CISB 6224
VENTURE FINANCING
FALL 2009
William S. Bartles
Mondays
COURSE OBJECTIVE:
The topic of entrepreneurship is an exciting and important one. For those students
of management who have decided to pursue a career as an entrepreneur, this
course will provide some of the knowledge and skills required. For those who may
be undecided, or perhaps committed to a more "traditional" career, many of the
ideas in this course will have value in more structured settings. Executives are
often called upon to deal with, and even to manage, entrepreneurs. Friends and
acquaintances may contemplate starting new ventures and want advice and/or
financial support.
Most importantly, it is felt that all students of management have a great deal to
learn from the study of entrepreneurship. The process of identifying and pursuing
opportunity, the hallmark of the entrepreneur, has become increasingly important
in restoring the competitive position of many U.S. industries in the international
marketplace.
TOPICS COVERED:
1. The Entrepreneurial Company – An Example
2. Ideas to Business Plan
3. Organizing and Financing a New Venture
4. Measuring Financial Performance
5. Evaluating Financial Performance
6. Financial Planning: Long-Term and Short-Term
7. Structure of Venture Capital Industry
8. Securities Law and Private Financing
9. Types and Costs of Financial Capital
10. Intellectual Property and New Venture Formation
11. The Business Plan – One Last Look
COURSE MATERIAL:
TEXT: ENTREPRENEURIAL FINANCE - 3rd Edition - Leach and Melicher
CASE PACKET: Available on Study. Net
Almost every session requires analysis and application of concepts to one or more
case situations. The concepts will be covered by the chapters in the textbook.
The cases are a central vehicle for learning. They are one of the main
objectives of each session and the course. Remember also that in a case
course "ownership" of the discussion falls to the students: it is of crucial
importance, therefore, that each student comes prepared to contribute
substantively to the discussion.
CLASS CONTENT:
1. Team Case Presentation
The class will be divided into teams of 2 to 3 students. Each team will be required
to present one of the assigned cases to the class. This presentation should last
approximately 1/2 hour.
2. Instructor Led Discussion of Case and Summary of Major Points
This will follow the team presentation and will foster further discussion of the case
and will lead to a series of conclusions.
3. Instructor Lecture on Topic(s) Covered in the Case and Chapter Reading
The lecture will cover the subject matter of the case and chapter reading. The
lecture will be highlighted with further examples and practical solutions.
4. Written Case Analysis
Each student will be required to submit a written analysis of one assigned case in
each module. The maximum length of an analysis is five typed pages.
5. Pop Quizzes
5. Guest Lecturers
The instructor has invited guest lecturers to address the class on the following
subjects:
Venture Capitalists
Private Offerings and Regulation D
CLASS TIMETABLE:
25 Minutes Instructor Lecture on Topic of First Chapter of Reading
30 Minutes Team Presentation - Case #1
15 Minutes Instructor Led Discussion and Summary of Case
20 Minutes
Break
25 Minutes Instructor Lecture on Topic of Second Chapter of Reading
30 Minutes Team Presentation - Case #2
15 Minutes Instructor Led Discussion and Summary of Case
15 Minutes Possible Quiz
EVALUATION:
The grade for each module will be based upon the following:
Team Presentation
Written Case
Quizzes
Participation
Total
30%
30%
30%
10%
100%
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OFFICE HOURS:
My office hours will be the hour prior to the class session. I will be available at
other times by appointment or phone.
OFFICE:
PHONE:
139 Fincher Building
214 - 768 - 3689 (Caruth Institute)
972 - 548 - 4942 (Home)
E-MAIL:
wsbartles@aol.com
WEEKLY ASSIGNMENTS:
Please See Attached Chart
STUDY QUESTIONS:
R&R
1. What factors created an opportunity for Bob Reiss and the "TV Guide
Game"?
2. What risks and obstacles had to be overcome in order to pursue the
opportunity successfully? How did Bob Reiss accomplish this?
3. Would this approach have worked for Parker Bros., or Milton Bradley?
4. As a result of this success, what should Reiss do now?
VERMEER TECHNOLOGIES (A): A COMPANY IS BORN
1. What decisions did Charles Ferguson make, and what actions did he take,
from late 1993 through January 1995 to build an enterprise that attracted an
offer from a group of venture capital firms to invest $4 million for 51% of the
company?
