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Indiana University Bloomington

Department of Finance

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U.S. News & World Report ranked our undergraduate finance program #10 out of all universities in the nation in 2013.

  1. F317
    Venture Capital and Entrepreneurial Finance
    • 16-weeks
    • 3 credits
    • Prerequisite: F370 or F304 with a grade of C or better

    Covers the private equity and private debt markets that service smaller entrepreneurial firms. Specific topics include: (1) the financial contracting associated with the provision of external finance to a small informationally opaque firm, (2) angel finance and the formal venture capital market, (3) commercial banks and commercial finance companies, and (4) the financial issues associated with a leveraged buyout.

    Readings:    Entrepreneurial Finance by Janet Kiholm Smith and Richard L. Smith, John Wiley & Sons, Inc., 2000  (SS        Readings packet (RP)

    Grading:      Grading will consist of a written case (30%), a midterm exam (30%) and a final exam (40%).

    Readings and Lecture Outline

    Part I:  Financing the Entrepreneurial Firm

     An Overview of Entrepreneurial Finance (sessions 1-3)

                Topics:              the small firm balance sheet
                                        sources of small firm finance
                                        the life cycle of small business finance
                                        intermediaries and small firm finance
                                        informational opacity and small firm financial contracting
                Readings:          “The Economics of Financial Contracting” by W. Silber and G. Udell (RP)
                                        Ch 1,2, 14 (SS)

     II.  The Private Equity Market

     An Overview of the Private Equity Market (sessions 4,5)

                Topics:             history of the U.S. private equity market
                                        the U.S. regulatory environment
                                        the private equity market in the U.K., Continental Europe and Asia
                                        market structure
                                        overview of private equity investing
                                        the new venture firm:  the business plan
               Readings:          “The Economics of the Private Equity Market” by G. Fenn, N. Liang and S. Prowse (RP)
                                     Ch 3 (SS)

     Financial Forecasting and Valuation of New Ventures (sessions 6-8)

                            Topics:  financial forecasting
                                        financial statement forecasting
                                        valuation methods
                                        the First Chicago method
                                        the Venture Capital Method
                Readings:          Ch 6-9 (SS)

    Venture Capital Investing and Venture Capital Contracting (sessions 9,1)

                            Topics:  obtaining venture financing
                                        asymmetric information
                                        the venture capital contract
                                       staged financing
                Readings:          GO Corporation case (RP)
                                        Ch 11-13, 14.6 (SS)

    Harvesting Private Equity (sessions 11-13, 15)

                           Topics:  structure of securities underwriting industry
                                        the underwriting process
                                        the IPO
                                        firm sale (acquisition)
                 Readings:          ImmuLogic Pharmaceutical Corporation (A, B-1, B-2, B-3, B-4) (RP)
                                        Ch 16 (SS)

    -- Midterm Exam (session 14) --

            Fund Raising in the Private Equity Market: (sessions 16-19)

    T                              Topics:  the limited partnership vehicle
                                        the process of fund raising
                                        firm specific issues
                                        the macro environment
                Readings:          Weston Presidio Offshore Capital: Confronting the Fundraising Challenge (RP)
                                        Ch 14 (SS)

    III.  The Private Debt Market

            An Overview of Small Business Lending: (session 20)

                                    Topics:  financial statement/cash flow lending
                                        relationship lending
                                        credit scoring
                                        asset-based lending
                                        trade credit
                Readings:          Ch 15 (SS)

           Financial Statement/Cash Flow Lending (session 21)

                                     Topics:  lines of credit
                                        term loans
                                        ratio analysis
                 Readings:          Ch 15 (SS)

           Asset Based Lending: (sessions 22, 23)

                                    Topics:  collateral assessment - accounts receivable eligibility
                                        collateral assessment - inventory advance
                                        daily record
                                        cash collateral account
                                        the “air ball”
                 Readings:          ABC Co. case (to be written by G. Udell) (RP)

           Lender-Borrower Negotiation (sessions 24-25)

                                    Topics:  negotiating a new loan
                                        understanding the loan officer’s perspective
                                        negotiating in the context of borrower distress
                                        the importance of the lending environment
                Readings:          Transportation Displays Incorporated case (RP)

    Part IV:  The Entrepreneurial Alternative:  Buying Your Own Firm

           Financing Small Firm Leveraged Buyouts Using the Private Debt and Equity Markets (session 26-28)

                                    Topics:  the role and nature of mezzanine finance
                                        the use of asset based lending in LBOs
                                        deal structure
                 Readings:          XYZ Co. case (to written by G. Udell) (RP)