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SYLLABUS Fall 2017
ENTREPRENEURIAL FINANCE Bus 332-01 CRN 93685
STONY BROOK UNIVERSITY College of Business
BUS332 ENTREPRENEURIAL FINANCE
Before going public, companies like Facebook, LinkedIn, and Zynga relied on venture capital financing
to grow. Similar companies are increasingly choosing private market solutions as the IPO market has
weakened due to increased government regulation, compliance costs, and listing requirements. Small-
cap investors vying to add the “next Facebook” to their portfolio are now investing earlier in the cycle
(pre-IPO). This increase in demand led to the development of secondary markets that provide an
alternative to the traditional IPO. This course teaches the necessary tools for investors and entrepreneurs
to build and evaluate these early-stage companies.
Prerequisite: BUS major/Minor, BUS330
3 credits
Tuesday 7:00 - 9:50 PM Melville Lib W4535 West Campus 8/28-12/20 Professor: Thomas Tallerico, Email: [email protected]
Phone 631-513-6070 cell
Office Hours: Tuesday 10-11pm Harriman Hall Room 301 (Adjunct office)
REQUIRED TEXT: ebook and rental available ENTREPRENEURIAL FINANCE
9781285425757/ 1285425758 BY LEACH, J. CHRIS
PUBLISHED BY CENGAGE LEARNING 6th edition or later
OPTIONAL TEXT (I will provide slides and handouts)
Title: Entrepreneurial Finance: Strategy, Valuation, and Deal Structure
ISBN: 0804770913
Authors: Janet Kiholm Smith, Richard L. Smith & Richard T. Bliss
Publisher: Stanford Economics and Finance (March 22, 2011)
Other sources
Shark Tank program
Various texts on Business Plan Creation.
Zero to One Peter Thiel
Entreprenuership Websites
Your contributions
LEARNING OBJECTIVE
The course provides students an understanding of the economics of entrepreneurial finance and private
equity, especially venture capital. We will address financing and strategic issues faced by entrepreneurs
in the early stage of a firm. Financial modeling will be used to determine how much money can and
should be raised and from what source, and how the funding should be structured. Specific topics
include: methods of valuing private firms, simulation to make better strategic choices, business plans,
economics of contracts that underlie new venture finance venture capital partnerships (agreements, term
sheets, etc.), financing sources, creating value through financing contracting, and exit strategies (initial
public offerings, merger, other).
COURSE EXPECTATION
This course will emphasize the application of analytical methods to actual securities. A basic
background in accounting and investments is also expected. Course work will include projects and
assignments, which will require some familiarity with Microsoft windows and Microsoft office,
particularly a basic understanding of how to utilize an excel spreadsheet. In addition, class members will
need to acquire skills in using Internet search engines to gather needed information for course projects
and assignments.
COURSE METHODOLOGY
The instructional format includes lecture sessions; class projects, assignments and articles. The financial
press will form the basis for some of the class discussions. Active participation in discussions is a course
expectation.
COURSE GOALS and LEARNING OBJECTIVES
• Understand the implications of the important differences between new venture finance and
corporate finance (finance of large public corporations)
• Think analytically about the business plan in terms of an organic documents with multiple
purposes, including a means of testing assumptions, validating, learning, measuring, signaling
• Recognize the importance of financial modeling and strategic planning
• Be able to describe the various sources of funding for new ventures (venture capital, angel
capital, private equity and many others) and evaluate which of the choices are feasible in the
particular setting
• Understand the organization of the venture capital industry and the economics underlying the
contracts that are used in the industry
• Appreciate the importance of real options and milestones in new venture development and think
about them in terms of decision trees that are tied to important milestones
• Learn the basics of financial modeling, the importance of grounding the model in well-
documented assumptions, and learn how to use the model to assess cash needs
• Learn to value new venture opportunities using state-of-the art valuation methods and understand
how these methods relate to the financial economic theory that you have learned in corporate
finance (methods covered include the Venture Capital method, First Chicago method, discounted
cash flow using either risk-adjusted discount rate or certainty equivalent approach, relative
value)
• Appreciate the differences in value to an underdiversified entrepreneur compared to a diversified
investor and learn how to exploit the differences to design investment agreements
• Learn why harvesting is tied to the initial investment decision and understand the costs and
benefits of the various exit alternatives, including IPO and merger
STUDENTS WHO WILL BENEFIT MOST FROM THE COURSE
• Students who are involved, or aspire to be involved, in entrepreneurial ventures will learn how to
identify opportunities with the potential to be successful, how to structure the opportunities to
maximize the probability of securing financing, and how to structure the deal to suit their
objectives.
• Students who aspire to be involved in venture capital or angel investing will learn to assess the
merits of investment opportunities, and to create value by linking financing choices to key
strategic decisions, and how to analyze the harvesting of the investments.
• Students who aspire to careers in social venturing and corporate venturing will learn how to use
elements of deal structure to create value for all parties involved and how to create successful
opportunities when the parties disagree about the prospects of the venture.
STUDENT RESPONSIBILITIES
• You are required to attend each class regularly.
• You are expected to do all the reading and assigned problems as assigned for each class session.
• There will be no make up for Mid Term or Final examinations, except for documented
emergencies.
