Entrepreneurial Finance Syllabus

MIT Sloan School of Management 15.431 Entrepreneurial Finance

Antoinette Schoar Spring 2008

Course Description

REQUIRED MATERIAL A packet of cases. OPTIONAL MATERIAL Levin, Structuring Venture Capital, Private Equity, and Entrepreneurial Transactions, (2007 Edition), Little, Brown and Company, 2007. I put a copy of this book as a reference at front desk of the Dewey library. Hull, Option, Futures & Other Derivatives, (2000 Edition), Prentice-Hall Inc., 2000. 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: Here we will study the issues of attracting and compensating employees in start-ups. 5) Exit: How should founders exit? Should they sell to another company, take it public, or continue independently as a private company? Carl Stjernfeldt (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. 1

REQUIREMENTS The course requires the concepts and skills developed in 15.402, Corporate Finance. It is a pre-requisite. 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 also 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. PROCEDURES This course is designed to be a 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. Please bring your name cards so that I get to know you. GRADING Grading will be based on class participation (25%), the short memoranda (25%) and a final examination (50%). The final exam will be a take-home exam and will be handed out on the last day of class and will be due the following day.

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COURSE SCHEDULE 1. Wed. Feb. 6 Introduction and Overview of Entrepreneurial Finance 2. Mon. February 11 Yale Endowment 2003 – Guest: Seth Alexander (President MIT IMC) Business Valuation 3. Wed. February 13 Valuation 1: DCF and the Venture Capital Method 4. Tue. February 19 Horizon Corporation 5. Wed. February 20 Valuation 2: Real Option Valuation 6. Mon. February 25 Genzyme Deal Structure 7. Wed. February 27 Deal Structure 1 8. Mon. March 3 Walnut Venture Associates 9. Wed. March 5 Deal Structure 2 10. Mon. March 10 Iron Gate Technologies 11. Wed. March 12 Guest: John H. Chory (Partner, Wilmer Hale & Dorr) 12. Mon. March 31 Metapath 13. Wed. April 2 Rico Auto Industries: Raising Private Equity in India 14. Mon. April 7 Guest: Clint Harris (Partner, Grove Street) Term Sheet Negotiation 15. Wed. April 9 Broadbus - Guest: Vin Bisceglia (CEO, Broadbus) and Carl Stjernfeldt (Partner, Castile Ventures) 16. Mon. April 14 Gerald Weiss 17. Wed. April 16 Broadbus Solution - Guest: Carl Stjernfeldt (Partner, Castile Ventures) Venture Capital Funds 18. Wed. April 23 Battery Ventures – Guest: Carl Stjernfeldt (Partner, Castile Ventures) 19. Mon. April 28 Accel Partners 20. Wed. April 30 VC Vignettes – Guest: Carl Stjernfeldt (Partner, Castile Ventures) Exit 21. Mon. May 5 Guest: Bill Janeway (Vice Chairman, Warburg Pincus) 22. Wed. May 7 IPO Lecture 23. Mon. May 12 Grand Junction 24. Wed. May 14 Review and Final Exam Distribution

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