Entrepreneurial Finance

Semester:

4A

Class:

MBA

Instructor:

Dr. Salman Khan

Email:

salman.khan@lums.edu.p
k

Room #

4-08

Telephone:

(042)35608220

Office Hours:

TBD

Secretary/TA

Hassan Haider

COURSE OVERVIEW
Entrepreneurial Finance is designed to help managers make better investment and financing
decisions in entrepreneurial settings. The course covers all stages of the process, from startup
to harvest. Approximately one-third of the cases concern technology-based businesses,
though the emphasis is on gaining insights into entrepreneurial management, not technology
per se. The course focuses more attention on deal structuring and incentives. There is a
module on emerging trends in entrepreneurial finance, covering the financing of clean tech
startups well as the rising importance of Angel investors.
Though the course is called Entrepreneurial Finance, the course differs in philosophy and
style from a course like First Year Finance which is designed to focus on the numbers and the
analytical techniques for gaining insight. Entrepreneurial Finance integrates people into the
equation by taking into account their capabilities, their incentives, and the cognitive biases
they bring to decision making. Students should not take the course as a remedial finance
course. The course will go into greater depth than possible in the First Year with respect to
structuring multi-staged financings, understanding business models, and valuing
entrepreneurial ventures.
The course is aimed primarily at students who may be involved in an entrepreneurial venture
at some point in their careers whether in a large organization, a turnaround, a management
buyout or a startup. The course will also be useful for future private equity decision makers.
The course has been divided into following modules:
1.
2.
3.
4.

Issues and alternative business venture financing options

Venture Capitalists Principles and Due Diligence
Startup valuation
Structuring Deals
5. Splitting Equity and Compensation
LEARNING OUTCOMES
The students will be able
[LO-1] To identify and evaluate the issues and alternative business venture financing options
[LO-2] To learn and understand the venture capitalists principles and due diligence process
[LO-3] To demonstrate the mathematics of startup valuation
[LO-4] To structure a deal
[LO-4] To split equity and assess compensation related issues.

MBA PROGRAM LEARNING GOALS & OBJECTIVES

1. Leadership and teamwork: Students will be able to assume leadership roles,
perform leadership tasks responsibly, and work effectively in teams.
2. Functional, integrative and strategic abilities: Students will demonstrate
understanding of the functional and strategic aspects of business and management, be
able to integrate across functional areas, and develop feasible strategies and action
plans.
3. Critical thinking and decision making: Students will be able to identify key
problems, collect and use information critically, and generate viable alternatives and
solutions.
4. Global perspective and flexibility: Students will demonstrate understanding of
global and multi-cultural perspectives within the local context and be able to work
effectively in multi-cultural settings.
5. Social, ethical, economic and environmental responsibility: Students will be able to
understand the broader ramifications of their decisions and assess the impact of
economic, ethical, environmental factors on the policies, strategies and operations of
the organization.
6. Effective communication: Students will be able to communicate clearly and
persuasively in writing and verbally, in ways appropriate for a variety of objectives
and audiences.
7. Entrepreneurialism and innovativeness: Students will be able to create, identify,
assess, shape and act on opportunities in a variety of contexts and organizations.
8. Managing pressures, complexities and uncertainties: Students will be able to
manage pressures and resource constraints, and think, decide and act in complex and
ambiguous situations.
Indicate below how the course learning objectives specifically relate to any program
learning goals and objectives.
Program Learning Goals and
Objectives
Goal 1 Leadership and
Teamwork
Goal 2 Functional, integrative
and strategic abilities

Course Learning Objectives

Course Assessment Item

[LO-1, LO-2, LO-3, LO-4,

LO-5]

Goal 3 Critical Thinking

Decision making capabilities

The students will be able to

advance their critical thinking
and decision making
capabilities.
The students will demonstrate
evaluating and decisionmaking in a global multicultural setting.
The course will help students
to distinguish their decisions
given social and ethical issues.

Class Participation
Quizzes/Assignments
Final Exam
Class Participation
Final Exam

Goal 4 Global perspective

and flexibility
Goal 5 Social, Ethical,
Economical and Environmental
Responsibility
Goal 6 Communication
competency
Goal 7 Entrepreneurialism
and innovativeness

Class Participation
Final Exam
Class Participation

Indicate below how the course learning objectives specifically relate to any program
learning goals and objectives.
Goal 8 Managing pressures,
complexities and Uncertainties

The students will be able to

take position on various issues
given the information
uncertainties and defend it.

