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ENT 412-0001 Entrepreneurial Finance and Venture Capital Investment Spring, 2014 (44294)
TuTh 10:00 AM - 11:15AM BEH -Rm 00330 Lecturer:
Sunny Li Sun, Assistant Professor of Entrepreneurship and Innovation Phone: (816)235-6070; Fax: (816)235-6529; Email: [email protected]
Office Location: Bloch School 205; Office Hours: TuTh 9:00 am-10:00am or by appointment Prerequisite: Non
Course Background
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 that face established companies. The focus in this course will be on analyzing the unique financial issues which face entrepreneurial firms and to develop a set of skills that has wide applications for such situations
Audience
This course develops financial and managerial skills that are important for students who are interested in pursuing careers in an entrepreneurial setting and venture capital investment.
Moreover, this course should be of interest to anyone who wants to deepen their understanding in different valuation methods and want to understand how financial decisions are made under uncertainty.
Course Objectives
This course is designed for students (both as entrepreneurs and investors) to learn about
entrepreneurial finance and venture capital investment through analyzing unique financial issues of entrepreneurial firms. The focus is on the analytical thinking and skills that are relevant for seeking new venture financing and making investment decisions. This course addresses important questions that all entrepreneurs need to answer: how much money does your new venture need; when is it needed; when and from whom should it be raised; what is a venture worth; and how funding should be structured.
The learning objectives include:
Learn the entrepreneurial wealth creation process from zero to IPO. Core question of this class is: how do entrepreneur/Venture capitalist make venture grow?
Develop your entrepreneurial thinking for seeking new venture financing and making investment decisions. Try to answer these questions:
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How much money (capital) does entrepreneur need in this path? How to valuate new venture?
How to negotiate with venture capitalist? What is the rule of game? Enhance your ability to communicate with entrepreneur and investor. Textbook
Dermot Berkery (2007) Raising Venture Capital for the Serious Entrepreneur, McGraw-Hill ISBN: 978-0071496025 (Required, some quizzes will come from the book)
Grading
This class will be graded on a modified curve. The target average for this class will be about B. Depending on how the cumulative assignment scores cluster and the overall quality of the work, the breakout will be approximately:
A: 93% B+: 87% C+: 77% A-: 90% B: 83% C: 73% B-: 80% C-:70%
D+ or less: If assignments or exams are largely incomplete, of poor quality, or plagiarized.
The weight of each assignment for final score is distributed as follows
Class and Discussion Participation 10%
Individual Assignments 30%
Quiz in Blackboard (10) 30%
Team Assignments (adjusted by Peer Reviews) 30% Foundation: Discover J-Curve 5%
Skills: Build J-Curve 5%
Valuation: Judge J-Curve 5%
Deals: Fly J-Curve 5%
Team Presentation 10%
Exam I 15%
Exam II 15%
Extra credits (Quiz answers and extra readings) 10% 2014 Regnier Venture Creation Challenge 5% Successfully get the term sheet from real investor 10%
TOTAL 125%
Notes: I sometimes give out +/–s.
I may occasionally announce extra credit assignments.
The grade of class and discussion participation will be based on the record of TurnPoints. You need not required to buy the device (Clicker), but you need install ResponseWare App in your Android/iPhone/iPad/Blackberry smartphone or tablet. After you buy a license, you can join a session in class
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http://www.umkc.edu/ia/it/clickers/student.aspx#Can_I_use_my_smart_phone_or_laptop Four Projects
The class will be organized into project teams of 3-5 persons/team. Each team has 4 projects and 3 presentations. You will build a venture company together and touch “real” business: such as analyzing IPO firm’s financial statement, negotiating with founders of new venture, developing term sheet. This is a real world experience, supplemented by classroom analysis and sharing of lessons learned. Your role in this class should be active, not passive. The more efforts you put in, the more benefits you will take away from this course.
