Module 1.1.2 - Principles of Finance.pdf

Module 1.1.2 INTRODUCTION TO FINANCE FOR ENTREPRENEURS FINN 117 - Entrepreneurial Finance Principles of Entrepreneurial Finance FINN 117 - Entrepreneurial Finance #1 REAL, HUMAN, AND Compensation to Investors FINANCIAL CAPITAL...

Module 1.1.2 INTRODUCTION TO FINANCE FOR ENTREPRENEURS FINN 117 - Entrepreneurial Finance Principles of Entrepreneurial Finance FINN 117 - Entrepreneurial Finance #1 REAL, HUMAN, AND Compensation to Investors FINANCIAL CAPITAL MUST Opportunity Cost BE RENTED FROM OWNERS Time Value of Money FINN 117 - Entrepreneurial Finance #2 RISK AND EXPECTED REWARD GO HAND IN HAND High risk, high reward FINN 117 - Entrepreneurial Finance #3 WHILE ACCOUNTING IS Accounting - Long Run Cash - Day-to-day THE LANGUAGE OF BUSINESS, CASH IS THE CURRENCY Cash Burn FINN 117 - Entrepreneurial Finance #4 NEW VENTURE FINANCING More research is required INVOLVES SEARCH, Private Financial Markets NEGOTIATION, AND PRIVACY FINN 117 - Entrepreneurial Finance #5 A VENTURE’S FINANCIAL Free Cash OBJECTIVE IS TO INCREASE Free Cash Flow VALUE FINN 117 - Entrepreneurial Finance #6 IT IS DANGEROUS TO Incentives should be aligned with self-interest ASSUME THAT PEOPLE ACT AGAINST THEIR OWN SELF-INTERESTS FINN 117 - Entrepreneurial Finance #7 VENTURE CHARACTER AND A good reputation leads to a good business REPUTATION CAN BE ASSETS OR LIABILITIES FINN 117 - Entrepreneurial Finance Life Cycle of a Successful Venture FINN 117 - Entrepreneurial Finance  Life Cycle of a Successful Venture 1. Development stage 2. Startup stage 3. Survival stage 4. Rapid-growth stage 5. Early-maturity stage FINN 117 - Entrepreneurial Finance  #1 Development Stage Every venture begins with an idea What is your idea? Where do you go to? Type of Financing: Seed Financing FINN 117 - Entrepreneurial Finance  #2 Startup Stage Organization of internal and external systems Revenue Model Type of Financing: Startup Financing FINN 117 - Entrepreneurial Finance  #3 Survival Stage Revenue Starts to grow Financial Statements become more important Type of Financing: First-Round Financing FINN 117 - Entrepreneurial Finance  #4 Rapid Growth Stage Revenue rapidly increases more than expenses Free Cash increases Type of Financing: Second-Round Financing Mezzanine Financing - funds acquired for plant expansion, marketing expenditures, working capital, and product or service improvements. FINN 117 - Entrepreneurial Finance  #5 Early Maturity Stage Cash inflows slow down Sell, Merger or Remain Type of Financing: Seasoned Financing - usually are loans from commercial banks or through new issues of bonds and stocks, usually with the aid of investment bankers. FINN 117 - Entrepreneurial Finance