New Enterprise Finance Department of Finance FIN657 X01
Course Outline – Fall 2021 INSTRUCTORs Dr. Mark R. Huson TELEPHONE 780-492-2803 OFFICE BUS 4-20C EMAIL [email protected] OFFICE HOURS By appointment only
SECTIONS X01
LECTURE LOCATION BUS 5-13 or As Shown in the Attached Outline ___
LECTURE TIMES Wednesday 6:00PM - 9:00PM or As Shown in the Attached Outline
Course Materials
There is no textbook for the course. The majority of the course materials will be cases in a case package you will purchase from Ivey Publishing, readings accessible through the course eClass site, or readings from the online databases at the University of Alberta. Additional course materials will consist of documents provided by Ventures seeking entry and continued enrolment in the CDL-Rockies program.
I may not necessarily cover all of the materials in the readings, but it is your responsibility to understand the concepts presented in the readings and lectures. If you are unsure of any of the concepts, please take the initiative to ask me during class or make an appointment to meet with me outside of class hours.
Course Description
Application of financial theory and analysis, and entrepreneurship and stakeholder theory to the analysis, valuation, and financing of new ventures. Course balances learning of concepts, development of qualitative and quantitative analytical skills, and practice in decision making. Opportunity to apply learning to cases and exercises as well as to learn about real world financing situations. This course is designed to help students learn about venture formation, development of a viable business model, early-stage financing, and management of massively scalable ventures though a series of close interactions with early-stage
technology companies and their potential mentors and investors (“CDL Fellows and Associates”). This course is suitable for students pursuing careers in strategy, innovation, entrepreneurship, and finance. Due to the course’s special requirement to work closely with early-stage ventures: students must commit to signing a program-wide non-disclosure agreement, students must be flexible to accommodate meetings with ventures, and students must apply and be accepted into the program.
Course Objectives &
Course Outcomes
The course is part of the Creative Destruction Lab – Rockies (CDL-Rockies) program and will familiarize students with the development of a business model and the alternative financing sources that can be used by an early-stage firm. By the end of the course:
Students will be able to describe the theory of entrepreneurial finance.
Students will be learn how to conduct a due diligence examination of a firm and to identify which firms are most likely to be able to attract financing and develop their business plan
Students will be able to determine the value of an entrepreneurial firm using a variety of methods including the venture capital method
Students will be able to differentiate between the characteristics of different sources of entrepreneurial financing
Students will be able to discuss the unique governance issues associated with entrepreneurial firms and how these issues are addressed by capital providers.
Students will be able to identify the possible exits from an early-stage investment and the advantages and disadvantages of each type of exit.
Class
Preparations &
eClass
Lectures focus on the material presented in the readings and general discussion relating to the topic(s) outlined in the lecture schedule. Students are expected to read the assigned readings and cases before class, and be prepared for class discussion. Important information and additional readings for FIN686 A2 are posted on eClass. Students should regularly check the Announcements section of eClass for ongoing notices.
I may not necessarily cover all of the materials in the readings, but it is the responsibility of the student to understand the concepts presented in the readings and lectures. If you are unsure of any of the concepts, please take the initiative to ask me during class or to arrange an out of class meeting.
Contacting Your
Instructor Students requiring assistance are encouraged to speak with me during class or during make an appointment to do so outside of class hours. Should you wish to meet with me outside of office hours, please email me to make an appointment. Students should get into the habit of making and keeping business appointments.
Proper Business
Use of Email Email is commonly used by students to communicate with their instructor. However, it does limit the effectiveness of the communications and may not be the best way for instructors to answer student questions, especially those requiring an explanation of concepts covered in this course or some personal concerns. Therefore the instructor may request a telephone call or personal meeting. Your instructor will inform you as to his/her expectations about emails.
Internet &
Electronic Communication Devices
Any surfing of the Internet during lectures that is not directly related to the class discussion is distracting and strictly forbidden. Additionally, the use of any electronic devices (e.g., cellular phones/smartphones) for e-mailing, text-messaging, etc. is strictly prohibited. Please turn OFF your phone before the beginning of each lecture. No recording (audio or visual) is allowed without the written approval of the instructor.
Grade Distribution
Assessment Weight Course Outcomes Assessed Participation 10%
Due Diligence Practice
5% Students will conduct brief due diligence screens of four ventures in preparation for screening applicants to the 2021-22 CDL program.
Group Due Diligence Examination Company Analysis and Critique
20% Students will be learn how to conduct a due diligence examination of a firm and to identify which firms are most likely to be able to attract financing and develop their business plan
Individual Valuation Assignment
15% Students will be able to determine the value of an entrepreneurial firm using a variety of methods including the venture capital method. Students will also understand adjustments made to discount rates when valuing private firms.
Midterm Exam 25% Students will be able to determine the value of an entrepreneurial firm using a variety of methods including the venture capital method
Students will be able to differentiate between the characteristics of different sources of entrepreneurial financing
Students will be able to discuss the unique governance issues associated with entrepreneurial firms and how these issues are addressed by capital providers.
Scope of Work 5% You will prepare a scope of work document describing the work you will undertake for your first deliverable for your matched venture.
Group Case Analysis
20% Students will be able to identify the possible exits from an early-stage investment and the advantages and disadvantages of each type of exit
Total 100%
Participation Students will be graded on both the quantity and quality of their contribution to the class discussions of lecture material and cases.
