SOLUTION MANUAL
Entrepreneurial Finance, 7th Edition
J. Chris Leach, Ronald W. Melicher
Chapters 1 - 16 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 aENTREPRENEURIAL aPROCESS
1.2 ENTREPRENEURSHIP aFUNDAMENTALS
A. Who ais aan aEntrepreneur?
B. Basic aDefinitions
C. Entrepreneurial aTraits aor aCharacteristics
D. Opportunities aExist aBut aNot aWithout aRisks
1.3 SOURCES aOF aENTREPRENEURIAL aOPPORTUNITIES
A. Societal aChanges
B. Demographic aChanges
C. Technological aChanges
D. Emerging aEconomies aand aGlobal aChanges
E. Crises aand a ―Bubbles‖
F. Disruptive aInnovation
1
, 1.4 PRINCIPLES aOF aENTREPRENEURIAL aFINANCE
A. Real, aHuman, aand aFinancial aCapital amust abe aRented afrom aOwners a(Principle a#1)
B. Risk aand aExpected aReward ago aHand ain aHand a(Principle a#2)
C. While aAccounting ais athe aLanguage aof aBusiness, aCash ais athe aCurrency a(Principle
a#3)
D. New aVenture aFinancing aInvolves aSearch, aNegotiation, aand aPrivacy a(Principle a#4)
E. A aVenture‘s aFinancial aObjective ais ato aIncrease aValue a(Principle a#5)
F. It ais aDangerous ato aAssume athat aPeople aAct aAgainst aTheir aOwn
aSelf- a Interests(Principle a#6)
G. Venture aCharacter aand aReputation acan abe aAssets aor aLiabilities a(Principle a#7)
1.5 ROLE aOF aENTREPRENEURIAL aFINANCE
1.6 THE aSUCCESSFUL aVENTURE aLIFE aCYCLE
A. Development aStage
B. Startup aStage
C. Survival aStage
D. Rapid-Growth aStage
E. Early-Maturity aStage
F. Life aCycle aStages aand athe aEntrepreneurial aProcess
1.7 FINANCING aTHROUGH aTHE aVENTURE aLIFE aCYCLE
A. Seed aFinancing
B. Startup aFinancing
C. First-Round aFinancing
D. Second-Round aFinancing
E. Mezzanine aFinancing
F. Liquidity-Stage aFinancing
G. Seasoned aFinancing
1.8 LIFE aCYCLE aAPPROACH aFOR aTEACHING aENTREPRENEURIAL aFINANCE
a SUMMARY
DISCUSSION aQUESTIONS aAND aANSWERS
1. What ais athe aentrepreneurial aprocess?
The aentrepreneurial aprocess acomprises: adeveloping aopportunities, agathering aresources,
a andmanaging aand abuilding aoperations awith athe agoal aof acreating avalue.
2. What ais aentrepreneurship? aWhat aare asome abasic acharacteristics aof aentrepreneurs?
Entrepreneurship ais athe aprocess aof achanging aideas ainto acommercial aopportunities aand
a creatingvalue. a aWhile athere ais ano aprototypical a entrepreneur, amany aare agood aat
arecognizing a commercial aopportunities, atend ato abe aoptimistic, aand aenvision aa aplan afor
athe afuture.
3. Why ado abusinesses aclose aor acease aoperating? aWhat aare athe aprimary areasons awhy
abusinesses a fail?
Entrepreneurial Finance, 7th Edition
J. Chris Leach, Ronald W. Melicher
Chapters 1 - 16 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 aENTREPRENEURIAL aPROCESS
1.2 ENTREPRENEURSHIP aFUNDAMENTALS
A. Who ais aan aEntrepreneur?
B. Basic aDefinitions
C. Entrepreneurial aTraits aor aCharacteristics
D. Opportunities aExist aBut aNot aWithout aRisks
1.3 SOURCES aOF aENTREPRENEURIAL aOPPORTUNITIES
A. Societal aChanges
B. Demographic aChanges
C. Technological aChanges
D. Emerging aEconomies aand aGlobal aChanges
E. Crises aand a ―Bubbles‖
F. Disruptive aInnovation
1
, 1.4 PRINCIPLES aOF aENTREPRENEURIAL aFINANCE
A. Real, aHuman, aand aFinancial aCapital amust abe aRented afrom aOwners a(Principle a#1)
B. Risk aand aExpected aReward ago aHand ain aHand a(Principle a#2)
C. While aAccounting ais athe aLanguage aof aBusiness, aCash ais athe aCurrency a(Principle
a#3)
D. New aVenture aFinancing aInvolves aSearch, aNegotiation, aand aPrivacy a(Principle a#4)
E. A aVenture‘s aFinancial aObjective ais ato aIncrease aValue a(Principle a#5)
F. It ais aDangerous ato aAssume athat aPeople aAct aAgainst aTheir aOwn
aSelf- a Interests(Principle a#6)
G. Venture aCharacter aand aReputation acan abe aAssets aor aLiabilities a(Principle a#7)
1.5 ROLE aOF aENTREPRENEURIAL aFINANCE
1.6 THE aSUCCESSFUL aVENTURE aLIFE aCYCLE
A. Development aStage
B. Startup aStage
C. Survival aStage
D. Rapid-Growth aStage
E. Early-Maturity aStage
F. Life aCycle aStages aand athe aEntrepreneurial aProcess
1.7 FINANCING aTHROUGH aTHE aVENTURE aLIFE aCYCLE
A. Seed aFinancing
B. Startup aFinancing
C. First-Round aFinancing
D. Second-Round aFinancing
E. Mezzanine aFinancing
F. Liquidity-Stage aFinancing
G. Seasoned aFinancing
1.8 LIFE aCYCLE aAPPROACH aFOR aTEACHING aENTREPRENEURIAL aFINANCE
a SUMMARY
DISCUSSION aQUESTIONS aAND aANSWERS
1. What ais athe aentrepreneurial aprocess?
The aentrepreneurial aprocess acomprises: adeveloping aopportunities, agathering aresources,
a andmanaging aand abuilding aoperations awith athe agoal aof acreating avalue.
2. What ais aentrepreneurship? aWhat aare asome abasic acharacteristics aof aentrepreneurs?
Entrepreneurship ais athe aprocess aof achanging aideas ainto acommercial aopportunities aand
a creatingvalue. a aWhile athere ais ano aprototypical a entrepreneur, amany aare agood aat
arecognizing a commercial aopportunities, atend ato abe aoptimistic, aand aenvision aa aplan afor
athe afuture.
3. Why ado abusinesses aclose aor acease aoperating? aWhat aare athe aprimary areasons awhy
abusinesses a fail?
