will be discussed. My strong preference
is for you to work in groups not be more than 3 – 4 people and that you keep your group
consistent throughout the semester. Since preparation and the ultimate write-up will be a
group effort, only one write-up should be submitted for each group. Please ensure that
each team member has a copy of the write-up that can be easily referred to during the
class discussion, including any exhibits and/or analyses.
The case write-up should be in the form of a business memo to the CEO of the particular
company. CEO’s are busy people so you should be concise and avoid reiterating the
facts of the case. I am interested in clear analysis of the situation and a well-reasoned
recommendation. A good write-up will include an analysis of the situation, one or more
proposed solutions, including an analysis of why they’re good solutions, and a specific,
recommended course of action. The write-up should not exceed ten pages in length,
including exhibits.
Case write-ups should be typed and stapled. Exhibits should be clearly marked, and any
assumptions you have made should be crystal clear. I am a professor, not a clairvoyant;
as a result, I cannot decipher your logic out of thin air. Brevity is preferred; avoid
extraneous material. All written assignments should be done to the same standards as a
real work setting. In all cases, please proofread your work to check for grammar, spelling,
etc.
Case assignments must be handed in at the beginning of the class session in which we
will discuss the case. No late papers will be accepted.
Final Exam (35%)
The Final Exam will be handed out no later than the last day of classes and will be due in
my office on Monday, April 28th at 5 p.m. The final is an individual assignment and
students are expected to work independently.
Class Participation (15%)
As mentioned above, I will focus on quantity and quality. Because there is no textbook
and much of our learning will take place in the classroom, it is important for you to be
there. That’s the quantity component; I will be taking attendance every session. The
quality component has to do with your contribution during our time together. You should
ask questions in addition to giving answers. Both are important elements of the learning
process.
IMPORTANT NOTE REGARDING ACADEMIC INTEGRITY
All students in this course are expected to adhere to university standards of academic
integrity. Cheating, plagiarism, and other forms of academic dishonesty will not be
tolerated in this course. This includes, but is not limited to, consulting with another person
during an exam, turning in written work that was prepared by someone other than you,
and making minor modifications to the work of someone else and turning it in as your own.
Ignorance will not be permitted as an excuse. If you are not sure whether something you
plan to submit would be considered either cheating or plagiarism, it is your responsibility to
ask for clarification. Either ask me about it or consult credible sources of information on
the subject. Two useful internet sites are:
http://www.indiana.edu/~wts/pamphlets/plagiarism.shtml and
http://www.unc.edu/depts/wcweb/handouts/apa.html.
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Please remember that you have agreed to Standards Regarding Academic Integrity (a
copy of which can be found at http://weatherhead.case.edu/pdpao/policy/policyhome.html)
which outlines your responsibility in greater detail.
COURSE SCHEDULE AND ASSIGNMENTS
All of the materials for the class are articles and case studies, i.e., there is no assigned
textbook. In order to avoid excessive bookstore charges, I have chosen to make the
materials available directly. Tedda Nathan, the Banking and Finance Department
Administrator, has the course packet. The cost, $70.00, can either be paid via check
made payable to “Case” or cash. If you need to make arrangements with her outside of
normal business hours, please email her at tedda.nathan@case.edu or call her at
216.368.2040.
Monday January 14th
Introduction to the Course
Overview of U.S. Entrepreneurial Finance System
Readings:
“Asymmetric Information: Market Failures, Market
Distortions and Market Solutions”
“New Venture Financing”
Business Plans and Deals
Readings:
“Some Thoughts on Business Plans”
“Note on the Financial Perspective: What Should
Entrepreneurs Know?”
Monday January 21st
No class; MLK Day
Monday January 28th
Forecasting Financial Statements
Reading:
“The Questions Every Entrepreneur Must Answer”
“Financial Planning – Projected Financial Statements”
Prepare In Class Exercises
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Monday February 4th
Bootstrapping and Seed Capital
Assignment #1 Due: Financial Forecasting
Readings:
“Everything You (Don’t) Want to Know About Raising
Capital”
“Bootstrap Finance: The Art of Start-Ups”
“New Venture Financing”
Case:
Monday February 11th
Case:
“R&R”
Bootstrapping and Seed Capital
Case Write-up #1 Due: “InterZine Productions, Inc.”
Valuation
Readings:
“Note on Valuing Private Businesses”
“A Note on Valuation in Private Equity Settings”
Monday February 18th
Valuation
Prepare In Class Exercises (to be distributed)
Monday February 25th
Valuation
“Assignment #2 Due: Valuation Exercise
Business Angels
Readings:
“Angel Investing”
“Angel Investing: Innovation Within the Establishment”
Monday March 3rd
Case write-up #2 Due: “Honest Tea”
Venture Capital
Readings:
“What Do Venture Capitalists Do?”
