Entrepreneurial Finance Venture Capital Deal Structure And Valuation 2nd Edition Janet Kiholm Smith, Richard L. Smith - Solutions

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Go to the Web site for The Wall Street Journal or some other financial publication such as Inc. magazine and identify a venture that has recently filed for reorganization or liquidation with the U.S. bankruptcy courts. Then access the Securities and Exchange Commission’s Web site at
Get a current price for a traded call option on a publicly traded security having publicly traded options (e.g., http://www.cboe.com). Compare the option price to the value of exercise (stock price − exercise price) and comment on the difference.
Web-surfing exercise: Search the Web for a direct offering of a convertible preferred security. Possible search words include “direct public offering” or “small corporate offering registration” (SCOR). Analyze the conversion and dilution clauses offered in the security.
Find the Web solicitation for a direct public offering under the new crowdfunding regulations.(You might start at http://www.seedinvest.com/ offerings or other similar sites.) Describe the venture and its prospects.
Locate your state’s small business credit facilitation Web page. Describe the resources your state makes available in broad categories.
Update Figure 12.1 in terms of recent levels of VC investment.
Find a recent Wall Street Journalarticle on venture investing and summarize it.
List ten terms you might find in a venture capital fund’s term sheet (see Figure 12.6). Explain what they are and why it might make sense to structure them the way they are.
Interview a local venture capitalist regarding what s/he looks for in a promising venture seeking funding. Summarize your discussion.
Visit a venture capital fund’s Web site and summarize the fund’s history and current activities.
Summarize nationwide venture capital investing by industry for the last available quarter using a data source available on Web sites such ashttp://www.pwcmoneytree.com or http://www.nvca.org.
Visit one of the venture economics data collection services (e.g., http://www.pwcmoneytree.com) and examine a recent report on the short-and long-term performance of venture capital funds. Relate what you find to a typical discount rate of 50 percent.
Web-surfing exercise: Using a particular industry as a focus, find an industry report that covers several ventures having various levels of maturity and/or performance. Compare their performances in recent years. Develop a model of how you would conduct a multiple-scenario valuation for a new-comer
Using a free stock quoting and research site on the Web (e.g., http://www.bloomberg.com or http://money.cnn.com), examine the current price for an Internet company. Relate the finan-cial data you can find on the firm to the current stock price.
Web-surfing exercise: Find a fast-growth publicly traded firm with financial statements posted on the firm’s Web page. Relate that firm’s financial statements to those of the examples in this chap-ter. Formulate the process by which you would project that firm’s financial statements into the
Using a Web search, find an industry report for an industry of your choosing. What are that industry’s expected near-term and longer-term growth rates?
Use a Web search to determine an expected long term growth rate for the U.S. economy. What are the current and longer-term expectations of inflation?
Access the Nolo Press Web site at http://www .nolo.com. Develop a list of legal references relating to securities laws.
NYPPEX is “one of the world’s leading secondary agents for transfers of large single interests in private funds, unregistered securities in companies.” Summarize their regulation-related posting at http://nyppex.com/regulatory.php.
Access the SEC Web site at http://www.sec.gov. Identify recent developments and changes in Rule 504 of the SEC’s Reg D.
Access http://www.pwcmoneytree.com for a summary of recent venture capital investment performance. Summarize the return experiencefor the various venture-investing rounds.
Access http://www.bloomberg.com for interest rates and financial market news. Summarize the current financial market conditions.
Access the Federal Reserve Board of Governors Web site at http://www.federalreserve.gov/releases/ to find current interest rates (and foreign exchange rates) relevant to your business venture.
For a specific business idea, find labor wage data for the types of employees who will be involved. Examples of relevant Web sites include the Bureau of Labor Statistics Web site at http://www.bls.gov and career information sites like http://www.wetfeet.com.
Access the U.S. Census Bureau Web site at http://www.census.gov. Find relevant information for trends in U.S. population growth for a specific business idea. Comment on the manufacturing statistics and regional or national statistics relevant for that business.
Go to the Hoover’s business online Web site at http://www.hoovers.com and click on “Companies A–Z.” Identify a firm such as Google, Inc. (ticker symbol: GOOG) or Applebee’s International, Inc. (ticker symbol: APPB).A. Obtain the most recent three years of income statements and balance
Access the Nolo Press Web site at http://www.nolo.com and other publishers’ Web sites and identify software products designed to help the young venture with its legal and accounting problems.
Access the Small Business Administration Website at http://www.sba.gov; http://www.nvst.com and find information on estimating start-up costs, preparing financial statements, and conducting breakeven analysis.
