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 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 PRINCIPLES yOF yENTREPRENEURIAL yFINANCE
A. Real, yHuman, yand yFinancial yCapital ymust ybe yRented yfrom yOwners y(Principle y#1)
B. Risk yand yExpected yReward ygo yHand yin yHand y(Principle y#2)
C. While yAccounting yis ythe yLanguage yof yBusiness, yCash yis ythe yCurrency y(Principle y#3)
D. New yVenture yFinancing yInvolves ySearch, yNegotiation, yand yPrivacy y(Principle y#4)
E. A yVenture‘s yFinancial yObjective yis yto yIncrease yValue y(Principle y#5)
F. It yis yDangerous yto yAssume ythat yPeople yAct yAgainst yTheir yOwn ySelf-Interests
y(Principle y#6)
G. Venture yCharacter yand yReputation ycan ybe yAssets yor yLiabilities y(Principle y#7)
1.5 ROLE yOF yENTREPRENEURIAL yFINANCE
1.6 THE ySUCCESSFUL yVENTURE yLIFE yCYCLE
A. Development yStage
B. Startup yStage
C. Survival yStage
D. Rapid-Growth yStage
E. Early-Maturity yStage
F. Life yCycle yStages yand ythe yEntrepreneurial yProcess
1.7 FINANCING yTHROUGH yTHE yVENTURE yLIFE yCYCLE
A. Seed yFinancing
B. Startup yFinancing
C. First-Round yFinancing
D. Second-Round yFinancing
E. Mezzanine yFinancing
F. Liquidity-Stage yFinancing
G. Seasoned yFinancing
1.8 LIFE yCYCLE yAPPROACH yFOR yTEACHING yENTREPRENEURIAL yFINANCE
ySUMMARY
DISCUSSION yQUESTIONS yAND yANSWERS
1. What yis ythe yentrepreneurial yprocess?
The yentrepreneurial yprocess ycomprises: ydeveloping yopportunities, ygathering yresources, yand
ymanaging yand ybuilding yoperations ywith ythe ygoal yof ycreating yvalue.
2. What yis yentrepreneurship? yWhat yare ysome ybasic ycharacteristics yof yentrepreneurs?
Entrepreneurship yis ythe yprocess yof ychanging yideas yinto ycommercial yopportunities yand ycreating
yvalue. y While ythere yis yno yprototypical yentrepreneur, ymany yare ygood yat yrecognizing ycommercial
yopportunities, ytend yto ybe yoptimistic, yand yenvision ya yplan yfor ythe yfuture.
3. Why ydo ybusinesses yclose yor ycease yoperating? yWhat yare ythe yprimary yreasons ywhy ybusinessesyfail?
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 PRINCIPLES yOF yENTREPRENEURIAL yFINANCE
A. Real, yHuman, yand yFinancial yCapital ymust ybe yRented yfrom yOwners y(Principle y#1)
B. Risk yand yExpected yReward ygo yHand yin yHand y(Principle y#2)
C. While yAccounting yis ythe yLanguage yof yBusiness, yCash yis ythe yCurrency y(Principle y#3)
D. New yVenture yFinancing yInvolves ySearch, yNegotiation, yand yPrivacy y(Principle y#4)
E. A yVenture‘s yFinancial yObjective yis yto yIncrease yValue y(Principle y#5)
F. It yis yDangerous yto yAssume ythat yPeople yAct yAgainst yTheir yOwn ySelf-Interests
y(Principle y#6)
G. Venture yCharacter yand yReputation ycan ybe yAssets yor yLiabilities y(Principle y#7)
1.5 ROLE yOF yENTREPRENEURIAL yFINANCE
1.6 THE ySUCCESSFUL yVENTURE yLIFE yCYCLE
A. Development yStage
B. Startup yStage
C. Survival yStage
D. Rapid-Growth yStage
E. Early-Maturity yStage
F. Life yCycle yStages yand ythe yEntrepreneurial yProcess
1.7 FINANCING yTHROUGH yTHE yVENTURE yLIFE yCYCLE
A. Seed yFinancing
B. Startup yFinancing
C. First-Round yFinancing
D. Second-Round yFinancing
E. Mezzanine yFinancing
F. Liquidity-Stage yFinancing
G. Seasoned yFinancing
1.8 LIFE yCYCLE yAPPROACH yFOR yTEACHING yENTREPRENEURIAL yFINANCE
ySUMMARY
DISCUSSION yQUESTIONS yAND yANSWERS
1. What yis ythe yentrepreneurial yprocess?
The yentrepreneurial yprocess ycomprises: ydeveloping yopportunities, ygathering yresources, yand
ymanaging yand ybuilding yoperations ywith ythe ygoal yof ycreating yvalue.
2. What yis yentrepreneurship? yWhat yare ysome ybasic ycharacteristics yof yentrepreneurs?
Entrepreneurship yis ythe yprocess yof ychanging yideas yinto ycommercial yopportunities yand ycreating
yvalue. y While ythere yis yno yprototypical yentrepreneur, ymany yare ygood yat yrecognizing ycommercial
yopportunities, ytend yto ybe yoptimistic, yand yenvision ya yplan yfor ythe yfuture.
3. Why ydo ybusinesses yclose yor ycease yoperating? yWhat yare ythe yprimary yreasons ywhy ybusinessesyfail?