Class Participation
Final Exam

COURSE ASSESSMENT/GRADES
1) Class Participation
2) Assignment / Quizzes
3) Final Exams

35%
25%
40%

1) Class Participation
The class participation will be graded according to following rules:
The scale is -2,-1,0, 1, 2, 3, 4
-2 or -1: Attitude problems, cause class disturbance, absences
0: No participation , unprepared, causes distraction (making irrelevant point
without properly listening the question or earlier comment), left the class
for a limited time
0-1: Participation with relevant data, methodology or formulation i.e., case or
background note related facts.
1-2: Analytical participation with good reasoning using case facts
2-3: Analytical participation with ideas built on others ideas/opinions
3-4: Analytical participation with new insights developed from others
ideas/opinions
2) In Class Exercises / Quizzes
In Class Exercises: The students will be given the exercise sheet during or at the end of the
session. These will be short exercises and should be completed within the specified time.
Quizzes: The class will have minimum four surprise quizzes during the course. The quizzes
will be non MCQ format. The quizzes will be graded based on the criteria i.e., subject
knowledge (definition, criteria, transaction, some important terms etc.) and quality
assessment (clarity, comprehension, organization of material, persuasiveness, well
developed argument etc).
3)

Final Exams
The students will receive a case and an answer booklet with pre-specified three to four
questions for written analysis. The space for answering the question will be pre-allocated in
the booklet. The exam will test the students functional knowledge (i.e., subject), critical
thinking and decision making capabilities, communication competency, innovativeness and
the students ability to managing time pressure. The exam will be closed book, A4 size pre
written formula sheet (both sides) will be allowed along with calculators.

CLASS-MANAGEMENT POLICY
Please consult MBA handbook for attendance, timelines and norms of professional conduct.

COURSE REQUIREMENTS

Pre-requisite: Financial Management

Other Requirements:
o Basic understanding of economic and financial concepts and issues, concepts related
to time value of money.
o Strong analytical capabilities with research and Communication skills.

RECOMMENDATION FOR FURTHER EDUCATION

Identification of additional courses or sources of knowledge and practice for greater and indepth understanding and proficiency.

RECOMMENDED TEXTBOOKS/SUPPLEMENTARY READINGS ( if Applicable)

-A course pack consisting of all the reading material will be provided to the
participants.
- Entrepreneurial Finance: Strategy, Valuation, and Deal Structure , Janet Kiholm
Smith, Richard L. Smith, Richard T. Bliss, Stanford University Press.

REQUIREMENTS (FOR PCO OFFICE)

Midterm Exam:

No

Final Exam:

Yes

Exam Format: Case Analysis (3 to 4

Questions to be answered)
Closed Book/ Closed Notes, One A4 Cheat
sheet allowed.

Double Session:

No

Joint Session (combined of two

sections):

No

Simulation:

No

Video Recording:

No

IT Lab sessions

No

Additional session or review session

No

Course Cap (applicable for elective

courses)

No

Standard Cap in an Elective Course is 50

Any other requirement (e.g.

laptop/computer etc.):

OTHER REQUIREMENTS

No

Session No.

Topic:

TITLE OF CASE

READING MATERIAL

Module 1- (Introduction to Venture Financing)

Session
1

Basics of venture
capital financing

Session
2

Issues in funding
potential startups

New Venture Financing,

HBS Note (13 Pages)
Neverfail Computing,
BABSON case (22
Pages)

Descr
altern

Under
poten
profes
discus
"impe

Module 2-(Venture Capitalists Principles and Due Diligence)

Session
3

Theoretical venture
analytics

Walnut Venture
Associates (A): RBS
Group Investment
Memorandum, HBS Case
(32 Pages)

Analy
dilige
which
and h

Session
4

Venture risk
management-I

Valhalla Partners Due

Diligence, HBS Case (20
Pages)

Gain r
of due
to ma

Session
5

Venture risk
management-II

Onset Ventures, HBS

Case (30 Pages)

Explo
succe
firm a

Module 3-(Valuing a Startup)

Session
6

Startup valuation

Funding New Ventures:

Valuation, Financing
and Capitalization
Tables, HBS note (5
Pages)

Expla
i.e., th
from
valua
repres
table

Session
7

Issues in venture
valuation

A Note on Valuation of
Venture Capital Deals,
HBS Note (13 Pages)

Learn
valua
topics
limite
comp
in ent
either
privat

Module 4 -(Understanding deal structuring)

Session
8

Understanding deal
structuring

Session
9

Venture analytics

SpiffyTerm, Inc.: January

2000, Stanford case (12
Pages)

Recog
used

Session
10

Investment strategy

Car Wash Partners Inc.,

HBS case (26 Pages)

Discu
deal s

Session
11

Issues in venture
deal structuring

Endeca Technologies
(A), HBS case (22 Pages)

Learn
the im
open,
to no
realiti

Deal Structure and Deal Descr

Terms, HBS note (8
craftin
Pages)
provis
ventu
of the
term

Module 5 (Splitting Equity and Compensation)

Session
12

Equity breakup
analysis

NanoGene Technologies,
Inc., HBS Case (11
Pages)

Descr
phase
decisi
and c
estab
will se
grows

Session
13

Complete venture
capital scenario

Sports in Your Pocket

(A), HBS case (11 Pages)

Addre
entre
identi
and, m
amon

Session
14

Complete venture
capital scenario

Saras Options, HBS

case (8 Pages)

Under

Statistical Summary
Number of Cases

10

Number of Readings

Total Number of
Pages in Course
Material

233