SOLUTION MANUAL For Entrepreneurial Finance, 7th
Edition
by J. Chris Leach, Ronald W. Melicher, Chapters 1 - 16,
Complete With CAPSTONE CASES
,TABLE OF CONTENTS
Part 1: THE ENTREPRENEURIAL ENVIRONMENT.
1. Introduction to
Finance for Entrepreneurs.
2. Developing the Business Idea.
Part 2: ORGANIZING AND OPERATING THE VENTURE.
3. Organizing and Financing a New Venture.
4. Preparing and Using Financial Statements.
5. Evaluating Operating and Financial Performance.
Part 3: PLANNING FOR THE FUTURE.
6. Managing Cash Flow.
7. Types and Costs of Financial Capital.
8. Securities Law Considerations When Obtaining Venture Financing.
Part 4: CREATING AND RECOGNIZING VENTURE VALUE.
9. Projecting Financial Statements.
10. Valuing Early-Stage Ventures.
11. Venture Capital Valuation Methods.
Part 5: STRUCTURING FINANCING FOR THE GROWING VENTURE.
12. Professional Venture Capital.
13. Other Financing Alternatives.
14. Security Structures and Determining Enterprise Values.
Part 6: EXIT AND TURNAROUND STRATEGIES.
15. Harvesting the Business Venture Investment.
16. Financially Troubled Ventures: Turnaround Opportunities?
Part 7: CAPSTONE CASES.
Case 1. Eco-Products, Inc.
Case 2. Spatial Technology,
,Chapter 1
INTRODUCTION TO FINANCE FOR ENTREPRENEURS
FOCUS
The purpose of this first chapter is to present an overview of what entrepreneurial finance is about. In doing
so we hope to convey jto jyou jthe jimportance jof junderstanding jand japplying jentrepreneurial jfinance
jmethods jand jtools jto jhelp jensure jan jentrepreneurial jventure jis jsuccessful.jWe jpresent ja jlife jcycle
japproach jto jthe jteaching jof jentrepreneurial jfinance jwhere jwe jcover jventure joperating jand jfinancial
jdecisions jfaced jby jthe jentrepreneur jas ja jventure jprogresses jfrom jan jidea jthrough jto jharvesting jthe
jventure.
LEARNING jOBJECTIVES
LO j1.1: jCharacterize jthe jentrepreneurial jprocess.
LO j1.2: jDescribe jentrepreneurship jand jsome jcharacteristics jof jentrepreneurs.
LO j1.3: jIndicate jseveral jmegatrends jproviding jwaves jof jentrepreneurial jopportunities.jLO
j1.4: jList jand jdescribe jthe jseven jprinciples jof jentrepreneurial jfinance.
LO j1.5: jDiscuss jentrepreneurial jfinance jand jthe jrole jof jthe jfinancial jmanager.jLO
j1.6: jDescribe jthe jvarious jstages jof ja jsuccessful jventure‘s jlife jcycle.
LO j1.7: jIdentify, jby jlife jcycle jstage, jthe jrelevant jtypes jof jfinancing jand jinvestors.jLO
j1.8: jUnderstand jthe jlife jcycle japproach jused jin jthis jbook.