Project 1 Milestone management and financial analysis of a new IPO firm Identify a new IPO firm like Groupon (S-file) here
http://sec.gov/Archives/edgar/data/1490281/000104746911005613/a2203913zs-1.htm Zynga http://www.sec.gov/Archives/edgar/data/1439404/000119312511180285/ds1.htm Facebook http://google.brand.edgar-online.com/?sym=FB
Tesla Motors: http://www.google.com/finance?q=tesla
Just searching company website and/or citing free web information is not enough. Take advantage of the paid search engines in the library homepage. It contains the following search engines. http://libguides.library.umkc.edu/business. Should you have further questions, contact liaison librarians in the library (Chris Le Beau, http://library.umkc.edu/lebeau) Find IPO file (S-1, PROSPECTUS) through EDGAR Financial Reports (company financial
information)
www.sec.gov/edgar.shtm or Google’s SEC Filings link, like here: http://google.brand.edgar-online.com/?sym=AONE
You can try venture capital database like this PrivCo's Full Report on Palo Alto Networks
http://www.privco.com/press/meet-a-model-ipo-candidate-palo-alto-networks Your report need include:
The company’s business model1 and J-curve
Founder’s wealth creation in IPO Venture capital investments
Company’s development milestone Analysis of financial statement in IPO Project 2 Cash flow for startup firm
Find a (potential) startup firm or team around UNKC campus, such as in the class of ENT 327/328; ENT332, or in e-scholar program or in IEI incubator, or in annual Regnier Family Foundations Venture Creation Challenge (VCC) business plan competition.
1 Count how many times did the words of “business model” show up in S-1, quote the sentences of them, explain
4 The 2014 Regnier Venture Creation Challenge
February 13, 2014: VCC Information Session: Time: 4:00-6:00 pm, Location: BEH 331 March 21, 2014: Intention to Participate Deadline
To sign up, click here:
http://www.entrepreneurship.bloch.umkc.edu/outside_classroom/vcc_application.asp Earn 2 extra credits:
1. Attend the finalist presentations and award ceremony on the afternoon of May 9 from 12:30pm to 6:00pm;
2. Evaluate the four finalist presentations.
List your key assumption on J-curve
Play the role of CFO in this new venture, help the founding team to forecast cash flow, capital budgeting, and the amount of capital to be raised in future three years.
This report need be signed by the founder of this new venture. Project 3 Valuation for startup firm
Play the role of venture capitalist; give this new venture a reasonable valuation. List you key assumption on milestones.
Compare the valuation with new IPO firms or similar firm in same industry.
This reports need be signed by the founder of this new venture, even if he/she disagree you report. Also let him/her list the reasons for disagreement.
Project 4 Term sheet from venture capital
Assume that you have 2 million at hand to invest, find a (potential) new venture round UMKC campus, and give a reasonable offer to the founding team.
You can compete with other group in this class on investment offer.
Negotiate with the founding team, and reach an agreement with the term sheet. Final term sheet must be signed by the founder of this new venture.
Your report need include new venture’s business model, milestone now, your first offer, and final agreement.
For the project reports which are submitted to me, hard copies please. Soft copies and/or late submissions will not be accepted. I only give feedbacks or comments in your hard copies.
Course Scoring Details Attendance
Students are expected to attend and participate in classes.
Students should notify instructors of excused absences in advance, where possible.
Students who have an excused absence are expected to make arrangements with instructors for alternative or make-up work. Such arrangements should be made in advance of the absence, where possible.
Instructors should accommodate excused absences to the extent that an accommodation can be made that does not unreasonably interfere with the learning objectives of the course or
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Attendance policies shall be applied in a non-discriminatory manner.
Each unexcused absence will lose one point. The total attendance score is 10. Note that the maximum penalty is not constrained by the total attendance score. In addition, if you are more than 15 minutes late, it will be counted as an absence. I may award bonus points to students with outstanding performance in class.
Exam
The Exam I will cover the material in Week 1-8 with 15 multiply choices questions and 3 essay questions. Exam II will cover the material in Week 9-14 with 15 multiply choices and 3 essay questions. The exams are closed-book. Most questions come from the 10 Quizzes in blackboard.
Extra Credits
The 2014 Regnier Venture Creation Challenge and other entrepreneurship events. Presentation
Each group is scheduled for three oral presentations. Each presentation should be approximately 10 minutes in length. Visual aids must be employed.
Oral Presentation Teams are required to dress professionally and exhibit the same level of decorum and consideration that you would in a real business setting.
All team members must be involved in the oral presentation with each team member presenting a segment. Segment definition is the responsibility of the team.
The title page of your presentation should list the case name, the date, the names of each team member, and the segment each member will cover.