“Capital Market Myopia”
“A Note on Private Equity Partnership Agreements”
“East vs. West”
“Did You Check With Counsel? Attorneys’ Growing Role
in VC”
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Monday March 10th
SPRING BREAK!!!
Monday March 17th
Venture Capital
“A Note on Private Equity Securities”
“Note on Anti-dilution Provisions: Typology and a
Numerical Example”
Prepare In Class Exercises (to be distributed)
Monday March 24th
Venture Capital
“Term Sheet for Trendsetter.com, Inc.”
Assignment #3 Due: Which offer should Trendsetter
accept (one page, including rationale)? Please see
Questions for Consideration for more details.
Bank Credit
Readings:
“Note on Acquiring Bank Credit”
“Note on Bank Loans”
Monday March 31st
Venture Capital
Case Write-up #3: Endeca (A)
Strategic Alliances
Reading:
Monday April 7th
Readings:
“A Note on Strategic Alliances”
Going Public
“A Note on the Initial Public Offering Process”
“So You Want to Go Public?”
“Preparing a Company for an Initial Public Offering”
Prepare In Class Exercises (to be distributed)
Monday April 14th
Case:
Going Public
“Teleswitch (A)”
Assignment #4: Evaluate the company’s financial
forecast and the IPO valuation in less than two pages.
You can reference exhibits. If you would like a chance
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to improve your grade on one case by at most one
grade, you can elect to write this case up. You will not
be penalized by doing so (i.e., if you get a lower grade
on the case, you will not be marked down). If you
choose to do this, your write-up will be evaluated as a
case and an assignment separately. The case will be
held to a higher standard.
Monday April 21st
Course Wrap-up and Review Session (final distributed
at end of class and due Monday, April 28th at 5 PM)
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Discussion Questions for Cases
R&R
1. How did Bob Reis acquire the resources he needed and what were the critical
decisions he made?
2. How much money did Bob Reis make on the deal?
InterZine Productions, Inc.
What methods of “bootstrapping” did Henley employ?
What were the keys to the company’s early success?
What were the benefits of the AOL deal? Was it a good deal for InterZine?
Where should Henley turn to for his next round of financing? How much? Why?
Think creatively about his options.
5. Analyze InterZine’s financial projections. Are they optimistic or conservative? What
does their cash flow position look like? At a very high level, would you use a
different forecast? (Again, this is NOT a forecasting exercise. I’m just trying to get
you to look critically at the forecast.)
6. How much financing will they need to reach positive cash flow based on your
assessment of their outlook?
7. What is InterZine’s worth (value) at the end of the case?
1.
2.
3.
4.
Honest Tea
1. Why did the owners structure the capital raises in the manner in which they did?
2. Calculate the range of owners’ equity value in Honest Tea based on different
outcomes, i.e., valuations on exit.
3. Analyze the company’s current strategic situation and strategic alternatives.
4. Should Honest Tea continue to be a regional player, sell to a national player or
attempt to go national themselves?
5. Given your answer to the previous question, who should they go with for the next
round? Why?
Trendsetter, Inc.
1. Evaluate each term sheet under different valuations. In other words, calculate the
payout to the entrepreneurs vs. the VC firms under each term sheet. I will provide a
template for you to complete.
2. Which is more attractive to the entrepreneurs based on all of the terms in the term
sheet? You should prepare a comparative chart that lists each significant term (e.g.,
anti-dilution), with three columns: (i) a brief description of the term in the Alpha term
sheet, (ii) a brief description of the term in the Mega term sheet, and (iii) the
denotation of which term sheet is better for the founders.
Endeca Technologies (A)
1. Does Endeca look like a good investment at this time?
2. What are the motivations for BVP and Venrock? Ampersand?
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3. How has Papp handled the C round? Would you do anything different?
4. As the chief representative for Endeca’s shareholders, which deal would you
recommend to the Board? Why?
5. Provide a detailed discussion of the pros and cons of the two term sheets. Which is
more favorable to Endeca? Which provides them with a higher probability of survival
and success? You should prepare a comparison along similar lines to what we
prepared in the Trendsetter case.
Teleswitch (A)
1. Evaluate Teleswitch’s decision to go public, their choice of underwriter and their
management of the IPO process to date.
2. Assess the valuation approach used by each of the prospective underwriters. Be
specific with respect to the method and metric employed, their specific valuation any
key assumptions and/or contingencies in executing the offering. What value would
you have put on the company in November 1996?
3. What should Goodman do at this junction with respect to the choice of an underwriter
and the company’s financing options?
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