Finance for Entrepreneurs & Innovators (2235.YR.003879.1)

General information

Type:	OPT	Curs:	1	Period:	S semester
ECTS Credits:	3 ECTS

Teaching Staff:

Group	Teacher	Department	Language
Year 1	Carles Florensa Torne	Dirección General y Estrategia	ENG

Basic financial accounting.

Good to have some knowledge of corporate finance, but not needed.

This class integrates knowledge from many of your courses at MIE as you will need to build a financial plan and the financing strategy (short and long term) of a new venture.

The objective of this course is to understand the practices and analyse the challenges facing entrepreneurs when looking for finance, in seed or start-up stages, when growing their venture, or when managers decide to buy a business to became owners to manage an existing company

The course will cover various topics. Firstly, it will analyse how to obtain financing, alternative sources of financing, and their characteristics. Among these sources are business angels, venture capital and other capital, both public and private. Furthermore, the course will present the challenge of valuing a business and reaching an agreement on price, and exchanging a percentage of the venture for cash. Time will also be devoted to the important task of structuring deals, negotiating key clauses, and solving conflicting situations, both from the point of view of the entrepreneur and investor.

All these topics will help us to work in detail with financial plans, valuations, and contracts (especially the shareholders' agreement), and, finally, to think about harvesting, or selling the venture, in order to enable our investor group, and of course the founders, to exit and get a nice return.

The content covers three objectives, and is divided into three interconnected modules:

- Module 1: Introduction to entrepreneurial finance: The objective of this module is to understand the complete process for obtaining external finance, possible alternatives, and the relationship between entrepreneurs and investors. Emphasis is placed on understanding two types of investors: business angels and venture capitalists. From there, the course analyses the business plan from the investor perspective, and the complex task of preparing a detailed financial plan. Understanding the venture's financial needs, and how to cover them, is key for the survival and growth of a company.

- Module 2: Valuation of start-ups and negotiating with investors: In the second module we will review the classical valuation methodologies before moving to the venture capital approach to valuing companies, a method designed to value start-ups. Understanding pre-money, post-money valuation, or carried interest, in the different rounds of financing, will be fundamental when the entrepreneur is approached by investors. Then we will look at how to structure an investment - with a special focus on a key document: the term sheet. An understanding of the implications of the main clauses of the term sheet is essential for any entrepreneur.

Module 3: Entrepreneurship by acquiring a company. The exit: The module we will focus on more mature businesses and how to become an entrepreneur without starting your own business, for example, by acquiring the firm you work for (management buyout, MBO), or by participating in a search fund. We will analyse how leveraged buyouts (LBOs) work, both from a financial perspective and from an incentive perspective. We will study in depth two types of entrepreneurship, by acquisition, that are very attractive to young graduates: buy & build and search funds.
To close the investment cycle, in the final session we will reflect on harvesting, from the entrepreneur perspective and from the perspective of the other affected stakeholders, such as key employees, as well as equity investors who are expecting a profitable exit. The different exit strategies will be analysed to gain an understanding of the pros and cons of each option. Valuation is not always the only variable to consider when selling a business and other issues will be taken into account.

1. Module 1: Introduction to entrepreneurial finance The objective of this module is to understand the complete process for obtaining external financing, possible alternatives and the relationship between entrepreneurs and investors. Special time will go to understand two types of investors: business angels and venture capitalists. From there the course will move to the analysis of the business plan from the investors' perspective, and to the complex task of preparing a detailed financial plan. Understanding the venture's financial needs, and how to cover them, is key for the survival and growth of the company.

2. Module 2: Valuation of start-ups and deal structuring In the second module we will review the classical valuation methodologies before moving to the venture capital approach to valuing companies, a method designed to value start-ups. Understanding pre-money, post-money valuation or carried interest, in the different rounds of financing, will be fundamental when the entrepreneur is approached by investors. The module will get to deal with structuring an investment - with a special focus in a key document: the term sheet. Understanding the implications of the main clauses in the term sheet will be a need for any entrepreneur. We will also review other key contracts involved in an equity transaction.