When presenting, indicate the outside sources used. If you present industry averages, for example, or demographic data, indicate where you got them.
A 5 min Q&A session will be after your presentation. Be prepared to receive questions regarding your assumptions, your use of data, your conclusions, your logic, and your
recommendations. Other class members may not agree with your analysis. Your instructor or classmate may challenge your analysis. DO NOT BECOME DEFENSIVE. This is a natural part of the process. You are being asked to think on your feet and demonstrate that you have a deep understanding of the core issues. ALL team members should participate in the question and answer session. Everyone learns from this experience, even class members who are not presenting.
Group Peer Evaluation
Teamwork is important in the workplace and in this class. Since the quality of group output is dependent upon each individual’s quality contribution, it is vital that each group member work as part of the team. Because I cannot assess the degree to which group members are performing their fair share of work, group members will anonymously evaluate the performance of each member. Members will assess each other (as well as themselves) on their contribution to the country project report, attendance at
meetings, timely contribution to individually assigned tasks, and overall performance. Group members will multiply the number of people in their group by 100 points and assign their total points among the members.
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All members must receive between 80 and 120 points from each evaluator (i.e. you cannot give someone a zero score). Each individual’s average score will be the basis for his/her peer evaluation score, which is multiplied by the overall group’s 4 cases project score to obtain the final group score for that individual. For example, an individual who was a member of a six-person group that earned 80 points out of 100 on the country project report and who was given the peer evaluations shown in the table below would receive the overall group case analysis project grade as listed in the “individual project grade” column below. Thus, student E whose group received a project report score of 80 and whose average peer evaluation score was 510/600, or 0.85, would obtain an individual project grade of 68. Note that I maintain the right to disregard self-ratings that are substantially higher than peer ratings.
Student Ratings From A Ratings From B Ratings From C Ratings From D Ratings from E Ratings from F Total Score Individual Project Grade A 100 100 100 100 110 100 610 80*1.02=81.3 B 80 85 95 85 80 100 525 80*0.875=70 C 108 100 110 100 120 100 638 80*1.063=85.06 D 120 120 115 120 100 100 675 80*1.125=90 E 80 80 80 80 90 100 510 80*0.85=68 F 112 115 100 115 100 100 642 80*1.07=85.6 Total: 600 600 600 600 600 600
Be objective in evaluating other members in your group and specify reasons. The evaluation must be turned in on the day of the final exam. If one fails to turn in the peer evaluation sheet, then every member in the team gets 80.
Tentative Schedule (Subject to Change)
Week Theme Topic Assignment Due
Week 1 –1/21 Introduction
Module I Foundation: Discover J-Curve
Week 1 – 1/23 1.What is Venture Capital? Case: Creative Capital
Week 2 – 1/28 2. Business Model Chapter 1 / Case Snapchat, Quiz1
Week 2 – 1/30 3.Build-measure-learn Case: Creating the lean startup
Week 3 – 2/04 4.Bootstrapping Venture Case: Bob Reiss (1) , Quiz2
Week 3 – 2/06 5.Develop a financial map/
Milestone
Chapter ½ Case: Creditica
Week 4 –2/11 6.Build the foundation Chapter 3 /Case: Starbucks’ J-curve, Quiz3
Week 4 –2/13 7. Analysis of financial statement Chapter 4 Entrepreneurial Finance
Week 5 –2/18 Project 1 Presentations Project 1 due
Module II Skills: Build J-Curve
Week 5–2/20 8. Review Project 1
Week 6–2/25 9. How much money I need Chapter 4 Case: Bob Reiss (2)
Week 6–2/27 10. Who I am Case: Starbucks’ Underdog,
Week 7 –3/04 11. What I know Case: Staples, Quiz4
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Week 8 –3/11 13. Whom I Know
Week 8 –3/13 Exam I Review Project 2 due
Week 9 –3/18 Exam I
Module III Valuation: Judge J-Curve
Week 9 –3/20 14.Angel investors Case: Ron Conway, Quiz 5
Spring Break
Week 10 – 4/01 15.How VCs invest Case: Facebook.com,
Week 10 – 4/03 16.How VCs think Chapter 5 /Case: Jim Breyer, Quiz 6
Week 11 – 4/08 17. From Entrepreneur’s J Curve to
VC’s Curve
Chapter 6/Case: Carlyle Group
Week 11 – 4/10 18.Valuing early-stage company (1) Chapter 7, Quiz 7
Week 12 – 4/15 19.Valuing early-stage company (2)
Week 12 – 4/17 20. IPO, exit and harvest Case: Zappos, , Quiz 8
Week 13 – 4/22 Project 2-3 Presentations Project 3 due