CHAPTER jOUTLINE
1.1 THE jENTREPRENEURIAL jPROCESS
1.2 ENTREPRENEURSHIP jFUNDAMENTALS
A. Who jis jan jEntrepreneur?
B. Basic jDefinitions
C. Entrepreneurial jTraits jor jCharacteristics
D. Opportunities jExist jBut jNot jWithout jRisks
1.3 SOURCES jOF jENTREPRENEURIAL jOPPORTUNITIES
A. Societal jChanges
B. Demographic jChanges
C. Technological jChanges
D. Emerging jEconomies jand jGlobal jChanges
E. Crises jand j―Bubbles‖
F. Disruptive jInnovation
1
, 1.4 PRINCIPLES jOF jENTREPRENEURIAL jFINANCE
A. Real, jHuman, jand jFinancial jCapital jmust jbe jRented jfrom jOwners j(Principle j#1)
B. Risk jand jExpected jReward jgo jHand jin jHand j(Principle j#2)
C. While jAccounting jis jthe jLanguage jof jBusiness, jCash jis jthe jCurrency j(Principle j#3)
D. New jVenture jFinancing jInvolves jSearch, jNegotiation, jand jPrivacy j(Principle j#4)
E. A jVenture‘s jFinancial jObjective jis jto jIncrease jValue j(Principle j#5)
F. It jis jDangerous jto jAssume jthat jPeople jAct jAgainst jTheir jOwn jSelf-
Interestsj(Principle j#6)
G. Venture jCharacter jand jReputation jcan jbe jAssets jor jLiabilities j(Principle j#7)
1.5 ROLE jOF jENTREPRENEURIAL jFINANCE
1.6 THE jSUCCESSFUL jVENTURE jLIFE jCYCLE
A. Development jStage
B. Startup jStage
C. Survival jStage
D. Rapid-Growth jStage
E. Early-Maturity jStage
F. Life jCycle jStages jand jthe jEntrepreneurial jProcess
1.7 FINANCING jTHROUGH jTHE jVENTURE jLIFE jCYCLE
A. Seed jFinancing
B. Startup jFinancing
C. First-Round jFinancing
D. Second-Round jFinancing
E. Mezzanine jFinancing
F. Liquidity-Stage jFinancing
G. Seasoned jFinancing
1.8 LIFE jCYCLE jAPPROACH jFOR jTEACHING jENTREPRENEURIAL
jFINANCEjSUMMARY
DISCUSSION jQUESTIONS jAND jANSWERS
1. What jis jthe jentrepreneurial jprocess?
The jentrepreneurial jprocess jcomprises: jdeveloping jopportunities, jgathering jresources,
jandjmanaging jand jbuilding joperations jwith jthe jgoal jof jcreating jvalue.
2. What jis jentrepreneurship? jWhat jare jsome jbasic jcharacteristics jof jentrepreneurs?
Entrepreneurship jis jthe jprocess jof jchanging jideas jinto jcommercial jopportunities jand jcreatingjvalue.
j While jthere jis jno jprototypical jentrepreneur, jmany jare jgood jat jrecognizing jcommercial
jopportunities, jtend jto jbe joptimistic, jand jenvision ja jplan jfor jthe jfuture.
3. Why jdo jbusinesses jclose jor jcease joperating? jWhat jare jthe jprimary jreasons jwhy jbusinessesjfail?
Edition
by J. Chris Leach, Ronald W. Melicher, Chapters 1 - 16,
Complete With CAPSTONE CASES
,TABLE OF CONTENTS
Part 1: THE ENTREPRENEURIAL ENVIRONMENT.
1. Introduction to
Finance for Entrepreneurs.
2. Developing the Business Idea.
Part 2: ORGANIZING AND OPERATING THE VENTURE.
3. Organizing and Financing a New Venture.
4. Preparing and Using Financial Statements.
5. Evaluating Operating and Financial Performance.
Part 3: PLANNING FOR THE FUTURE.
6. Managing Cash Flow.
7. Types and Costs of Financial Capital.
8. Securities Law Considerations When Obtaining Venture Financing.
Part 4: CREATING AND RECOGNIZING VENTURE VALUE.
9. Projecting Financial Statements.
10. Valuing Early-Stage Ventures.
11. Venture Capital Valuation Methods.
Part 5: STRUCTURING FINANCING FOR THE GROWING VENTURE.
12. Professional Venture Capital.
13. Other Financing Alternatives.
14. Security Structures and Determining Enterprise Values.
Part 6: EXIT AND TURNAROUND STRATEGIES.
15. Harvesting the Business Venture Investment.
16. Financially Troubled Ventures: Turnaround Opportunities?
Part 7: CAPSTONE CASES.
Case 1. Eco-Products, Inc.
Case 2. Spatial Technology,
,Chapter 1
INTRODUCTION TO FINANCE FOR ENTREPRENEURS
FOCUS
The purpose of this first chapter is to present an overview of what entrepreneurial finance is about. In doing
so we hope to convey jto jyou jthe jimportance jof junderstanding jand japplying jentrepreneurial jfinance
jmethods jand jtools jto jhelp jensure jan jentrepreneurial jventure jis jsuccessful.jWe jpresent ja jlife jcycle
japproach jto jthe jteaching jof jentrepreneurial jfinance jwhere jwe jcover jventure joperating jand jfinancial
jdecisions jfaced jby jthe jentrepreneur jas ja jventure jprogresses jfrom jan jidea jthrough jto jharvesting jthe
jventure.
