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Course Description This
page provides information on Entrepreneurial Finance and Venture Capital
class I teach at Kellogg. For students enrolled in the class detailed
information are in Blackboard. This web page is only intended for students
who are trying to understand whether to take the class or not. Entrepreneurial
activity has been a potent source of innovation and job generation in the
global economy. In the U.S., the majority of new jobs are generated by new
entrepreneurial firms. The financial issues confronting entrepreneurial firms
are drastically different from those faced by established companies. The
focus on this course will be on analyzing the unique financial issues faced
by entrepreneurial firms and to develop a set of skills that has wide
applications for such situations. The course also covers material useful for
managing a venture capital firm (GPs), including fundraising (relationship
with LPs) and sourcing, investing and managing portfolio firms (relationship
with entrepreneurial firms). Finally, it provides tools for investors (limited
partners) who want to understand venture capital as an asset class. Throughout
the course, analytical tools will be introduced and utilized. Financial
analysis, various valuation methods, negotiations, and deal structuring will
be examined in the context of entrepreneurial firms. In addition, investment
analysis and due diligence issues will be explored. Using
the case method, the course covers all stages of the financing process, from
startup to harvest and exit. This area is populated by players who often use
sub-standard techniques to evaluate and fund entrepreneurial firms. Indeed,
about 75% of venture capital firms operating in the US are not able to
provide sufficient returns for their investors, exactly because they use
questionable methodologies to make investment decisions. We will only focus
on methodologies that are found to deliver consistent positive results.
Often, this will imply that we would challenge some widespread practices, or
retool them to make sure that could be applicable to the specific case. The
course will go into great details with respect to structuring multi-staged
financings and valuing entrepreneurial firms also providing insights on how venture capital
partnership work, why do they take the forms they do, and where the crucial
problems and opportunities for innovation exists. Consideration is given to
the incentives faced by investors in early ventures, and how to properly make
financing decisions and negotiate contractual terms. Emphasis is given to
high growth start-ups searching for funding in the US (or in countries with
very similar characteristics) as opposed to more traditional entrepreneurial
and family firms operating globally (see FINC945 for these topics) and to
Leverage Buyouts (see FINC-448 for LBOs). However, there is a strong
connection with these two classes.
The course is aimed primarily at people who may be involved in an
entrepreneurial venture at some point in their careers whether in a startup,
a spinoff from a large organization, or a turnaround. The course is also
useful for venture capital careers and students interested in Venture Capital
as an asset class (Limited Partners). The
primary objective of the course is to provide an understanding of the
concepts and institutions involved in entrepreneurial finance and private
equity markets. To do this, I have purposely designed the course to be broad
and comprehensive. The
course assumes knowledge of corporate finance from the start at the level of
Finance II (FINC-441) or Finance I/II (FINC-440). These courses may not be
taken concurrently with FINC-445. The key tool that you need to have is a
good understanding of valuation (APV analysis). Having taken Fin Decision
before this class is extremely valuable. Additional Information Preliminary syllabus can be found here. All other information about
this course will be posted on Blackboard
and accessible only to students enrolled. If you
have questions about this web page, send them to Paola-Sapienza@kellogg.northwestern.edu
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