SOLUTIONMANUAL r
EntrepreneurialFinance,7thEdition
r r r
J. Chris Leach, Ronald W. Melicher
r r r r r
Chapters 1 - 16 With CAPSTONE CASES
r r r r r r
,TABLE OF CONTENTS
r r r
Part r1: rTHE rENTREPRENEURIAL rENVIRONMENT.
1. Introduction rto rFinance rfor rEntrepreneurs.
2. Developing rthe rBusiness rIdea.
Part r2: rORGANIZING rAND rOPERATING rTHE rVENTURE.
3. Organizing rand rFinancing ra rNew rVenture.
4. Preparing rand rUsing rFinancial rStatements.
5. Evaluating rOperating rand rFinancial rPerformance. r Part
3: rPLANNING rFOR rTHE rFUTURE.
r
6. Managing rCash rFlow.
7. Types rand rCosts rof rFinancial rCapital.
8. Securities rLaw rConsiderations rWhen rObtaining rVenture rFinancing. r Part r4:
CREATING rAND rRECOGNIZING rVENTURE rVALUE.
r
9. Projecting rFinancial rStatements.
10. Valuing rEarly-Stage rVentures.
11. Venture rCapital rValuation rMethods.
Part r5: rSTRUCTURING rFINANCING rFOR rTHE rGROWING rVENTURE.
12. Professional rVenture rCapital.
13. Other rFinancing rAlternatives.
14. Security rStructures rand rDetermining rEnterprise rValues. r Part r6:
EXIT rAND rTURNAROUND rSTRATEGIES.
r
15. Harvesting rthe rBusiness rVenture rInvestment.
16. Financially rTroubled rVentures: rTurnaround rOpportunities? r Part r7:
CAPSTONE rCASES.
r
Case r1. rEco-Products, rInc. r Case
2. rSpatial rTechnology,
r
,Chapter 1 r
INTRODUCTION rTO rFINANCE rFOR rENTREPRENEURS r FOCUS
The rpurpose rof rthis rfirst rchapter ris rto rpresent ran roverview rof rwhat rentrepreneurial rfinance ris
r about. rIn rdoing rso rwe rhope rto rconvey rto ryou rthe rimportance rof runderstanding rand rapplying
r entrepreneurial rfinance rmethods rand rtools rto rhelp rensure ran rentrepreneurial rventure ris
r successful.We rpresent ra rlife rcycle rapproach rto rthe rteaching rof rentrepreneurial rfinance rwhere
r we rcover rventure roperating rand rfinancial rdecisions rfaced rby rthe rentrepreneur ras ra rventure
r progresses rfrom ran ridea rthrough rto rharvesting rthe rventure.
LEARNING rOBJECTIVES
LO r1.1: rCharacterize rthe rentrepreneurial rprocess.
LO r1.2: rDescribe rentrepreneurship rand rsome rcharacteristics rof rentrepreneurs.
r LO r1.3: rIndicate rseveral rmegatrends rproviding rwaves rof rentrepreneurial
r opportunities.LO r1.4: rList rand rdescribe rthe rseven rprinciples rof rentrepreneurial
r finance.
LO r1.5: rDiscuss rentrepreneurial rfinance rand rthe rrole rof rthe rfinancial
r manager.LO r1.6: rDescribe rthe rvarious rstages rof ra rsuccessful rventure‘s rlife
r cycle.
LO r1.7: rIdentify, rby rlife rcycle rstage, rthe rrelevant rtypes rof rfinancing rand
r investors.LO r1.8: rUnderstand rthe rlife rcycle rapproach rused rin rthis rbook.