A number of Web sites are available to help young ventures measure their financial performance and to help them when they are growing and “ramping up” revenues. Access http://money.cnn/magazines/business2/ and identify sources helpful to growing firms.
Access the Web sites http://www.angeldeals.com and http://www.gatheringofangels.com. Determine the scope and focus of these sites in terms of matchmaking financing services that are available for entrepreneurs.
Access the http://www.garage.com Web site. Identify the angel matchmaking services that are provided. Determine the site’s focus in termsof early-stage versus later-stage financing, as well as the typical range of financing that is provided.
Access the Inc. magazine Web site at http://www.inc.com. Identify a list of recent articles that relate to how to finance new ventures.
Access the Center for Business PlanningWeb site at http://www.businessplans.org. Find the reference to PlanWrite, which is designed to help an entrepreneur create a business plan. Identify and briefly describe what this software product provides.
Access the Center for Business Planning Web siteat http://www.businessplans.org. The site providesexamples of business plans prepared by MBA students from top business schools and presented to panels of investors at recent Moot Corp. competitions hosted by the University of Texas at Austin. Review
Access the Inc. magazine Web site at http://www.inc.com. Identify a list of recent articles that relate to how business opportunities are evaluated by venture investors and/or articles discussing why venture investors chose not to invest in potential business opportunities.
Identify a successful entrepreneurial venture that has been in business at least three years.A. Use historical revenues information to examine how this particular venture moved through its life cycle stages. Determine the length of the development stage, the startup stage, and so forthB. Determine
Search the Web for recent developments on the part of Airbnb and Uber to disrupt the lodging and taxi industries, respectively. Also search the Web and attempt to identify other possible innovations that may be disrupting existing markets and networks.
Determine several “resources” available from the Small Business Administration (SBA) for entrepreneurs that might be useful in starting, financing,and managing an entrepreneurial venture.The SBA Web site is http://www.sba.gov. Also,search the SBA’s Office of Advocacy Web site
Describe three ways that a small but growing business could perform market research internationally. Discuss the benefits and drawbacks of each method. LO6
Compare and contrast the benefits and potential pitfalls of selling internationally directly versus through partners. LO6
Describe how these businesses could go about finding customers internationally. Include five possible sources of information, and describe how the two businesses could approach potential international partners. LO6
For the same two businesses, describe three ways these companies could raise entrepreneurial capital internationally and why they would want to do so. LO6
Select two actual businesses located within a 50- to 100-mile radius of your hometown, one with revenues of $50150 million and one with revenues of under $10 million. The industry is not important. Prepare a list of at least four ways global trade and global capital markets affect these
What kinds of risks would be best hedged through financial instruments (e.g., futures and LO6 option contracts)?
Is the optimal risk management strategy ever to do nothing? Under what conditions would this be the optimal strategy? Examples? LO6
Under what circumstances would it be optimal to self-insure (retain) losses? LO6
Identify some of the major risks common to all businesses. What is the best way to handle each risk in a preloss situation? LO6
Prepare a cash budget for March and April based on the following information:January February March April Sales $50,000 $50,000 $40,000 $60,000 LO6 Wages 3000 4000 Rent 1000 1000 Other 400 600 Taxes 8000 Experience shows that 20% of customers pay in the month of sale, 70% pay 1 month later, and the
What is the cost of the following trade credit terms of 3/15 net 45? What options does the company have if it deems the cost of the credit too expensive? LO6
Look up Starbuck’s most recent financial statements. Calculate the CCC for Starbucks.What advice would you offer Starbucks based on the CCC? LO6
Are there any potential incentive problems for the franchisor (from the perspective of the franchisee)? Contractually, how might these be mitigated? LO6
Pick a franchise of your choice. Go to their web site, and research the requirements for purchasing a franchise. What services does the franchisor provide? Does it look like a good business opportunity to you? LO6
Why would an entrepreneur choose to become a franchisor? Are there benefits other than fast growth? LO6
Research some recent DPOs and track whether the DPO was successful in raising the LO6 money. What was the subsequent performance of the company?
What are the pros and cons of a DPO? LO6
What are the pros and cons of an open IPO? LO6
What are the pros and cons of an IPO? LO6
What are the barriers to success in an M&A? LO6
Discuss recent mergers with which you are familiar (or research some in the business LO6 press). What were the anticipated synergies of the merger? Were they realized? Why or why not?
How would you go about locating a strategic buyer for your business? What characteristics would you look for? LO6
What should an entrepreneur look for in a venture capitalist? Why might the highest bid not be the best option? LO6
If realized returns on venture capital investments average in the 1315% range but required returns average 4050%, approximately what percentage of deals fail? LO6
What characteristics make a firm a strong candidate for venture capital? LO6
Go through the term sheet in Appendix 6.1. What is the purpose of each clause? In each LO6 case, what risk is the venture capitalist protecting against?
