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CHAPTER 13

CHAPTER 13. Entrepreneurial Finance. Entrepreneurial Finance. Three core principles of entrepreneurial finance More cash is preferred to less cash Cash sooner is preferred to cash later Less risky cash is preferred to more risky cash. Central Issues in Entrepreneurial Finance.

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CHAPTER 13

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  1. CHAPTER13 Entrepreneurial Finance

  2. Entrepreneurial Finance • Three core principles of entrepreneurial finance • More cash is preferred to less cash • Cash sooner is preferred to cash later • Less risky cash is preferred to more risky cash

  3. Central Issues in Entrepreneurial Finance Shareholders Value creation Customers Employees Allocating risks and returns Slicing the value pie Cash-Risk-Time Debt: Take control Covering risk Equity: Staged commitments

  4. Financial Strategy Framework Opportunity Financial Strategy Degrees of strategic freedom: Time to OOC Time to close Future alternatives Risk/reward Personal concerns Sources and Deal Structure Debt Equity Other Business Strategy Marketing Operations Finance Value creation Financial Requirements Driven by: Burn rate Operating needs Working capital Asset requirements and sales

  5. Bargaining Power • Three vital corollaries determining bargaining power • Burn rate • Time to OOC (Out Of Cash) • TTC (Time To Close)

  6. Free Cash Flow • The cash flow generated by a company or project is defined as follows: • Earnings before interest and taxes (EBIT) • Less tax exposure (tax rate times EBIT) • Plus depreciation, amortization, and other non-cash charges • Less increase in operating working capital • Lesscapital expenditures

  7. Operating Working Capital • Operating working capital can be defined as follows: • Transactions cash balances • Plus accounts receivable • Plus inventory • Plus other operating current assets • Less accounts payable • Less taxes payable • Less other operating current liabilities

  8. Factors Affecting Financing • Accomplishments and performance to date • Investor’s perceived risk • Industry and technology • Venture upside potential and anticipated exit timing

  9. Factors Affecting Financing • Venture anticipated growth rate • Venture age and stage of development • Investor’s required rate of return or internal rate of return • Amount of capital required and prior valuations of the venture

  10. Factors Affecting Financing • Founders’ goals regarding growth, control, liquidity, and harvesting • Relative bargaining positions • Investor’s required terms and covenants

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