CHAPTER rOUTLINE
1.1 THE rENTREPRENEURIAL rPROCESS
1.2 ENTREPRENEURSHIP rFUNDAMENTALS
A. Who ris ran rEntrepreneur?
B. Basic rDefinitions
C. Entrepreneurial rTraits ror rCharacteristics
D. Opportunities rExist rBut rNot rWithout rRisks
1.3 SOURCES rOF rENTREPRENEURIAL rOPPORTUNITIES
A. Societal rChanges
B. Demographic rChanges
C. Technological rChanges
D. Emerging rEconomies rand rGlobal rChanges
E. Crises rand r ―Bubbles‖
F. Disruptive rInnovation
1
, 1.4 PRINCIPLES rOF rENTREPRENEURIAL rFINANCE
A. Real, rHuman, rand rFinancial rCapital rmust rbe rRented rfrom rOwners r(Principle r#1)
B. Risk rand rExpected rReward rgo rHand rin rHand r(Principle r#2)
C. While rAccounting ris rthe rLanguage rof rBusiness, rCash ris rthe rCurrency r(Principle r#3)
D. New rVenture rFinancing rInvolves rSearch, rNegotiation, rand rPrivacy r(Principle r#4)
E. A rVenture‘s rFinancial rObjective ris rto rIncrease rValue r(Principle r#5)
F. It ris rDangerous rto rAssume rthat rPeople rAct rAgainst rTheir rOwn rSelf-
r Interests(Principle r#6)
G. Venture rCharacter rand rReputation rcan rbe rAssets ror rLiabilities r(Principle r#7)
1.5 ROLE rOF rENTREPRENEURIAL rFINANCE
1.6 THE rSUCCESSFUL rVENTURE rLIFE rCYCLE
A. Development rStage
B. Startup rStage
C. Survival rStage
D. Rapid-Growth rStage
E. Early-Maturity rStage
F. Life rCycle rStages rand rthe rEntrepreneurial rProcess
1.7 FINANCING rTHROUGH rTHE rVENTURE rLIFE rCYCLE
A. Seed rFinancing
B. Startup rFinancing
C. First-Round rFinancing
D. Second-Round rFinancing
E. Mezzanine rFinancing
F. Liquidity-Stage rFinancing
G. Seasoned rFinancing
1.8 LIFE rCYCLE rAPPROACH rFOR rTEACHING rENTREPRENEURIAL rFINANCE
r SUMMARY
DISCUSSION rQUESTIONS rAND rANSWERS
1. What ris rthe rentrepreneurial rprocess?
The rentrepreneurial rprocess rcomprises: rdeveloping ropportunities, rgathering rresources,
r andmanaging rand rbuilding roperations rwith rthe rgoal rof rcreating rvalue.
2. What ris rentrepreneurship? rWhat rare rsome rbasic rcharacteristics rof rentrepreneurs?
Entrepreneurship ris rthe rprocess rof rchanging rideas rinto rcommercial ropportunities rand
r creatingvalue. r rWhile rthere ris rno rprototypical rentrepreneur, rmany rare rgood rat rrecognizing
r commercial ropportunities, rtend rto rbe roptimistic, rand renvision ra rplan rfor rthe rfuture.
3. Why rdo rbusinesses rclose ror rcease roperating? rWhat rare rthe rprimary rreasons rwhy rbusinesses
r fail?
EntrepreneurialFinance,7thEdition
r r r
J. Chris Leach, Ronald W. Melicher
r r r r r
Chapters 1 - 16 With CAPSTONE CASES
r r r r r r
,TABLE OF CONTENTS
r r r
Part r1: rTHE rENTREPRENEURIAL rENVIRONMENT.
1. Introduction rto rFinance rfor rEntrepreneurs.
2. Developing rthe rBusiness rIdea.
Part r2: rORGANIZING rAND rOPERATING rTHE rVENTURE.
3. Organizing rand rFinancing ra rNew rVenture.
4. Preparing rand rUsing rFinancial rStatements.
5. Evaluating rOperating rand rFinancial rPerformance. r Part
3: rPLANNING rFOR rTHE rFUTURE.
r
6. Managing rCash rFlow.
7. Types rand rCosts rof rFinancial rCapital.
8. Securities rLaw rConsiderations rWhen rObtaining rVenture rFinancing. r Part r4:
CREATING rAND rRECOGNIZING rVENTURE rVALUE.
r
9. Projecting rFinancial rStatements.
10. Valuing rEarly-Stage rVentures.
11. Venture rCapital rValuation rMethods.
Part r5: rSTRUCTURING rFINANCING rFOR rTHE rGROWING rVENTURE.
12. Professional rVenture rCapital.
13. Other rFinancing rAlternatives.
14. Security rStructures rand rDetermining rEnterprise rValues. r Part r6:
EXIT rAND rTURNAROUND rSTRATEGIES.
r
15. Harvesting rthe rBusiness rVenture rInvestment.
16. Financially rTroubled rVentures: rTurnaround rOpportunities? r Part r7:
CAPSTONE rCASES.
r
Case r1. rEco-Products, rInc. r Case
2. rSpatial rTechnology,
r
,Chapter 1 r
INTRODUCTION rTO rFINANCE rFOR rENTREPRENEURS r FOCUS
The rpurpose rof rthis rfirst rchapter ris rto rpresent ran roverview rof rwhat rentrepreneurial rfinance ris
r about. rIn rdoing rso rwe rhope rto rconvey rto ryou rthe rimportance rof runderstanding rand rapplying
r entrepreneurial rfinance rmethods rand rtools rto rhelp rensure ran rentrepreneurial rventure ris
r successful.We rpresent ra rlife rcycle rapproach rto rthe rteaching rof rentrepreneurial rfinance rwhere
r we rcover rventure roperating rand rfinancial rdecisions rfaced rby rthe rentrepreneur ras ra rventure
r progresses rfrom ran ridea rthrough rto rharvesting rthe rventure.
