Entrepreneurial Finance 7th edition by Chris Leach, Ronald Melicher 0357442040 9780357442043

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ISBN 10: 0357442040

ISBN 13: 9780357442043

Author: J. Chris Leach; Ronald W. Melicher

Guide students through a complete “life cycle of the firm” with Leach/Melicher’s ENTREPRENEURIAL FINANCE, 7E. This leading text introduces the theories, knowledge and corporate finance tools and techniques today’s entrepreneur needs to start, build and eventually harvest a successful venture. Students learn how to secure financing, use business cash flow models and strategically position their early-stage companies as this edition emphasizes sound financial management practices. Students also learn how to interact effectively with financial institutions and regulatory agencies that can affect venture growth and ensure liquidity for investors. Whether in print or full-color eBook form, this edition’s capstone cases, mini-cases and examples draw from actual entrepreneurial ventures and the latest financial scenarios to illustrate important concepts, such as venture capital funds, institutional investors, strategic alliances, the role of business angels, licensing agreements and exit strategies.

Entrepreneurial Finance 7th Table of contents:

Part 1. The Entrepreneurial Environment

Chapter 1. Introduction to Finance for Entrepreneurs

Section 1.1. The Entrepreneurial Process

Section 1.2. Entrepreneurship Fundamentals

Who Is an Entrepreneur?

Basic Definitions

Entrepreneurial Traits or Characteristics

Opportunities Exist but not Without Risks

Section 1.3. Sources of Entrepreneurial Opportunities

Societal Changes

Demographic Changes

Technological Changes

Emerging Economies and Global Changes

Crises and “Bubbles”

Disruptive Innovation

Section 1.4. Principles of Entrepreneurial Finance

Real, Human, and Financial Capital Must Be Rented from Owners (Principle #1)

Risk and Expected Reward Go Hand in Hand (Principle #2)

While Accounting Is the Language of Business, Cash Is the Currency (Principle #3)

New Venture Financing Involves Search, Negotiation, and Privacy (Principle #4)

A Venture’s Financial Objective Is to Increase Value (Principle #5)

It Is Dangerous to Assume That People Act against their Own Self-Interests (Principle #6)

Venture Character and Reputation Can Be Assets or Liabilities (Principle #7)

Section 1.5. Role of Entrepreneurial Finance

Section 1.6. The Successful Venture Life Cycle

Development Stage

Startup Stage

Survival Stage

Rapid-Growth Stage

Early-Maturity Stage

Life Cycle Stages and the Entrepreneurial Process

Section 1.7. Financing Through the Venture Life Cycle

Seed Financing

Startup Financing

First-Round Financing

Second-Round Financing

Mezzanine Financing

Liquidity-Stage Financing

Seasoned Financing

Section 1.8. Life Cycle Approach for Teaching Entrepreneurial Finance

Summary

Key Terms

Discussion Questions

Internet Activities

Exercises/Problems

Supplemental Exercises/Problems

Chapter 2. Developing the Business Idea

Section 2.1. Process for Identifying Business Opportunities

Section 2.2. To Be Successful, You Must Have a Sound Business Model

Component 1: The Business Model Must Generate Revenues

Component 2: The Business Model Must Make Profits

Component 3: The Business Model Must Produce Free Cash Flows

Section 2.3. Learn from the Best Practices of Successful Entrepreneurial Ventures

Best Marketing Practices

Best Financial Practices

Best Management Practices

Best Production or Operations Practices Are Also Important

Section 2.4. Time-to-Market and Other Timing Implications

Section 2.5. Initial “Litmus Test” for Evaluating the Business Feasibility of an Idea

Section 2.6. Screening Venture Opportunities

An Interview With the Founder (Entrepreneur) and Management Team: Qualitative Screening

Scoring a Prospective New Venture: Quantitative Screening

Industry/Market Considerations

Pricing/Profitability Considerations

Financial/Harvest Considerations

Management Team Considerations

Opportunity Screening Caveats

Section 2.7. Key Elements of a Business Plan

Cover Page, Confidentiality Statement, and Table of Contents

Executive Summary

Business Description

Marketing Plan and Strategy

Operations and Support

Management Team

Financial Plans and Projections

Risks and Opportunities

Business Plan Appendix

Summary

Key Terms

Discussion Questions

Internet Activities

Exercises/Problems

Supplemental Exercises/Problems

Appendix A. Applying the VOS Indicator™: An Example

Part 2. Organizing and Operating the Venture

Chapter 3. Organizing and Financing a New Venture

Section 3.1. Progressing Through the Venture Life Cycle

Section 3.2. Forms of Business Organization

Proprietorships

General and Limited Partnerships

Corporations

Limited Liability Companies

Section 3.3. Choosing the Form of Organization: Tax and Other Considerations

Section 3.4. Intellectual Property

Protecting Valuable Intangible Assets

What Kinds of Intellectual Property Can Be Protected?

