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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
comparables
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
pricing
covenants
collateral
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)
Investment Banking
In 2008-09, the Investment Banking Workshop placed 62 graduating seniors in investment banking or investment management positions and 42 juniors in similar internships.
