Lectures Entrepreneurship and Finance
Lecture 1 – 02-11-2020
Nanne Migchels
New venture growth and finance
Literature
• Book: Entrepreneurial Finance
Leach Melicher
You will not need the whole book.
• Articles
Growth plan for a local business → Master buddy
Evaluation form available on BS
• Apply theory to practise
• When possible
• In a creative way
Three stages
• Access situation
• Goals and actions
• Evaluate means and resources
Growth plan is 40% of the grade
Pitch in front of a jury (use a pitchdeck)
Final 13-01-2021 15:00-17:30 hrs (afronding master buddy program)
Pitch is 10% of the assignment grade
Deadline for the assignment: January 12th
Exam
Counts for 60% of the grade
2-4 questions open-ended
Based on case0 and knowledge based
January 12, 08:30
At home
, What are the reasons for failure?
Only 16% are finance problems.
Other problems concern team problems, marketing
problems, lack of product-market fit, tech
problems, operations problems, legal problems.
So, finance is not the main problem part.
Scale-ups, are start-ups in the growth phase.
Investors → if a start-up fund has a portfolio of 100
companies, the 10 successful start-ups (ideally
including 1 unicorn) should more than compensate
for the 90 failures.
How to assess new ventures?
• Good idea/idea that has potential → what is potential and what makes a good idea?
• Market is small to non-existent
• People with a passion/knowledge/experience
• Tacit knowledge and/or IP (intellectual property)
• No (or limited) income/cash flow
• No (or hardly any) physical assets owned
• No history/track record
Main options: remain stuck, quit or grow
Tobin’s Q (valuation) → to evaluate a company
Given perfect information and transparency, the ratio should be 1
Market value of firm
q = ----------------------------------------------------------------------
Replacement cost of the firm’s total assets
It is difficult to come up with a market value of a firm. You have
Price to book value ratio
Adobe 19,0
Microsoft 11,6
Alfabet 4,9
Shell 1,1
Generic issues with entrepreneurial finance
• Source of financing matters
o Level of risk
o Level of monitoring
, • Security – ownership – collateral – valuation
• Early stage/corporate financing
o Information asymmetries
o Agency problems
• Path dependencies have lock in/out effects
o Access to markets
o Access to finance
• Capital structure decisions are crucial
Start-ups Valley of Death
Valley of death: describes the period in
the life of a start-up in which it has begun
its operations but has not yet generated
revenue.
Funding gaps → the valley of death
Capital structure theory (Modigliani & Milller 1958)
Mix of debt, equity and other forms of finance
• Minimize cost of capital
• Maximize value of the firm
Pecking order theory (Myers & Majluf 1984)
, Not all options available to entrepreneurial firms
• Insiders to firm have information advantage over firm value
• Financing reflects will to maintain control
Life cycle model (Berger & Udell 1998)
- Mode of financing varies with growth stage
- Firms (Start-ups) are informationally opaque → means that you haven’t got a clue of what
they are doing, what they are about.
- Heavy reliance on insider financing first
o Personal funds
o Re-investment profits
- Later stages more sources of funding
o Less opaque
He shows this video: https://www.youtube.com/watch?reload=9&v=y9AH43Fzu-k&feature=emb_logo
Question: would you invest in them?
Would you invest in Amazon, Ahold or Alibaba?
Entrepreneurial growth
- Drivers of growth are unknown/unclear
- Entrepreneurs make decisions about the firm
Entrepreneurial cognition/perception
Entrepreneurial opportunities and goals
Risk, control, growth orientation
Funding gaps (Baumik, Fraser and Wright, 2015)
- Reflect ability to attract external finance
- Constraints in funding affect business outcomes
o Lack of working capital
- Characteristics of the entrepreneur
o Cognitive constraints
- Technology needs more funding
- External private equity will boost growth
Lecture 1 – 02-11-2020
Nanne Migchels
New venture growth and finance
Literature
• Book: Entrepreneurial Finance
Leach Melicher
You will not need the whole book.
• Articles
Growth plan for a local business → Master buddy
Evaluation form available on BS
• Apply theory to practise
• When possible
• In a creative way
Three stages
• Access situation
• Goals and actions
• Evaluate means and resources
Growth plan is 40% of the grade
Pitch in front of a jury (use a pitchdeck)
Final 13-01-2021 15:00-17:30 hrs (afronding master buddy program)
Pitch is 10% of the assignment grade
Deadline for the assignment: January 12th
Exam
Counts for 60% of the grade
2-4 questions open-ended
Based on case0 and knowledge based
January 12, 08:30
At home
, What are the reasons for failure?
Only 16% are finance problems.
Other problems concern team problems, marketing
problems, lack of product-market fit, tech
problems, operations problems, legal problems.
So, finance is not the main problem part.
Scale-ups, are start-ups in the growth phase.
Investors → if a start-up fund has a portfolio of 100
companies, the 10 successful start-ups (ideally
including 1 unicorn) should more than compensate
for the 90 failures.
How to assess new ventures?
• Good idea/idea that has potential → what is potential and what makes a good idea?
• Market is small to non-existent
• People with a passion/knowledge/experience
• Tacit knowledge and/or IP (intellectual property)
• No (or limited) income/cash flow
• No (or hardly any) physical assets owned
• No history/track record
Main options: remain stuck, quit or grow
Tobin’s Q (valuation) → to evaluate a company
Given perfect information and transparency, the ratio should be 1
Market value of firm
q = ----------------------------------------------------------------------
Replacement cost of the firm’s total assets
It is difficult to come up with a market value of a firm. You have
Price to book value ratio
Adobe 19,0
Microsoft 11,6
Alfabet 4,9
Shell 1,1
Generic issues with entrepreneurial finance
• Source of financing matters
o Level of risk
o Level of monitoring
, • Security – ownership – collateral – valuation
• Early stage/corporate financing
o Information asymmetries
o Agency problems
• Path dependencies have lock in/out effects
o Access to markets
o Access to finance
• Capital structure decisions are crucial
Start-ups Valley of Death
Valley of death: describes the period in
the life of a start-up in which it has begun
its operations but has not yet generated
revenue.
Funding gaps → the valley of death
Capital structure theory (Modigliani & Milller 1958)
Mix of debt, equity and other forms of finance
• Minimize cost of capital
• Maximize value of the firm
Pecking order theory (Myers & Majluf 1984)
, Not all options available to entrepreneurial firms
• Insiders to firm have information advantage over firm value
• Financing reflects will to maintain control
Life cycle model (Berger & Udell 1998)
- Mode of financing varies with growth stage
- Firms (Start-ups) are informationally opaque → means that you haven’t got a clue of what
they are doing, what they are about.
- Heavy reliance on insider financing first
o Personal funds
o Re-investment profits
- Later stages more sources of funding
o Less opaque
He shows this video: https://www.youtube.com/watch?reload=9&v=y9AH43Fzu-k&feature=emb_logo
Question: would you invest in them?
Would you invest in Amazon, Ahold or Alibaba?
Entrepreneurial growth
- Drivers of growth are unknown/unclear
- Entrepreneurs make decisions about the firm
Entrepreneurial cognition/perception
Entrepreneurial opportunities and goals
Risk, control, growth orientation
Funding gaps (Baumik, Fraser and Wright, 2015)
- Reflect ability to attract external finance
- Constraints in funding affect business outcomes
o Lack of working capital
- Characteristics of the entrepreneur
o Cognitive constraints
- Technology needs more funding
- External private equity will boost growth