Patents

Trade Secrets

Trademarks

Copyrights

Other Methods for Protecting Intellectual Property Rights

Confidential Disclosure Agreements (Nondisclosure Agreements)

Employment Contracts

Section 3.5. Seed, Startup, and First-Round Financing Sources

Financial Bootstrapping

Business Angel Funding

First-Round Financing Opportunities

Summary

Key Terms

Discussion Questions

Internet Activities

Exercises/Problems

Supplemental Exercises/Problems

Chapter 4. Preparing and Using Financial Statements

Section 4.1. Obtaining and Recording the Resources Necessary to Start and Build a New Venture

Section 4.2. Business Assets, Liabilities, and Owners, Equity

Balance Sheet Assets

Liabilities and Owners’ Equity

Section 4.3. Sales, Expenses, and Profits

Section 4.4. Internal Operating Schedules

Section 4.5. Statement of Cash Flows

Section 4.6. Operating Breakeven Analyses

Survival Breakeven

Identifying Breakeven Drivers in Revenue Projections

Summary

Key Terms

Discussion Questions

Internet Activities

Exercises/Problems

Appendix A. NOPAT Breakeven: Revenues Needed to Cover Total Operating Costs

Chapter 5. Evaluating Operating and Financial Performance

Section 5.1. Users of Operating and Financial Performance Measures by Life Cycle Stage

Section 5.2. Using Financial Ratios

Section 5.3. Cash Burn Rates and Liquidity Ratios

Measuring Venture Cash Burn and Build Amounts and Rates

Beyond Burn: Traditional Measures of Liquidity

Interpreting Cash-Related and Liquidity-Related Trends

Section 5.4. Leverage Ratios

Measuring Financial Leverage

Interpreting Changes in Financial Leverage

Section 5.5. Profitability and Efficiency Ratios

Income Statement Measures of Profitability

Efficiency and Return Measures

Interpreting Changes in Profitability and Efficiency

Section 5.6. Industry Comparable Ratio Analysis

Section 5.7. A Hitchhiker’s Guide to Financial Analysis

Summary

Key Terms

Discussion Questions

Internet Activities

Exercises/Problems

Part 3. Planning for the Future

Chapter 6. Managing Cash Flow

Section 6.1. Financial Planning Throughout the Venture’s Life Cycle

Section 6.2. Surviving in the Short Run

Section 6.3. Short-Term Cash-Planning Tools

Section 6.4. Projected Monthly Financial Statements

Section 6.5. Cash Planning from a Projected Monthly Balance Sheet

Section 6.6. Conversion Period Ratios

Measuring Conversion Times

Interpreting Changes in Conversion Times

Summary

Key Terms

Discussion Questions

Internet Activities

Exercises/Problems

Spreadsheet Exercises/Problems

Chapter 7. Types and Costs of Financial Capital

Section 7.1. Implicit and Explicit Financial Capital Costs

Section 7.2. Financial Markets

Section 7.3. Determining the Cost of Debt Capital

Determinants of Market Interest Rates

Risk-Free Interest Rate

Default Risk Premium

Liquidity and Maturity Risk Premiums

A Word on Venture Debt Capital

Section 7.4. What Is Investment Risk?

Measuring Risk as Dispersion around an Average

Historical Return versus Risk Relationships

Section 7.5. Estimating the Cost of Equity Capital

Cost of Equity Capital for Public Corporations

Cost of Equity Capital for Private Ventures

Sources and Costs of Venture Equity Capital

Section 7.6. Weighted Average Cost of Capital

A Life Cycle–Based WACC Example

Summary

Key Terms

Discussion Questions

Internet Activities

Exercises/Problems

Appendix A. Using WACC to Complete the Calibration of EVA

Chapter 8. Securities Law Considerations When Obtaining Venture Financing

Section 8.1. Review of Sources of External Venture Financing

Section 8.2. Overview of Federal and State Securities Laws

Securities Act of 1933

Securities Exchange Act of 1934

Investment Company Act of 1940

Investment Advisers Act of 1940

Jumpstart Our Business Startups Act of 2012

State Securities Regulations: “Blue-Sky” Laws

Section 8.3. Process for Determining Whether Securities Must Be Registered

Offer and Sale Terms

What Is a Security?

