SOLUTION MANUAL - Entrepreneurial Finance 7th
Edition by J. Leach & Ronald Melicher
CHAPTER 1-16 WITH VERIFIED CASES
PRODUCTS & SPATIAL TECH
TB
Ac
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Page | 1
, 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.
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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.
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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
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,C. Technological Changes
D. Emerging Economies and Global Changes
E. Crises and ―Bubbles
F. Disruptive Innovation
1
1.4 PRINCIPLES OF ENTREPRENEURIAL FINANCE
A. Real, Human, and Financial Capital must be Rented from Owners (Principle #1)
B. Risk and Expected Reward go Hand in Hand (Principle #2)
C. While Accounting is the Language of Business, Cash is the Currency (Principle #3)
D. New Venture Financing Involves Search, Negotiation, and Privacy (Principle #4)
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E. A Venture‗s Financial Objective is to Increase Value (Principle #5)
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F. It is Dangerous to Assume that People Act Against Their Own Self-Interests (Principle #6)
G. Venture Character and Reputation can be Assets or Liabilities (Principle #7)
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1.5 ROLE OF ENTREPRENEURIAL FINANCE
1.6 THE SUCCESSFUL VENTURE LIFE CYCLE
A. Development Stage
B. Startup Stage
C. Survival Stage
D. Rapid-Growth Stage
E. Early-Maturity Stage
F. Life Cycle Stages and the Entrepreneurial Process
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, 1.7 FINANCING THROUGH THE VENTURE LIFE CYCLE
A. Seed Financing
B. Startup Financing
C. First-Round Financing
D. Second-Round Financing
E. Mezzanine Financing
F. Liquidity-Stage Financing
G. Seasoned Financing
1.8 LIFE CYCLE APPROACH FOR TEACHING ENTREPRENEURIAL FINANCE
SUMMARY
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DISCUSSION QUESTIONS AND ANSWERS
1. What is the entrepreneurial process?
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The entrepreneurial process comprises: developing opportunities, gathering resources, and managing
and building operations with the goal of creating value.
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2. What is entrepreneurship? What are some basic characteristics of entrepreneurs?
Entrepreneurship is the process of changing ideas into commercial opportunities and creating value.
While there is no prototypical entrepreneur, many are good at recognizing commercial opportunities,
tend to be optimistic, and envision a plan for the future.
3. Why do businesses close or cease operating? What are the primary reasons why businesses fail?
Nearly one-half of businesses that fail do so because of economic factors including inadequate sales,
insufficient profits, and industry weakness. Many of the economic factors are directly tied to
financing concerns (e.g., insufficient profits for investors). Almost 40 percent of business failures not
citing economic factors cite specifically financial causes like excessive debt and insufficient financial
capital. The remaining cited reasons for failure include a lack of business and managerial experience,
business conflicts, family problems, fraud, and disasters. Many businesses close and fail due to
financial trouble which is mostly related to lack of sales and unsatisfactory profits.
Page | 4
Edition by J. Leach & Ronald Melicher
CHAPTER 1-16 WITH VERIFIED CASES
PRODUCTS & SPATIAL TECH
TB
Ac
er
Page | 1
, 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.
TB
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.
Ac
er
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
Page | 2
,C. Technological Changes
D. Emerging Economies and Global Changes
E. Crises and ―Bubbles
F. Disruptive Innovation
1
1.4 PRINCIPLES OF ENTREPRENEURIAL FINANCE
A. Real, Human, and Financial Capital must be Rented from Owners (Principle #1)
B. Risk and Expected Reward go Hand in Hand (Principle #2)
C. While Accounting is the Language of Business, Cash is the Currency (Principle #3)
D. New Venture Financing Involves Search, Negotiation, and Privacy (Principle #4)
TB
E. A Venture‗s Financial Objective is to Increase Value (Principle #5)
Ac
F. It is Dangerous to Assume that People Act Against Their Own Self-Interests (Principle #6)
G. Venture Character and Reputation can be Assets or Liabilities (Principle #7)
er
1.5 ROLE OF ENTREPRENEURIAL FINANCE
1.6 THE SUCCESSFUL VENTURE LIFE CYCLE
A. Development Stage
B. Startup Stage
C. Survival Stage
D. Rapid-Growth Stage
E. Early-Maturity Stage
F. Life Cycle Stages and the Entrepreneurial Process
Page | 3
, 1.7 FINANCING THROUGH THE VENTURE LIFE CYCLE
A. Seed Financing
B. Startup Financing
C. First-Round Financing
D. Second-Round Financing
E. Mezzanine Financing
F. Liquidity-Stage Financing
G. Seasoned Financing
1.8 LIFE CYCLE APPROACH FOR TEACHING ENTREPRENEURIAL FINANCE
SUMMARY
TB
DISCUSSION QUESTIONS AND ANSWERS
1. What is the entrepreneurial process?
Ac
The entrepreneurial process comprises: developing opportunities, gathering resources, and managing
and building operations with the goal of creating value.
er
2. What is entrepreneurship? What are some basic characteristics of entrepreneurs?
Entrepreneurship is the process of changing ideas into commercial opportunities and creating value.
While there is no prototypical entrepreneur, many are good at recognizing commercial opportunities,
tend to be optimistic, and envision a plan for the future.
3. Why do businesses close or cease operating? What are the primary reasons why businesses fail?
Nearly one-half of businesses that fail do so because of economic factors including inadequate sales,
insufficient profits, and industry weakness. Many of the economic factors are directly tied to
financing concerns (e.g., insufficient profits for investors). Almost 40 percent of business failures not
citing economic factors cite specifically financial causes like excessive debt and insufficient financial
capital. The remaining cited reasons for failure include a lack of business and managerial experience,
business conflicts, family problems, fraud, and disasters. Many businesses close and fail due to
financial trouble which is mostly related to lack of sales and unsatisfactory profits.
Page | 4
