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 to you the importance of understanding and applying entrepreneurial finance
methods and tools to help ensure an entrepreneurial venture is successful.We present a life cycle approach
to the teaching of entrepreneurial finance where we cover venture operating and financial decisions faced
by the entrepreneur as a venture progresses from an idea through to harvesting the venture.
LEARNING OBJECTIVES
LO 1.1: Characterize the entrepreneurial process.
LO 1.2: Describe entrepreneurship and some characteristics of entrepreneurs.
LO 1.3: Indicate several megatrends providing waves of entrepreneurial opportunities.LO 1.4:
List and describe the seven principles of entrepreneurial finance.
LO 1.5: Discuss entrepreneurial finance and the role of the financial manager.LO 1.6:
Describe the various stages of a successful venture‘s life cycle.
LO 1.7: Identify, by life cycle stage, the relevant types of financing and investors.LO 1.8:
Understand the life cycle approach used in this book.
CHAPTER OUTLINE
1.1 THE ENTREPRENEURIAL PROCESS
1.2 ENTREPRENEURSHIP FUNDAMENTALS
A. Who is an Entrepreneur?
B. Basic Definitions
C. Entrepreneurial Traits or Characteristics
D. Opportunities Exist But Not Without Risks
1.3 SOURCES OF ENTREPRENEURIAL OPPORTUNITIES
A. Societal Changes
B. Demographic Changes
C. Technological Changes
D. Emerging Economies and Global Changes
E. Crises and ―Bubbles‖
F. Disruptive Innovation
1
, 1.4 PRINCIPLEShOFhENTREPRENEURIALhFINANCE
A. Real,hHuman,handhFinancialhCapitalhmusthbehRentedhfromhOwnersh(Principleh#1)
B. RiskhandhExpectedhRewardhgohHandhinhHandh(Principleh#2)
C. WhilehAccountinghishthehLanguagehofhBusiness,hCashhishthehCurrencyh(Principleh#3)
D. NewhVenturehFinancinghInvolveshSearch,hNegotiation,handhPrivacyh(Principleh#4)
E. AhVenture‘shFinancialhObjectivehishtohIncreasehValueh(Principleh#5)
F. IthishDangeroushtohAssumehthathPeoplehActhAgainsthTheirhOwnhSelf-
Interestsh(Principleh#6)
G. VenturehCharacterhandhReputationhcanhbehAssetshorhLiabilitiesh(Principleh#7)
1.5 ROLEhOFhENTREPRENEURIALhFINANCE
1.6 THEhSUCCESSFULhVENTUREhLIFEhCYCLE
A. DevelopmenthStage
B. StartuphStage
C. SurvivalhStage
D. Rapid-GrowthhStage
E. Early-MaturityhStage
F. LifehCyclehStageshandhthehEntrepreneurialhProcess
1.7 FINANCINGhTHROUGHhTHEhVENTUREhLIFEhCYCLE
A. SeedhFinancing
B. StartuphFinancing
C. First-RoundhFinancing
D. Second-RoundhFinancing
E. MezzaninehFinancing
F. Liquidity-StagehFinancing
G. SeasonedhFinancing
1.8 LIFEhCYCLEhAPPROACHhFORhTEACHINGhENTREPRENEURIALhFINANCEhSUMMA
RY
DISCUSSIONhQUESTIONShANDhANSWERS
1. Whathishthehentrepreneurialhprocess?
Thehentrepreneurialhprocesshcomprises:hdevelopinghopportunities,hgatheringhresources,handhmanagi
nghandhbuildinghoperationshwithhthehgoalhofhcreatinghvalue.
2. Whathishentrepreneurship?hWhatharehsomehbasichcharacteristicshofhentrepreneurs?
Entrepreneurshiphishthehprocesshofhchanginghideashintohcommercialhopportunitieshandhcreatinghvalue.h
Whilehtherehishnohprototypicalhentrepreneur,hmanyharehgoodhathrecognizinghcommercialhopportunitie
s,htendhtohbehoptimistic,handhenvisionhahplanhforhthehfuture.
3. Whyhdohbusinesseshclosehorhceasehoperating?hWhatharehthehprimaryhreasonshwhyhbusinesseshfail?