At the end of the course, students will be able to:
- evaluate and advise an entrepreneurial firm in terms of various financing options, e.g., debt, angel, venture capital, and crowdfunding;
- understand and analyze the financial structure of a company, differences between debt and equity financing, and the different valuation techniques estimating the value of a startup (including the VC valuation method);
- understand, apply and analyze the theory of entrepreneurial finance and the ownership and control of startup ventures, including for instance the use of preferred shares and convertible notes, employee stock option plans, staged financing and anti-dilution provisions;
- understand, analyze , assess and negotiate the terms and mechanisms in a term sheet from the perspectives of either the entrepreneurial firm or the investor;
- recognize the different economic principles to be applied in the development of contractual relationships and apply these principles in analyzing and negotiating business contracts.
This course is intended to provide students with an overall introduction to entrepreneurial finance. In the first lectures, the field of entrepreneurial finance is sketched, introducing students inter alia to accelerators, angel investors, venture capitalists, and crowd funding, including the benefits and disadvantages of each investor type in a particular stage of the startup venture.
After this practical introduction, the entrepreneurial financial matters are thoroughly discussed. Here, different aspects of entrepreneurial finance and the internal structure of startups are discussed, including the financial plan, share ownership matters and employee stock option plans, convertible notes and preferred shares, important term sheet clauses like anti-dilution provisions, staged financing practices and their implications for entrepreneurs, the valuation of new ventures and ownership and internal organization issues.
Since entrepreneurs and investors often have different perspectives and incentives that may lead to undesirable conflicts, term sheets are extremely important in the area of entrepreneurial finance. We therefore provide an introduction to business contracting theory and negotiation in the final part of the course: eventually, students negotiate (taking the role of the entrepreneur or the venture capitalist) a term sheet in a negotiation case.