Section 8.4. Registration of Securities under the Securities Act of 1933

Section 8.5. Security Exemptions from Registration under the 1933 Act

Section 8.6. Transaction Exemptions from Registration under the 1933 Act

Private Offering Exemption

Accredited Investor Exemption

Section 8.7. SEC’s Regulation D: Safe-Harbor Exemptions

Rule 504: Exemption for Limited Offerings and Sales of Securities Not Exceeding $5 Million

Rule 506: Exemption for Limited Offers and Sales Without Regard to Dollar Amount of Offering

Section 8.8. Regulation a Security Exemption

Section 8.9. JOBS Act Innovations

Summary

Key Terms

Discussion Questions

Internet Activities

Exercises/Problems

Appendix A. Schedule A (Securities Act of 1933, as Amended)

Appendix B. Selected SEC Regulation D Materials

Appendix C. Other Forms of Registration Exemptions and Breaks

Part 4. Creating and Recognizing Venture Value

Chapter 9. Projecting Financial Statements

Section 9.1. Long-Term Financial Planning Throughout the Venture’s Life Cycle

Section 9.2. Beyond Survival: Systematic Forecasting

Forecasting Sales for Seasoned Firms

Forecasting Sales for Early-Stage Ventures

Section 9.3. Estimating Sustainable Sales Growth Rates

Section 9.4. Estimating Additional Financing Needed to Support Growth

The Basic Additional Funds Needed Equation

Impact of Different Growth Rates on AFN

Estimating the AFN for Multiple Years

Section 9.5. Percent-of-Sales Projected Financial Statements

Forecasting Sales

Projecting the Income Statement

Projecting the Balance Sheet

Forecasting the Statement of Cash Flows

Financing Cost Implications Associated with the Need for Additional Funds

Summary

Key Terms

Discussion Questions

Internet Activities

Exercises/Problems

Spreadsheet Exercises/Problems

Chapter 10. Valuing Early-Stage Ventures

Section 10.1. What Is a Venture Worth?

Does the Past Matter?

Looking to the Future

Vested Interests in Value: Investor and Entrepreneur

Section 10.2. Basic Mechanics of Valuation: Mixing Vision and Reality

Present Value Concept

If You’re Not Using Estimates, You’re Not Doing a Valuation

Divide and Conquer with Discounted Cash Flow

Section 10.3. Required versus Surplus Cash

Section 10.4. Developing the Projected Financial Statements for a DCF Valuation

Section 10.5. Just-In-Time Equity Valuation: Pseudo Dividends

Section 10.6. Accounting versus Equity Valuation Cash Flow

Origins of Accounting Cash Flows

From Accounting to Equity Valuation Cash Flows

Summary

Key Terms

Discussion Questions

Internet Activities

Exercises/Problems

Spreadsheet Valuation Problem

Learning Supplement 10A. Value Maximization and the First Entrepreneurial Team

Learning Supplement 10B. Discounting Growing Perpetuities

Chapter 11. Venture Capital Valuation Methods

Section 11.1. Brief Review of Basic Cash Flow-Based Equity Valuations

Section 11.2. Basic Venture Capital Valuation Method

Using Present Values

Using Future Values

Section 11.3. Earnings Multipliers and Discounted Dividends

Section 11.4. Adjusting VCSCs for Multiple Rounds

First Round

Second Round

Section 11.5. Adjusting VCSCs for Incentive Ownership

First Round

Second Round

Incentive Ownership Round

Section 11.6. Adjusting VCSCs for Payments to Senior Security Holders

Section 11.7. Introducing Scenarios to VCSCs

Utopian Approach

Mean Approach

Summary

Key Terms

Discussion Questions

Internet Activities

Exercises/Problems

Learning Supplement 11A. Sustainable Growth

Learning Supplement 11B. PDC’s Equity Valuation: Synthesizing Equity Method and VCSC Valuations (Advanced)