Module IV Deals: Fly J-Curve
Week 13 – 4/24 21. The Art of Failure Chapter 8 /Case: Sirius XM, Quiz 9
Week 14 – 4/29 22. Deal Structure Chapter 9 /Case: Hotmail,
Week 14 – 5/01 23. Deal terms Chapter 10 /Case:Yahoo’s Founder,
Quiz10
Week 15 – 5/06 24. Term sheet negotiation Chapter 11
Week 15 – 5/08 25. Project 4 Presentations
VC-entrepreneur relationship
Project 4 due
Week 16 – 5/13 10:30 a.m.-12:30 p.m.(Tue.) Exam II Group peer review due
Week 16 – 5/15 Grade available in Blackboard
Academic Calendar
Mar 14 Last Day to Withdraw Without Assessment Apr 18 Last Day to Withdraw
Academic Honesty
The Board of Curators of the University of Missouri recognizes that academic honesty is essential for the intellectual life of the University. Faculty members have a special obligation to expect high standards of academic honesty in all student work. Students have a special obligation to adhere to such standards. Academic dishonesty, including cheating, plagiarism or sabotage, is adjudicated through the University of Missouri Student Conduct Code and Rules of Procedures in Student Conduct Matters.
Academic Inquiry, Course Discussion and Privacy
This class allows recording, based on the principles of University of Missouri System Executive Order No. 38. The policy is described fully in Section 200.015 of the Collected Rules and Regulations. In this class, students may make audio or video recordings of course activity unless specifically prohibited by the faculty member. However, the redistribution of any audio or video recordings of statements or comments from the course to individuals who are not students in the course is prohibited without the express permission of the faculty member and of any students who are recorded, including those recordings prepared by an instructor. Students found to have violated this policy are subject to discipline in accordance with provisions of Section 200.020 of the
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Collected Rules and Regulations of the University of Missouri pertaining to student conduct matters. Attendance Policy
Students are expected to attend and participate in classes.
Advance notice of attendance policies of academic units and individual instructors should be given, and such notice should be in writing.
Students should notify instructors of excused absences in advance, where possible.
Students who have an excused absence are expected to make arrangements with instructors for alternative or make-up work. Such arrangements should be made in advance of the absence, where possible.
Instructors should accommodate excused absences to the extent that an accommodation can be made that does not unreasonably interfere with the learning objectives of the course or unduly burden the instructor.
Attendance policies shall be applied in a non-discriminatory manner. Campus Safety
Inclement weather, mass notification, and emergency response guide. See http://www.umkc.edu/umkcalert/
Statement on Academic Dishonesty
UMKC and the Bloch School are governed by policies on academic dishonesty with which all students are required to be familiar. The Bloch School supports the University policy on academic dishonesty. Academic dishonesty includes: (a) cheating, (b) fabrications and falsifications, (c) multiple submissions, (d) plagiarism, and (e) complicity in academic dishonesty. All such policies will be adhered to in this course. Students are expected to warn fellow students who do not appear to be observing proper ethical standards and to report violations of this to the Instructor.
Simply stated, cheating and/or dishonest behavior in any form will not be tolerated in this class; all violations will be submitted to the appropriate Bloch School and / or UMKC parties. The Instructor specifically reserves the right to discipline all students for academic dishonesty, in conformity with the rules and regulations of the Bloch School and UMKC. Such action may include lowering of grades or the assignment of a failing grade for the course itself.
Disability Support Services
To obtain disability related accommodations and/or auxiliary aids, students with disabilities must contact the Office of Services for Students with Disabilities (OSSD) as soon as possible. To contact OSSD call 816-235-5696. Once verified, OSSD will notify the course instructor and outline the accommodation and/or auxiliary aids to be provided. For more information go to:
http://www.umkc.edu/disability/. English Proficiency Statement
Students who encounter difficulty in their courses because of the English proficiency of their instructors should speak directly to their instructors. If additional assistance is needed, they may contact the UMKC Help Line at 816-235-2222 for assistance.