2. As Charles Ferguson, would you agree to the proposed deal?
3. In January 1995, what can go right and what can go wrong for Vermeer? As
Charles Ferguson what would you do to seize the opportunities and mitigate
the risks?
HOW VENTURE CAPITALISTS EVALUATE POTENTIAL VENTURE
OPPORTUNITIES
1. If you were a VC and you had a genie in a bottle that you could ask one
question with respect to every business plan that came over the transom or
every team that walked in the door, what would it be?
2. What criteria would you use to evaluate a prospective new venture?
3. How do VCs think about competing with others in the market?
4. How do VCs evaluate the prospective venture’s business model?
5. How do the VCs figure out whether the opportunities meet their criteria?
6. How do they weigh risk and reward?
7. What process do the VCs follow?
How does the notion of a prospective exit route figure into the equation?
BETA GOLF
1. Why does Beta Group exist? What economic function does it serve? What
is the business model for Beta? What does this tell us about translating
innovation into value?
2. What is a sensible development plan for the HLX technology? Of the
various choices for exploiting the technology, which would you choose?
Why? In what order?
3. Given the response from Callaway, what should Zider and Krumme do next?
4. What would happen to this project if it were developed inside an existing
industry competitor? What would a venture capitalist do with Beta Golf?
ZIPCAR: REFINING THE BUSINESS MODEL
1. Evaluate this potential venture and the progress that Chase as made.
2. What is the business model, and how has it changed between December
1999 and May 2000? What does the data from actual operations in
September say about how the business model is playing out in practice?
Does this data give you comfort or concern?
3. What actions should Chase take as a result of the September operating
results?
4. What is the strongest argument Chase could make to a potential investor
about the attractiveness of the venture? What, specifically, should her
elevator pitch be at the Springboard forum?
E INK: FINANCING GROWTH
1. What is the nature of the opportunity confronting E Ink?
2. What do you think of their 3-stage approach to achieving their long-term
goal?
3. How much money should the company raise? On what terms?
4. What should Iuliano and his management team do?
NANOGENE TECHNOLOGIES, INC.
1. Evaluate the founders’ decisions regarding the split of equity and
compensation level. As a potential venture investor in the company, would
these decisions concern you?
2. Evaluate the size and composition of the founding team. What is the
difference between being a “founder” and an early employee?
3. Evaluate Paige Miller as an addition to the team, and assess her
compensation demands? Would you hire her on the terms she seeks?
4. Assess the company’s progress on each of the specific issues discussed in
the last section of the case: the hiring process; a compensation policy; the
company’s culture. Specifically, in each of these areas, what should the
company do?
ONSET VENTURES
1. What is Onset’s model for the factors that create an attractive opportunity?
2. Do you agree or disagree with each of the elements of this model?
3. How much should Onset raise in this latest fund?
4. Evaluate Onset’s actions with respect to TallyUp so far. How should the firm
deal with the issues presented at the end of the case?
WALNUT VENTURE ASSOCIATES (D); RBS DEAL TERMS
1. What do you think the investors are trying to accomplish?
2. What is a reasonable valuation for RBS in June 1998?
3. Assume that in five years RBS is liquidated for $3million. If the deal proposed
in the term sheet is accepted, who will receive the $3 million? If RBS is
liquidated for $10 million, or $30 million in five years, who will receive the
money?
4. What proposed terms do you find most troubling and why? What would you
try to renegotiate, and what might you be willing to give up to get what you
want?
SHEILA MASON & CRAIG SHEPHERD
1. Evaluate the situation in which Mason and Shepherd find themselves with
respect to their existing employers. What legal and ethical issues do you see,
and how would you advise the to proceed?
2. Evaluate the non-disclosure agreement and its potential impact on venture
capitalists considering an investment in Intelisoft. Do you think it is reasonable
to expect potential investors to sign such an agreement? As a VC, why would
or wouldn’t you sign? What are the effects of the “residuals clause” suggested
in Exhibit 4? Should Mason & Shepherd agree to this?
3. Do Mason & Shepherd need a lawyer? How should they select one?
4. What actions should Mason and Shepherd tale in order to terminate their
employment relationship with their current employer?
FINALE
1. Evaluate the accomplishments and errors of Conforti and Moore in opening
their upscale dessert restaurant.
2. What should they do about fundraising?
3. What should they do next? Why?