Entrepreneurial Finance: Course Overview

Course Grade Breakdown

• Class participation with in-class exercises is 20%
• Group presentations of practical cases is 20%
• The midterm exam is 30%
• The final exam is 30%
• If a student suspends the ordinary call, they must take a recovery exam based on all course material

Course Objectives

• Understand the difficulties in securing financing.
• Learn the various stages of financing.
• Analyze different financial sources and their traits.
• Learn how to value a business and negotiate a fair price.
• Structure an investment offer.

Entrepreneurial Finance Intro

• Focuses on startup needs and fundraising, often overlooked in entrepreneurship texts
• Topics of discussion include the needs of a startup, how fundraising works, and how to reach funding terms

Bootstrap Finance & Growth

• 99% of startups bootstrap because starting a business can conflict with venture capitalist expectations
• Bootstrapping offers more control in decision making
• Bootstrapping faces limits on growth from a lack of funding
• VC-backed companies must grow fast with the funds they receive
• Rapid growth can cause potential problems

Venture Capital

• VCs raise money and allocate it to startups
• A lot of money leads to high valuations
• A startup is stuck if it cannot meet valuation expectations

Challenges in Obtaining Financing

• Raising the right amount of money.
• Securing funds from the right investors (Angels, VC) for your stage.
• Seeking investment when the time is right
• Exchanging money for shares under acceptable terms.
• Retaining positive cash flow throughout development.

Principles for Successful Startups Before Financing

• Aim to become operational as fast as possible, using bootstrapping or a minimal investment.
• Look into projects which generate cash quickly and can break even
• Market high-value products through personal selling for generating sales
• Closely monitor cash flow and foster relationships with banks and investors
• Increase speed slowly and wait to hire the perfect team

Economic Conditions

• The funding from both angels and VCs depends on the economy's overall condition
• Surviving requires managing risk and cash flow
• Entrepreneurs must understand how the economy works to get funding

Profit vs. Cash Flow

• Profit is the remaining revenue after deducting business costs
• Cash flow refers to the money flowing in and out of a business
• Profit indicates a company's long-term success
• Cash flow allows a business to operate daily, short term
• Without cash flow, there is no business short-term
• Without profit, there is no business long-term
• 82% of businesses that fail experience cash flow problems

Overall Economy & Forecasting

• Overall economic conditions impact the ability to raise capital
• Knowing how to forecast will make you smart
• Lack of easy finance access makes you stronger

Economic Models

• An economic model, in its simplest form, is a summary of reality that helps develop testable ideas about economic behavior
• The best economic models are simple and precise
• An effective model will be one that has 3-4 variables that explain about 75%-90% of what happens
• News sources often give too much data that are not the most important

Macroeconomic Considerations

• Avoid big mistakes and calculated risks at the right time
• Doing so requires deductive reasoning and risk management
• Top 1% people understand how the economy works
• Know the four macroeconomic variable model
• They are trend in productivity; demographic trends; short-term business cycle; and long-term credit-debt cycle

Trend in Productivity

• Productivity refers to the output value per hour within a specific time
• Technology can increase productivity, and the ability to achieve more using less resources
• Wealth comes from productivity growth
• Spain productivity rose during the crisis as inefficient firms closed
• Many people lost their jobs
• Productivity has decreased from 3% to 1% over the last 20 years
• Startups reduce economic inefficiencies which increases national wealth

Demographics

• Characteristics help a small business with the best marketing plan
• Information tells you all your wants and needs by certain traits
• Businesses use it to see who will buy
• Investors worry about losing money
• Aging populations cause spending habits to shift to the future
• Demographics indicates spending habits through "Buyers vs Dyers"
• Buyers boost the economy, and Dyers slow it down
• Those under 18 consume instead of produce which lags economy
• People of 25-55 stimulate economy
• Those 65-100 will slow economy
• Demographic bulges lead to a higher spending economy
• Higher spending leads to a booming economy
• Borrow money to spend increases debt
• When retire, the debt then slows growth

Business Cycle

• Short-term business cycle
• Long-term business cycle
• GDP spending is the productivity of using less resources
• GDP is the total economy between credit growth
• With credit repayment

Interest Costs and Debt

• The ability to serve debt decreases as payments could reach $1.5 trillion
• Interest payments growing faster than actual GDP increase
• Spain public debt to GDP ratio is growing
• The population of those aged 65 or older is projected to grow by 2060
• Countries with large debts are Italy, Portugal, Greece, Spain, Korea and Japan

Economic Model

• Economic model includes
• Productivity
• Demographics
• Short-term business cycle
• Long-term business cycle

This lesson covers the basics of entrepreneurial finance, including course grades, objectives, startup needs, fundraising, and bootstrapping. It explains the importance of funding, understanding financial sources, and negotiating investment offers. Bootstrapping and its role are also discussed.