Using the company of your choice, identify five comparable publicly traded companies and develop a multiple based on earnings from the public company data. LO6
Use the following information to develop a spreadsheet model that will calculate the free cash flows and the value of the equity for the company.Cost of capital 12%Most recent year’s sales $1000 Nonoperating assets $100 LO6 Interest-bearing debt $250 Operating profit margin 12%Working
Think about the Groupon.com case. Can Groupon survive many more years of negative LO6 cash flow? What viable options are open to Groupon to improve its cash flow?
Why do investors frown on a capitalization table that includes many owners? LO6
How would you go about forecasting sales for your start-up? Be specific. LO6
Check several business plan sites on the Internet and draft the outline for a sample business plan. Do the sample sites differ? LO6
If you are trying to raise $500,000 to get to your next milestone and you are willing to give up 15% of the equity in your company for that investment, what operating income do you need to achieve by the third year to accomplish this? Make any assumptions necessary LO6 to answer the question.
Research some angel networks in your area. Do they have specific investing guidelines? LO6
Which financing sources would be most appropriate in getting the firm in question 1 to LO6 each milestone?
List some potential milestones for a technology start-up. LO6
Calculate the cost of trade credit with the following terms: 3/10 net LO6 60. Do you think the firm should forego the discount as a source of credit? Why or why not?
What are the pros and cons of financing a start-up with debt? With equity? Does one LO6 source of financing seem to dominate the other?
To reduce their risk, banks will typically impose covenants, i.e., restrictions on a firm’s LO6 behavior, before granting a loan. What types of covenants might a bank impose? Are there costs to the firm associated with these covenants?
In most cases, the firm’s financial needs forecast, as expressed in the pro forma financial LO6 statements, depends on the sales forecast. How would you go about forecasting sales for a new venture? What steps can you take to improve the accuracy of your forecast?
What are the major reasons for small business failure? What can one do to plan around them? LO6
Limiting growth is one way to limit the reliance on external sources of funds. Are potential costs associated with slow growth? LO6
What are the pros and cons of accepting money from others at start-up? LO6
Why is a firm started with $10,000 just as likely to be profitable as one started with$100,000? LO6
Think about the differences between an entrepreneur and the founder of a lifestyle business.Are they very different? Where do you see yourself? LO6
How can the organizational form chosen for a business affect strategic options for the company down the road? LO6
Identify at least four methods by which investors and/or the entrepreneur in a new venture can harvest their investment in a new venture. Describe the costs and benefits of each, and provide a framework for how you would analyze the choice by identifying the key factors you would consider when
What services does an underwriter provide for a company that employs the underwriter to facilitate going public? What factors influence an issuing firm’s choice of underwriter?
Describe the process of going public using an IPO, starting with underwriter selection and proceeding through the various stages that lead to determination of an issue price.
From the perspective of the entrepreneur, what are the pros and cons of an IPO as opposed to private sale of the venture to a public company in exchange for stock or cash?
Discuss the reasons why periodic valuation is important when ownership of a private company is transferred to employees via an ESOP.What factors do you think would lead an entrepreneur (whose shares an ESOP is purchasing) to favor a leveraged ESOP over an unleveraged ESOP?
Explain what underpricing is and review the various explanations for why it might occur. How does underpricing figure into the cost of going public?
How does a firm commitment offering differ from a best-efforts offering?A rights offering? How does an OpenIPO differ from a traditional bookbuilt IPO?
How does Rule 144 restrict the ability of shareholders to liquidate their positions? Why might such restrictions be important to VC investors?Describe conceptually how you would attempt to value a venture in a private transaction. What discount would you apply for illiquidity?
How do the VC’s objectives influence the harvesting decision of the entrepreneur?
Explain why harvesting is an important consideration when the initial decision to invest in a venture is made. How might harvesting be factored into the deal structure and the valuation? Provide examples.
What are the key distinctions between corporate finance and entrepreneurial finance?
What, according to this chapter, is an “entrepreneur”?
What makes a venture a social venture?
How is the distinction between innovative and replicative entrepreneurship related to the distinction between opportunity-based and necessitybased entrepreneurship?
What is hypothesis-driven entrepreneurship and how does it relate to real options? What are some examples of real options?
What are the main stages of new venture development? What kinds of things go on during the different stages?

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Entrepreneurial Finance Venture Capital Deal Structure And Valuation 2nd Edition Janet Kiholm Smith, Richard L. Smith - Solutions

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