LEARNING jOBJECTIVES
LO j1.1: jCharacterize jthe jentrepreneurial jprocess.
LO j1.2: jDescribe jentrepreneurship jand jsome jcharacteristics jof jentrepreneurs.
LO j1.3: jIndicate jseveral jmegatrends jproviding jwaves jof jentrepreneurial jopportunities.jLO
j1.4: jList jand jdescribe jthe jseven jprinciples jof jentrepreneurial jfinance.
LO j1.5: jDiscuss jentrepreneurial jfinance jand jthe jrole jof jthe jfinancial jmanager.jLO
j1.6: jDescribe jthe jvarious jstages jof ja jsuccessful jventure‘s jlife jcycle.
LO j1.7: jIdentify, jby jlife jcycle jstage, jthe jrelevant jtypes jof jfinancing jand jinvestors.jLO
j1.8: jUnderstand jthe jlife jcycle japproach jused jin jthis jbook.
CHAPTER jOUTLINE
1.1 THE jENTREPRENEURIAL jPROCESS
1.2 ENTREPRENEURSHIP jFUNDAMENTALS
A. Who jis jan jEntrepreneur?
B. Basic jDefinitions
C. Entrepreneurial jTraits jor jCharacteristics
D. Opportunities jExist jBut jNot jWithout jRisks
1.3 SOURCES jOF jENTREPRENEURIAL jOPPORTUNITIES
A. Societal jChanges
B. Demographic jChanges
C. Technological jChanges
D. Emerging jEconomies jand jGlobal jChanges
E. Crises jand j―Bubbles‖
F. Disruptive jInnovation
1
, 1.4 PRINCIPLES jOF jENTREPRENEURIAL jFINANCE
A. Real, jHuman, jand jFinancial jCapital jmust jbe jRented jfrom jOwners j(Principle j#1)
B. Risk jand jExpected jReward jgo jHand jin jHand j(Principle j#2)
C. While jAccounting jis jthe jLanguage jof jBusiness, jCash jis jthe jCurrency j(Principle j#3)
D. New jVenture jFinancing jInvolves jSearch, jNegotiation, jand jPrivacy j(Principle j#4)
E. A jVenture‘s jFinancial jObjective jis jto jIncrease jValue j(Principle j#5)
F. It jis jDangerous jto jAssume jthat jPeople jAct jAgainst jTheir jOwn jSelf-
Interestsj(Principle j#6)
G. Venture jCharacter jand jReputation jcan jbe jAssets jor jLiabilities j(Principle j#7)
1.5 ROLE jOF jENTREPRENEURIAL jFINANCE
1.6 THE jSUCCESSFUL jVENTURE jLIFE jCYCLE
A. Development jStage
B. Startup jStage
C. Survival jStage
D. Rapid-Growth jStage
E. Early-Maturity jStage
F. Life jCycle jStages jand jthe jEntrepreneurial jProcess
1.7 FINANCING jTHROUGH jTHE jVENTURE jLIFE jCYCLE
A. Seed jFinancing
B. Startup jFinancing
C. First-Round jFinancing
D. Second-Round jFinancing
E. Mezzanine jFinancing
F. Liquidity-Stage jFinancing
G. Seasoned jFinancing
1.8 LIFE jCYCLE jAPPROACH jFOR jTEACHING jENTREPRENEURIAL
jFINANCEjSUMMARY
DISCUSSION jQUESTIONS jAND jANSWERS
1. What jis jthe jentrepreneurial jprocess?
The jentrepreneurial jprocess jcomprises: jdeveloping jopportunities, jgathering jresources,
jandjmanaging jand jbuilding joperations jwith jthe jgoal jof jcreating jvalue.
2. What jis jentrepreneurship? jWhat jare jsome jbasic jcharacteristics jof jentrepreneurs?
Entrepreneurship jis jthe jprocess jof jchanging jideas jinto jcommercial jopportunities jand jcreatingjvalue.
j While jthere jis jno jprototypical jentrepreneur, jmany jare jgood jat jrecognizing jcommercial
jopportunities, jtend jto jbe joptimistic, jand jenvision ja jplan jfor jthe jfuture.
3. Why jdo jbusinesses jclose jor jcease joperating? jWhat jare jthe jprimary jreasons jwhy jbusinessesjfail?