• You should be conversant with current business and financial news and prepared to discuss
events.
• Each student is expected to participate in class discussions.
• You will be required to complete the problem sets, which will be assigned in class. No problem
set will be accepted after the due dates.
• A minimum of 5-7 hours per week should be allowed for class preparation.
GRADING:
Midterm 35 Points
Final 40 Points
Homework: 10 Points
Project: 15 points
Total 100 Points
1. No make-up exams unless student has a documented medical or legal excuse.
2. No Late assignments will be accepted.
3. Unless there is a computational error, absolutely NO final semester grades will be changed. The time
to be concerned about your grade is NOW and NOT the end of the semester.
Grades: Points to letters.
94.01 - 100 A
90.01 - 94 A-
87.01 - 90 B+
84.01 - 87 B
80.01 - 84 B-
77.01 - 80 C+
74.01 - 77 C
70.01 - 74 C-
67.01 - 70 D+
64.01 - 67 D
60.01 - 64 D-
0 - 60 F
CLASS SCHEDULE
Class 1 Chapter 1 Introduction to Finance for Entrepreneurs/Discuss Project
Class 2 Chapter 2 Developing the Business Idea/ Group formation
Class 3 Chapter 3 Organizing and Financing a new Venture
Class 4 Chapter 4 Preparing and Using Financial Statements
Class 5 Chapter 5 Evaluating Operational & Financial Performance
Class 6 Chapter 6 Managing Cash Flow
Class 7 midterm TBD
Class 8 Chapter 7 Types and costs of Financial Capital
Class 9 Chapter 8 Securities Law
Class 10 Chapter 9 Projecting Financial Statements
Class 11 Chapter 10 Valuing Early Stage Ventures
Class 12 Chapter 11/12 Venture Capital Valuation Methods/ Professional Venture Capital
Class 13 Final Project Presentations
Class 14 Final Project Presentations
Final TBD
DISABILITY INFORMATION DISCLOSURE
If you have a physical, psychological, medical or learning disability that may impact your course work,
please contact Disability Support Services, 128 ECC Building (631) 632-6748. They will determine with
you what accommodations are necessary and appropriate. All information and documentation is
confidential.
Students who require assistance during emergency evacuation are encouraged to discuss their needs with
their professors and Disability Support Services. For procedures and information go to the following
web site: http://www.ehs.sunysb.edu and search Fire Safety and Evacuation and Disabilities.
THE COLLEGE OF BUSINESS STATEMENT REGARDING ACADEMIC DISHONESTY
The College of Business regards any act of academic dishonesty as a major violation punishable by
severe penalties, including dismissal from the University. University policy requires that instructors and
GAs report all suspected cases of academic dishonesty to the appropriate Academic Judiciary
Committee, which is empowered to take strong action against violators, including expulsion from the
University. Please note that there is a link to the Academic Judiciary web site on the Blackboard home
page.
Under no circumstances will the College of Business permit cheating of any kind. Many activities
constitute academic dishonesty. The following list is not inclusive, only suggestive:
On Examinations:
Referring in any way to the examination paper of another student.
Use of materials (notes, books, etc.) not explicitly permitted by the
instructor.
The exchange of any information concerning the examination with
any other person after the examination has begun.
On Papers:
The submission in whole or part of the work of another person as if
it were your own.
The citation of the work of others without proper reference and
credit.
If you have any questions about the honesty of an action, please consult with any faculty member for
clarification. We will not construe such consultation as evidence that you have committed any violation
or are even contemplating it. We will not accept failure to understand the rules as an excuse.
If you are considering any act of academic dishonesty, the College of Business advises you in the
strongest possible terms to abstain. The consequences associated with academic dishonesty are
substantial enough literally to ruin your career. DON’T DO IT.
What is Plagiarism?
There is nothing wrong with using the words or thoughts of others or getting help. Indeed, it is good to
do so as long as you explicitly acknowledge your debt. It is plagiarism when you pass off the work of
others as though it were your own:
Copying without quotation marks or paraphrasing without acknowledgment from the writing of
someone else. Using someone else’s facts or ideas without acknowledgment. Submitting work in one
course that you submitted for credit in another course without the permission of both instructors.
You can strengthen your paper by using material by others – as long as you acknowledge your use, and
as long as you use that material as a building block for your own thinking rather than a substitute for it.
When you use published words, data, or thoughts, you must footnote your use. (See any handbook or
dictionary for footnote formats.) When you use the words or ideas of friends or classmates, you should
thank them in an endnote (e.g., “ I am grateful to my friend so-and-so for the argument in the third
paragraph.”) If friends just give you reactions but no suggestions, you need not acknowledge that help in
print (though it is gracious to do so).
The academic and business worlds depend on people using the work of others for their own work.
Dishonesty destroys the possibility of working together as colleagues. Faculty and researchers do not
advance knowledge by passing off the work of others as their own. Students do not learn by copying
what they should think out on their own. Therefore, the University insists that instructors report every
case of plagiarism to the Academic Judiciary Committee, which keeps records of all cases. The
recommended penalty for plagiarism is failure for the course and possible expulsion from the
University.
Unintentional plagiarism is still plagiarism. You cannot plead ignorance. Therefore, if you have any
questions about the proper acknowledgment of help, be sure to ask your instructor.