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 dENTREPRENEURIAL dPROCESS
1.2 ENTREPRENEURSHIP dFUNDAMENTALS
A. Who dis dan dEntrepreneur?
B. Basic dDefinitions
C. Entrepreneurial dTraits dor dCharacteristics
D. Opportunities dExist dBut dNot dWithout dRisks
1.3 SOURCES dOF dENTREPRENEURIAL dOPPORTUNITIES
A. Societal dChanges
B. Demographic dChanges
C. Technological dChanges
D. Emerging dEconomies dand dGlobal dChanges
E. Crises dand d ―Bubbles‖
F. Disruptive dInnovation
1
, 1.4 PRINCIPLES dOF dENTREPRENEURIAL dFINANCE
A. Real, dHuman, dand dFinancial dCapital dmust dbe dRented dfrom dOwners d(Principle d#1)
B. Risk dand dExpected dReward dgo dHand din dHand d(Principle d#2)
C. While dAccounting dis dthe dLanguage dof dBusiness, dCash dis dthe dCurrency d(Principle
d#3)
D. New dVenture dFinancing dInvolves dSearch, dNegotiation, dand dPrivacy d(Principle d#4)
E. A dVenture‘s dFinancial dObjective dis dto dIncrease dValue d(Principle d#5)
F. It dis dDangerous dto dAssume dthat dPeople dAct dAgainst dTheir dOwn
dSelf- d Interests(Principle d#6)
G. Venture dCharacter dand dReputation dcan dbe dAssets dor dLiabilities d(Principle d#7)
1.5 ROLE dOF dENTREPRENEURIAL dFINANCE
1.6 THE dSUCCESSFUL dVENTURE dLIFE dCYCLE
A. Development dStage
B. Startup dStage
C. Survival dStage
D. Rapid-Growth dStage
E. Early-Maturity dStage
F. Life dCycle dStages dand dthe dEntrepreneurial dProcess
1.7 FINANCING dTHROUGH dTHE dVENTURE dLIFE dCYCLE
A. Seed dFinancing
B. Startup dFinancing
C. First-Round dFinancing
D. Second-Round dFinancing
E. Mezzanine dFinancing
F. Liquidity-Stage dFinancing
G. Seasoned dFinancing
1.8 LIFE dCYCLE dAPPROACH dFOR dTEACHING dENTREPRENEURIAL dFINANCE
d SUMMARY
DISCUSSION dQUESTIONS dAND dANSWERS
1. What dis dthe dentrepreneurial dprocess?
The dentrepreneurial dprocess dcomprises: ddeveloping dopportunities, dgathering dresources,
d andmanaging dand dbuilding doperations dwith dthe dgoal dof dcreating dvalue.
2. What dis dentrepreneurship? dWhat dare dsome dbasic dcharacteristics dof dentrepreneurs?
Entrepreneurship dis dthe dprocess dof dchanging dideas dinto dcommercial dopportunities dand
d creatingvalue. d dWhile dthere dis dno dprototypical d entrepreneur, dmany dare dgood dat
drecognizing d commercial dopportunities, dtend dto dbe doptimistic, dand denvision da dplan dfor
dthe dfuture.
3. Why ddo dbusinesses dclose dor dcease doperating? dWhat dare dthe dprimary dreasons dwhy
dbusinesses d 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 dENTREPRENEURIAL dPROCESS
1.2 ENTREPRENEURSHIP dFUNDAMENTALS
A. Who dis dan dEntrepreneur?
B. Basic dDefinitions
C. Entrepreneurial dTraits dor dCharacteristics
D. Opportunities dExist dBut dNot dWithout dRisks
1.3 SOURCES dOF dENTREPRENEURIAL dOPPORTUNITIES
A. Societal dChanges
B. Demographic dChanges
C. Technological dChanges
D. Emerging dEconomies dand dGlobal dChanges
E. Crises dand d ―Bubbles‖
F. Disruptive dInnovation
1
, 1.4 PRINCIPLES dOF dENTREPRENEURIAL dFINANCE
A. Real, dHuman, dand dFinancial dCapital dmust dbe dRented dfrom dOwners d(Principle d#1)
B. Risk dand dExpected dReward dgo dHand din dHand d(Principle d#2)
C. While dAccounting dis dthe dLanguage dof dBusiness, dCash dis dthe dCurrency d(Principle
d#3)
D. New dVenture dFinancing dInvolves dSearch, dNegotiation, dand dPrivacy d(Principle d#4)
E. A dVenture‘s dFinancial dObjective dis dto dIncrease dValue d(Principle d#5)
F. It dis dDangerous dto dAssume dthat dPeople dAct dAgainst dTheir dOwn
dSelf- d Interests(Principle d#6)
G. Venture dCharacter dand dReputation dcan dbe dAssets dor dLiabilities d(Principle d#7)
1.5 ROLE dOF dENTREPRENEURIAL dFINANCE
1.6 THE dSUCCESSFUL dVENTURE dLIFE dCYCLE
A. Development dStage
B. Startup dStage
C. Survival dStage
D. Rapid-Growth dStage
E. Early-Maturity dStage
F. Life dCycle dStages dand dthe dEntrepreneurial dProcess
1.7 FINANCING dTHROUGH dTHE dVENTURE dLIFE dCYCLE
A. Seed dFinancing
B. Startup dFinancing
C. First-Round dFinancing
D. Second-Round dFinancing
E. Mezzanine dFinancing
F. Liquidity-Stage dFinancing
G. Seasoned dFinancing
1.8 LIFE dCYCLE dAPPROACH dFOR dTEACHING dENTREPRENEURIAL dFINANCE
d SUMMARY
DISCUSSION dQUESTIONS dAND dANSWERS
1. What dis dthe dentrepreneurial dprocess?
The dentrepreneurial dprocess dcomprises: ddeveloping dopportunities, dgathering dresources,
d andmanaging dand dbuilding doperations dwith dthe dgoal dof dcreating dvalue.
2. What dis dentrepreneurship? dWhat dare dsome dbasic dcharacteristics dof dentrepreneurs?
Entrepreneurship dis dthe dprocess dof dchanging dideas dinto dcommercial dopportunities dand
d creatingvalue. d dWhile dthere dis dno dprototypical d entrepreneur, dmany dare dgood dat
drecognizing d commercial dopportunities, dtend dto dbe doptimistic, dand denvision da dplan dfor
dthe dfuture.
3. Why ddo dbusinesses dclose dor dcease doperating? dWhat dare dthe dprimary dreasons dwhy
dbusinesses d fail?