LEARNING rOBJECTIVES
LO r1.1: rCharacterize rthe rentrepreneurial rprocess.
LO r1.2: rDescribe rentrepreneurship rand rsome rcharacteristics rof rentrepreneurs.
r LO r1.3: rIndicate rseveral rmegatrends rproviding rwaves rof rentrepreneurial
r opportunities.LO r1.4: rList rand rdescribe rthe rseven rprinciples rof rentrepreneurial
r finance.
LO r1.5: rDiscuss rentrepreneurial rfinance rand rthe rrole rof rthe rfinancial
r manager.LO r1.6: rDescribe rthe rvarious rstages rof ra rsuccessful rventure‘s rlife
r cycle.
LO r1.7: rIdentify, rby rlife rcycle rstage, rthe rrelevant rtypes rof rfinancing rand
r investors.LO r1.8: rUnderstand rthe rlife rcycle rapproach rused rin rthis rbook.
CHAPTER rOUTLINE
1.1 THE rENTREPRENEURIAL rPROCESS
1.2 ENTREPRENEURSHIP rFUNDAMENTALS
A. Who ris ran rEntrepreneur?
B. Basic rDefinitions
C. Entrepreneurial rTraits ror rCharacteristics
D. Opportunities rExist rBut rNot rWithout rRisks
1.3 SOURCES rOF rENTREPRENEURIAL rOPPORTUNITIES
A. Societal rChanges
B. Demographic rChanges
C. Technological rChanges
D. Emerging rEconomies rand rGlobal rChanges
E. Crises rand r ―Bubbles‖
F. Disruptive rInnovation
1
, 1.4 PRINCIPLES rOF rENTREPRENEURIAL rFINANCE
A. Real, rHuman, rand rFinancial rCapital rmust rbe rRented rfrom rOwners r(Principle r#1)
B. Risk rand rExpected rReward rgo rHand rin rHand r(Principle r#2)
C. While rAccounting ris rthe rLanguage rof rBusiness, rCash ris rthe rCurrency r(Principle r#3)
D. New rVenture rFinancing rInvolves rSearch, rNegotiation, rand rPrivacy r(Principle r#4)
E. A rVenture‘s rFinancial rObjective ris rto rIncrease rValue r(Principle r#5)
F. It ris rDangerous rto rAssume rthat rPeople rAct rAgainst rTheir rOwn rSelf-
r Interests(Principle r#6)
G. Venture rCharacter rand rReputation rcan rbe rAssets ror rLiabilities r(Principle r#7)
1.5 ROLE rOF rENTREPRENEURIAL rFINANCE
1.6 THE rSUCCESSFUL rVENTURE rLIFE rCYCLE
A. Development rStage
B. Startup rStage
C. Survival rStage
D. Rapid-Growth rStage
E. Early-Maturity rStage
F. Life rCycle rStages rand rthe rEntrepreneurial rProcess
1.7 FINANCING rTHROUGH rTHE rVENTURE rLIFE rCYCLE
A. Seed rFinancing
B. Startup rFinancing
C. First-Round rFinancing
D. Second-Round rFinancing
E. Mezzanine rFinancing
F. Liquidity-Stage rFinancing
G. Seasoned rFinancing
1.8 LIFE rCYCLE rAPPROACH rFOR rTEACHING rENTREPRENEURIAL rFINANCE
r SUMMARY
DISCUSSION rQUESTIONS rAND rANSWERS
1. What ris rthe rentrepreneurial rprocess?
The rentrepreneurial rprocess rcomprises: rdeveloping ropportunities, rgathering rresources,
r andmanaging rand rbuilding roperations rwith rthe rgoal rof rcreating rvalue.
2. What ris rentrepreneurship? rWhat rare rsome rbasic rcharacteristics rof rentrepreneurs?
Entrepreneurship ris rthe rprocess rof rchanging rideas rinto rcommercial ropportunities rand
r creatingvalue. r rWhile rthere ris rno rprototypical rentrepreneur, rmany rare rgood rat rrecognizing
r commercial ropportunities, rtend rto rbe roptimistic, rand renvision ra rplan rfor rthe rfuture.
3. Why rdo rbusinesses rclose ror rcease roperating? rWhat rare rthe rprimary rreasons rwhy rbusinesses
r fail?