Grade Appeal Policy
Students are responsible for meeting the standards of academic performance established for each course in which they are enrolled. The establishment of the criteria for grades and the evaluation of student academic performance are the responsibilities of the instructor.
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This grade appeal procedure is available only for the review of allegedly capricious grading and not for review of the instructor's evaluation of the student's academic performance. Capricious grading, as that term is used here, comprises any of the following:
The assignment of a grade to a particular student on some basis other than the performance in the course;
The assignment of a grade to a particular student according to more exacting or demanding standards than were applied to other students in the course; (Note: Additional or different grading criteria may be applied to graduate students enrolled for graduate credit);
The assignment of a grade by a substantial departure from the instructor's previously announced standards.
Discrimination Grievance Procedures for Students Discrimination Grievance Procedure for Students, See
http://www.umsystem.edu/ums/rules/collected_rules/grievance/ch390/grievance_390.010
Nondiscrimination, Sexual Harassment and Sexual Misconduct Procedures for Complaint and Investigation Process, See http://www.umkc.edu/diversity/documents/complaintprocess.pdf
Statement of Human Rights
The Board of Curators and UMKC are committed to the policy of equal opportunity, regardless of race, color, religion, sex, sexual orientation, national origin, age, disability and status as a Vietnam era veteran. Commitment to the policy is mentored by the Division of Diversity, Access & Equity, but it is the responsibility of the entire university community to provide equal opportunity through relevant practices, initiatives and programs.
Instructor: Sunny Li Sun, Ph.D.
Dr. Sun was born in Zhejiang, China. He received a Bachelor of Arts from Renmin University of China (Beijing) in 1993. Upon graduation, he worked in the Neptune Group Limited (Shenzhen, China). After obtaining a Master of Philosophy degree (concentration on marketing) from the Chinese University of Hong Kong in 1997, he worked as a VP in the Department of Mergers and Acquisitions in Guosen Securities Co., a leading investment bank in China. Then he joined Huitong Holdings Co. Ltd. as youngest executive director among all Chinese public companies in 1999. In 2000, he founded Miaxis
Biometrics Inc., and successfully raised USD2 million from Intel Capital in next year. He exited the venture in 2002 and worked as financial advisor for entrepreneurs to raise fund from venture capital or private equity. He went back to academia in 2006 at the University of Texas at Dallas (UTD).
Dr. Sun joined the faculty of University of Missouri-Kansas City as an assistant professor in Fall 2010. Dr. Sun published 17 papers in leading English-language journals such as the Strategic Management Journal, Academy of Management Perspectives, Asia Pacific Journal of Management, Journal of World Business, and Multinational Business Review. His 16th book, Watching China from the United States’ Balcony: Global Strategy after Economic Crisis, has published by Science Press with 8,000 copies in first edition in 2010. He is writing a bi-week
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column in CEO&CIO China, a leading magazine on entrepreneurship and innovation, enjoying a readership of more than 142,000 in addition to millions of online readers. His current research interests focus on new venture creation and financing, business model, entrepreneurial firm growth, internationalization, and corporate governance. He published his 17th book named Replaying Global Innovation Chess last June.
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Peer Evaluation Sheet: ENT 412
(You will fill this form in the Final Exam day).
Final exam will include this form to evaluate the level of contribution of yourself and group members on the simulation group exercise. First, write each team member’s name in the space provided (please do so alphabetically, last name first). Second, assign a score between 80 and 120 for each team member that reflects your perception as to the grade they should receive on this project. And finally, offer comments (if desired) to explain your reasoning of the grade you assigned (and because self-evaluation is important in the learning process – make sure to place an * next to your name and assign yourself a letter grade as well). As a
guideline, suggested comment topics are provided below.
Finally, you should know that this document will be held in strict confidence by the instructor but if need be, some evaluation comments may be referred to in student-instructor conferences (with evaluator’s name withheld).
Suggested comment topics: level of labor / thinking contribution, attitude toward the assignment/each other, would like to work with this person again, pulled their own weight, etc.
Group # ______________ Name __________________________
Name Self
Score (80-120)* Reasons
Personal reflections: Summarize what you learn from this class.