3. Module 3: Entrepreneurship through acquisition and the exit The last module will have a focus on more mature businesses and how to become an entrepreneur without starting your own business, for example acquiring the firm your work for (management buy out) or by participating in a search fund. We will analyse how leverage buy-outs work, both from a financial perspective and from an incentive perspective. The option of becoming the owner of the business where you work, through an MBO, with a financial sponsor, will be reviewed. Then we will examine more innovative ways of entrepreneurship, such as buy & built deals or search funds. In the last session we will think about harvesting, from the entrepreneur perspective and from other stakeholders affected, such as key employees and the equity investors, which are expecting a profitable exit. The different exit strategies will be analysed, trying to get a sense of pros and cons of each option. Valuation is not always the only variable to consider when selling a business and other issues involved in the sale will be taken into account.

Classes have a strong focus on practical content, and will combine discussion of cases, illustration of key theoretical concepts and presentations.

Guess speakers, with experience in the different areas covered, both entrepreneurs and investors or advisors involved in the deals, will allow participants to acquire knowledge first hand.

There would be group assignments with very practical focus.

ASSESSMENT BREAKDOWN

There is a textbook for the course:
- Alemany & Andreoli (2017) "Entrepreneurial Finance: The Art and Science of Growing Ventures", Cambridge University Press.

Some of my favourite books for those interested in going deeper in the subject are:

- Ante, S. (2008) "Creative Capital: George Doriot and the Birth of Venture Capital" - HBS Press
- Bartlett & P. Economy (2002) "Raising Capital for Dummies"- Wiley Publishing
- Benjamin, G. & Margulis, J. (2001) "The Angel Investor's Handbook: How to Profit from Early-Stage Investing" - Vision Book
- Bussgang, J. (2010) "Mastering the VC Game" - Portfolio Penguin
- Bygrave, W., Hay, M. & Peeters, J. (1999) "The Venture Capital Handbook" Prentice Hall
- Campbell, K. (2003) "Smarter Ventures" - Prentice Hall
- Cendrowski, H., Martin, J., Petro, L. & Wadecki, A. (2008) "Private Equity: History, Governance and Operations" - Wiley
- Cumming, D & Johan, S. (2009) "Venture Capital and Private Equity Contracting" - Academic Press
- Draper, W. & Schmidt, E. (2011) "The Startup Game: Inside the Partnership between Venture Capitalists and Entrepreneurs" - Palgrave Macmillan
- Feld, B. et al (2011) "Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalists" - Wiley
- Gompers, P. & Lerner, J. (2001) "The Money of Invention" - Harvard Business School Press
- Gupta, U. (2000) "Done Deals" - Harvard Business School Press
- Kocis, J., Bachman J., Long A. & Nickels, C. (2009) "Inside Private Equity" - Wiley
- Lawton, K & Marom, D. (2013) "The Crowdfunding Revolution" - McGrawHill
- Lutoff-Carroll, C., Pirnes, A. & Withers LLP (2009) "From Innovation to Cash Flows" - Wiley
- Manigart, S. & Meuleman, M. (2004) "Financing Entrepreneurial Companies" - Larcier
- Perkins, T. (2007) "Valley Boy" - Gotham Books
- Sahlman, W., Stevenson, H, Roberts, M. & Bhidé, A. (1999) "The Entrepreneurial Venture" - 2nd Edition - Harvard Business School Press
- Schertler, A. (2006) "The Venture Capital Industry in Europe" - Palgrave Macmillan
- Timmons, J., Spinelli, S. & Zacharakis, A. (2004) "How to Raise Capital: Techniques and Strategies for Financing and Valuing Your Small Business" - McGraw Hill
- Wilmerding, A. (2006) "Term Sheets and Valuations" - Aspatore Books

Group	Teacher	Department
Year 1	Carles Florensa Torne	Dirección General y Estrategia