Syllabus

Course Meeting Times

Lectures: 2 sessions / week, 1.5 hours / session

Recitations: 1 session / week, 1 hour / session

Requirements

The course requires the concepts and skills developed in 15.402 Finance Theory II, which is a pre-requisite. Other courses that may fulfill the pre-requisite requirements are 15.414 Financial Management or 15.415 Finance Theory. Some knowledge of option pricing will also be needed in a few instances. Because we will be linking financial concepts to other business concepts your broad MBA training will also come in handy.

This course places a strong emphasis on presentation and discussion skills. It will be important for you to explain your positions or arguments to each other and to try to argue for the implementation of your recommendations.

Course Overview

This course will use a combination of case discussions and lectures to study entrepreneurial finance. The course is targeted to budding entrepreneurs and venture capitalists. There are five main areas of focus:

1. Business Evaluation and Valuation: Here we will give you some tools to valuate early stage business opportunity. We will also review the standard tools of valuation applied to start-up situations and introduce the venture capital method and the real options approach to valuation.
2. Financing: In this module, we will highlight the main ways that entrepreneurs are financed and analyze the role of financial contracts in addressing information and incentive problems in uncertain environments.
3. Venture Capital Funds: We will look at the structure of venture capital funds and their fund raising process. This module will include issues of corporate venture capital and private equity funds in emerging market economies.
4. Employment: We will study the issues of attracting and compensating employees in start-ups.
5. Exit: We will discuss how founders should exit. Should they sell to another company, take it public, or continue independently as a private company?

Carl Stjernfeldt (General Partner at Castile Ventures) will co-teach a number of sessions. We are very lucky to have Carl participate so please use his time judiciously! We also have a number of additional guest speakers who will discuss recent developments in the industry.

Materials

A number of case studies are required for this course. The following two texts are optional materials:

Levin, Jack S. Structuring Venture Capital, Private Equity, and Entrepreneurial Transactions. Aspen Publishers, 2009. ISBN: 9780735581609.

Metrick, Andrew, and Ayako Yasuda. Venture Capital and the Finance of Innovation. Wiley, 2010. ISBN: 9780470454701.

Deliverables and Procedures

This course is designed to be challenging and time-consuming. You should expect to prepare an average of one case per week. Each case will come with guideline questions. Students are required to submit a two-page memorandum on the cases. Students can (but are not required to) work in teams of no more than four. You have the option of not handing in two cases during the semester.

The memorandums should be typed and double-spaced. They should be written as if you were presenting it to your business partners (be they your fellow entrepreneurs or investors). The two-page limit is for text only. You may attach as many numerical calculations as you wish. Memoranda will not be accepted after the class has met. Grading of the memoranda will be on the bases of check marks. The grades on these memorandums tend to help on the margins, moving students up or down half a grade.

Class attendance is critical to the learning process. Because this is such a new area of academic inquiry, there are no textbooks from which to distill all the critical information. The learning will come from struggling together to come to a better understanding of the key issues in the case. Also, because this is a new course, your input is particularly valued as we learn together.

Grading

The final exam will be an in-class exam and will be held during the exam week. The exam will be open book but no computers, cell phones or PDAs will be allowed during the exam.