Part 5. Structuring Financing for the Growing Venture

Chapter 12. Professional Venture Capital

Section 12.1. Historical Characterization of Professional Venture Capital

Section 12.2. Professional Venture Investing Cycle: Overview

Section 12.3. Determining (Next) Fund Objectives and Policies

Section 12.4. Organizing the New Fund

Section 12.5. Soliciting Investments in the New Fund

Section 12.6. Obtaining Commitments for a Series of Capital Calls

Section 12.7. Conducting Due Diligence and Actively Investing

Section 12.8. Arranging Harvest or Liquidation

Section 12.9. Distributing Cash and Securities Proceeds

Summary

Key Terms

Discussion Questions

Internet Activities

Exercises/Problems

Chapter 13. Other Financing Alternatives

Section 13.1. Business Incubators, Seed Accelerators, and Intermediaries

Business Incubators and Seed Accelerators

Intermediaries, Facilitators, and Consultants

Section 13.2. Business Crowdsourcing and Crowdfunding

Section 13.3. Commercial and Venture Bank Lending

Section 13.4. Understanding Why You May Not Get Debt Financing

Section 13.5. Credit Cards

Section 13.6. Foreign Investor Funding Sources

Section 13.7. Small Business Administration Programs

Overview of What the SBA Does for Small Businesses

Selected SBA Loan and Operating Specifics

Section 13.8. Other Government Financing Programs

Section 13.9. Factoring, Receivables Lending, and Customer Funding

Section 13.10. Debt, Debt Substitutes, and Direct Offerings

Vendor Financing: Accounts Payable and Trade Notes

Mortgage Lending

Traditional and Venture Leasing

Direct Public Offers

Summary

Key Terms

Discussion Questions

Internet Activities

Exercises/Problems

Appendix A. Summary of Colorado Business Financial Assistance Options

Chapter 14. Security Structures and Determining Enterprise Values

Section 14.1. Common Stock or Common Equity

Section 14.2. Preferred Stock or Preferred Equity

Selected Characteristics

Convertible Preferreds

Conversion Value Protection

Conversion Protection Clauses

Conversion Price Formula (CPF)

Market Price Formula (MPF)

Section 14.3. Convertible Debt

Section 14.4. Warrants and Options

Section 14.5. Other Concerns about Security Design

Section 14.6. Valuing Ventures with Complex Capital Structures: the Enterprise Method

Summary

Key Terms

Discussion Questions

Internet Activities

Exercises/Problems

Learning Supplement 14A. Alternative Enterprise Valuation Method

Learning Supplement 14B. Application of Black-Scholes Option-Pricing Formula

Part 6. Exit and Turnaround Strategies

Chapter 15. Harvesting the Business Venture Investment

Section 15.1. Venture Operating and Financial Decisions Revisited

Section 15.2. Planning an Exit Strategy

Section 15.3. Valuing the Equity or Valuing the Enterprise

Relative Valuation Methods

Dividing the Venture Valuation Pie

Section 15.4. Systematic Liquidation

Section 15.5. Outright Sale

Family Members

Managers

Employees

Outside Buyers

Section 15.6. Going Public

Investment Banking

Some Additional Definitions

Other Costs in Issuing Securities

Post-IPO Trading

Contemplating and Preparing for the IPO Process

Summary

Key Terms

Discussion Questions

Exercises/Problems

Chapter 16. Financially Troubled Ventures: Turnaround Opportunities?

Section 16.1. Venture Operating and Financing Overview

Section 16.2. The Troubled Venture and Financial Distress

Balance Sheet Insolvency

Cash Flow Insolvency

Temporary versus Permanent Cash Flow Problems

Section 16.3. Resolving Financial Distress Situations

Operations Restructuring

Asset Restructuring

Financial Restructuring

Section 16.4. Private Workouts and Liquidations

Private Workouts

Private Liquidations

Venture Example: Jeremy’s Microbatch Ice Creams, Inc.

Section 16.5. Federal Bankruptcy Law

Bankruptcy Reorganizations

Reasons for Legal Reorganizations

Legal Reorganization Process

Bankruptcy Liquidations

Summary

Key Terms

Discussion Questions

Internet Activities

Exercises/Problems

Part 7. Capstone Cases

Capstone Case 1. Eco-Products, Inc.

Background

The Company

Surviving the Early Years: 1991–2003

Building a New Division: 1996–2000

A Growing Team for a Growing Business: 2004–2005

A New Direction: 2005–2007

The “Eco-Products” Label

Competitors

The Perfect Storm: 2007

Financial Performance: 2005–2007

The Cash Vortex: 2008

Negotiating a Strategic Partnership: July 2008

Assignments

Appendix A. Excerpts from Eco-Products, Inc., 2007 Private Placement Memorandum

Appendix B. Investment Terms Sheet—Greenmont Capital Partners

Capstone Case 2. Spatial Technology, Inc

The Origin of Spatial Technology

Early Company History

After the Restructuring

Time to Go Public

The Morning After: A Last Chance?

Assignments

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