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 sfinance sand sthe srole sof sthe sfinancial
s manager.LO s1.6: sDescribe sthe svarious sstages sof sa ssuccessful sventure‘s slife
s cycle.
LO s1.7: sIdentify, sby slife scycle sstage, sthe srelevant stypes sof sfinancing sand
s investors.LO s1.8: sUnderstand sthe slife scycle sapproach sused sin sthis sbook.
CHAPTER sOUTLINE
1.1 THE sENTREPRENEURIAL sPROCESS
1.2 ENTREPRENEURSHIP sFUNDAMENTALS
A. Who sis san sEntrepreneur?
B. Basic sDefinitions
C. Entrepreneurial sTraits sor sCharacteristics
D. Opportunities sExist sBut sNot sWithout sRisks
1.3 SOURCES sOF sENTREPRENEURIAL sOPPORTUNITIES
A. Societal sChanges
B. Demographic sChanges
C. Technological sChanges
D. Emerging sEconomies sand sGlobal sChanges
E. Crises sand s ―Bubbles‖
F. Disruptive sInnovation
1
, 1.4 PRINCIPLES sOF sENTREPRENEURIAL sFINANCE
A. Real, sHuman, sand sFinancial sCapital smust sbe sRented sfrom sOwners s(Principle s#1)
B. Risk sand sExpected sReward sgo sHand sin sHand s(Principle s#2)
C. While sAccounting sis sthe sLanguage sof sBusiness, sCash sis sthe sCurrency s(Principle s#3)
D. New sVenture sFinancing sInvolves sSearch, sNegotiation, sand sPrivacy s(Principle s#4)
E. A sVenture‘s sFinancial sObjective sis sto sIncrease sValue s(Principle s#5)
F. It sis sDangerous sto sAssume sthat sPeople sAct sAgainst sTheir sOwn sSelf-
s Interests(Principle s#6)
G. Venture sCharacter sand sReputation scan sbe sAssets sor sLiabilities s(Principle s#7)
1.5 ROLE sOF sENTREPRENEURIAL sFINANCE
1.6 THE sSUCCESSFUL sVENTURE sLIFE sCYCLE
A. Development sStage
B. Startup sStage
C. Survival sStage
D. Rapid-Growth sStage
E. Early-Maturity sStage
F. Life sCycle sStages sand sthe sEntrepreneurial sProcess
1.7 FINANCING sTHROUGH sTHE sVENTURE sLIFE sCYCLE
A. Seed sFinancing
B. Startup sFinancing
C. First-Round sFinancing
D. Second-Round sFinancing
E. Mezzanine sFinancing
F. Liquidity-Stage sFinancing
G. Seasoned sFinancing
1.8 LIFE sCYCLE sAPPROACH sFOR sTEACHING sENTREPRENEURIAL sFINANCE
s SUMMARY
DISCUSSION sQUESTIONS sAND sANSWERS
1. What sis sthe sentrepreneurial sprocess?
The sentrepreneurial sprocess scomprises: sdeveloping sopportunities, sgathering sresources,
s andmanaging sand sbuilding soperations swith sthe sgoal sof screating svalue.
2. What sis sentrepreneurship? sWhat sare ssome sbasic scharacteristics sof sentrepreneurs?
Entrepreneurship sis sthe sprocess sof schanging sideas sinto scommercial sopportunities sand
s creatingvalue. s sWhile sthere sis sno sprototypical sentrepreneur, smany sare sgood sat
srecognizing s commercial sopportunities, stend sto sbe soptimistic, sand senvision sa splan sfor sthe
sfuture.
3. Why sdo sbusinesses sclose sor scease soperating? sWhat sare sthe sprimary sreasons swhy
sbusinesses s 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 sfinance sand sthe srole sof sthe sfinancial
s manager.LO s1.6: sDescribe sthe svarious sstages sof sa ssuccessful sventure‘s slife
s cycle.
LO s1.7: sIdentify, sby slife scycle sstage, sthe srelevant stypes sof sfinancing sand
s investors.LO s1.8: sUnderstand sthe slife scycle sapproach sused sin sthis sbook.
CHAPTER sOUTLINE
1.1 THE sENTREPRENEURIAL sPROCESS
1.2 ENTREPRENEURSHIP sFUNDAMENTALS
A. Who sis san sEntrepreneur?
B. Basic sDefinitions
C. Entrepreneurial sTraits sor sCharacteristics
D. Opportunities sExist sBut sNot sWithout sRisks
1.3 SOURCES sOF sENTREPRENEURIAL sOPPORTUNITIES
A. Societal sChanges
B. Demographic sChanges
C. Technological sChanges
D. Emerging sEconomies sand sGlobal sChanges
E. Crises sand s ―Bubbles‖
F. Disruptive sInnovation
1
, 1.4 PRINCIPLES sOF sENTREPRENEURIAL sFINANCE
A. Real, sHuman, sand sFinancial sCapital smust sbe sRented sfrom sOwners s(Principle s#1)
B. Risk sand sExpected sReward sgo sHand sin sHand s(Principle s#2)
C. While sAccounting sis sthe sLanguage sof sBusiness, sCash sis sthe sCurrency s(Principle s#3)
D. New sVenture sFinancing sInvolves sSearch, sNegotiation, sand sPrivacy s(Principle s#4)
E. A sVenture‘s sFinancial sObjective sis sto sIncrease sValue s(Principle s#5)
F. It sis sDangerous sto sAssume sthat sPeople sAct sAgainst sTheir sOwn sSelf-
s Interests(Principle s#6)
G. Venture sCharacter sand sReputation scan sbe sAssets sor sLiabilities s(Principle s#7)
1.5 ROLE sOF sENTREPRENEURIAL sFINANCE
1.6 THE sSUCCESSFUL sVENTURE sLIFE sCYCLE
A. Development sStage
B. Startup sStage
C. Survival sStage
D. Rapid-Growth sStage
E. Early-Maturity sStage
F. Life sCycle sStages sand sthe sEntrepreneurial sProcess
1.7 FINANCING sTHROUGH sTHE sVENTURE sLIFE sCYCLE
A. Seed sFinancing
B. Startup sFinancing
C. First-Round sFinancing
D. Second-Round sFinancing
E. Mezzanine sFinancing
F. Liquidity-Stage sFinancing
G. Seasoned sFinancing
1.8 LIFE sCYCLE sAPPROACH sFOR sTEACHING sENTREPRENEURIAL sFINANCE
s SUMMARY
DISCUSSION sQUESTIONS sAND sANSWERS
1. What sis sthe sentrepreneurial sprocess?
The sentrepreneurial sprocess scomprises: sdeveloping sopportunities, sgathering sresources,
s andmanaging sand sbuilding soperations swith sthe sgoal sof screating svalue.
2. What sis sentrepreneurship? sWhat sare ssome sbasic scharacteristics sof sentrepreneurs?
Entrepreneurship sis sthe sprocess sof schanging sideas sinto scommercial sopportunities sand
s creatingvalue. s sWhile sthere sis sno sprototypical sentrepreneur, smany sare sgood sat
srecognizing s commercial sopportunities, stend sto sbe soptimistic, sand senvision sa splan sfor sthe
sfuture.
3. Why sdo sbusinesses sclose sor scease soperating? sWhat sare sthe sprimary sreasons swhy
sbusinesses s fail?