Group Company Analysis and Critique
Working in your assigned groups of 2-3 students, your group is to conduct a due diligence analysis of your assigned Ventures and rank them in order from the most investable to the least investable. You will then be asked to write a high level overview of one of the ventures. Additional details will be provided later in the course. This is due Wednesday September 15, 2021. Please submit via email before 11:59PM on the due date. Please save your documents as DD_group#.docx and DD_group#.xlsx. For example if your group # is 3 your files should be named DD_3.docx and DD_3.xlsx
Individual Valuation Assignment
During the term, you are required to complete one individual assignment based on the assigned readings and lectures that deal with valuation issues. The assignment will be distributed at least 10 days prior to its due date. It is due on November 1, 2021. Please submit via email before 11:59PM on the due date. Email it to me at [email protected]. Save your document as YourLastname_IVA.docx. You can also provide
any spreadsheets you used in completing your exam. Those should be named YourLastname_IVA.xlsx.
Midterm Exam
The midterm is a take home exam. It will be distributed at least one week prior to the due date. Your individual solution to the midterm must be emailed to me by 11:59 PM On Friday November 19, 2021.
Email it to me at [email protected]. Save your document as YourLastname_MTE.docx. You can also provide any spreadsheets you used in completing your exam. Those should be named
YourLastname_MTE.xlsx.
Scope of Work
Hand in scope of work document for first deliverable by 11:59 PM Nov 17, via email. Name file
YourLastname_SOW.docx. You can send it earlier and I will attempt a 48-hour turn-around so that you can dig in with your venture.
Group Case Analysis
During the term, you are required to complete one case assignment based on the assigned readings and lectures dealing with exits. This assignment is to be completed in groups of 3-4 students (you can choose the groups) and submitted to me via email by 11:59 PM on Wednesday December 1. Please save your documents as FC_lastname.docx and FC_ lastname.xlsx. Where “lastname” is the last name that is first in alphabetical order in your group.
Assessment of Writing
Writing skills are not exclusive to English courses and, in fact, should cross all disciplines. The University supports the belief that throughout their University careers, students should be taught how to write well so that when they graduate their writing abilities will be far above the minimal standards required at entrance.
Consistent with this belief, students are expected to do a substantial amount of writing in their University courses and, where appropriate, members of faculty can and should use writing and the grading thereof as a factor in the evaluation of student work. The services provided by the Writing Support, part of the Student Success Centre, can be accessed by all undergraduate and graduate students who feel they require further assistance. In this course, your writing will be assessed as part of your grade in the following assessments:
Individual Assignments, Group Company Analysis and Critique, and Individual Assignment:
Entrepreneurial Strategy.
GRADE SCALE
The Alberta School of Business endeavours to ensure consistency of final grades across courses and sections. Variations in distribution will always be considered by the instructor where called for by the performance in each individual class.
Grade Grade Point Value
Percentage Score
Description
A+ 4.0 ≥ 94.5 Outstanding
A 4.0 ≥ 89.5 Excellent
A- 3.7 ≥ 84.55 Very good performance
B+ 3.3 ≥ 79.5 Good performance
B 3.0 ≥ 74.5 Satisfactory performance
B- 2.7 ≥ 69.5 Minimum pass
C+ 2.3 ≥ 64.5 All grades below B- are indicative of failure at the graduate level and cannot be counted toward
the course requirements.
C 2.0 ≥ 59.5
C- 1.7 ≥ 57.5
D+ 1.3 ≥ 54.5
D 1.0 ≥ 49.5
F 0
Data
Collection and Research
Any research or data collection at the University of Alberta that involves human subjects, including research done by students, is covered by the Tri-Council Policy Statement: Ethical Conduct for Research Involving Humans.
The instructor of the course in which the research is occurring will submit for Ethics Approval and will guide the students through all relevant processes in order to adhere to the standards required to adhere to research procedures and regulations.
Exams, Grades and Classes:
Deferred Exams:
Writing of an exam after the normal scheduled date may be allowed in cases of illness, domestic affliction, or religious conviction. If you are requesting a deferred midterm exam you must contact your instructor before the exam, and proper documentation must be submitted prior to approval of a subsequent midterm. If you are requesting a deferred final exam you must submit the proper documentation to the Alberta School of Business MBA Programs Office. Please refer to the current University of Alberta Calendar for more information and time limits for requests of deferred exams.
Appealing an Exam Grade:
As the grading of any exam is open to human error, please feel free to question your results. Students have fifteen calendar days (15) from the posting of the exam results to appeal an exam grade. Students are encouraged to consult the current University of Alberta Calendar for more information.
Academic Honesty:
The University of Alberta is committed to the highest standards of academic integrity and honesty. Students are expected to be familiar with these standards regarding academic honesty and to uphold the policies of the University in this respect.
Students are particularly urged to familiarize themselves with the provisions of the Code of Student Behaviour (online at www.governance.ualberta.ca) and avoid any behaviour which could potentially result in suspicions of cheating, plagiarism, misrepresentation of facts and/or participation in an offence. Academic dishonesty is a serious offence and can result in suspension or expulsion from the University.
Policy about course outlines can be found in Course Requirements, Evaluation Procedures and Grading of the University Calendar.
Plagiarism:
Plagiarism involves submitting or presenting work as if it were the student’s own work when it is not. Any ideas or materials taken from another source written, electronic, or oral must be fully and formally acknowledged. Plagiarism includes but is not limited to:
(a) The work submitted or presented was done, in whole or in part, by an individual other than the one submitting or presenting the work (this includes having another impersonate the student or otherwise substituting the work of another for one's own in an examination or test),
(b) Parts of the work are taken from another source without reference to the original author, (c) The whole work (e.g., an essay) is copied from another source, and/or,
(d) A student submits or presents work in one course which has also been submitted in another course (although it may be completely original with that student) without the knowledge of or prior agreement of the instructor involved.
While it is recognized that scholarly work often involves reference to the ideas, data and conclusions of other scholars, intellectual honesty requires that such references be explicitly and clearly noted. Plagiarism is an extremely serious academic offence.
It is recognized that clause (d) does not prevent a graduate student incorporating work previously done by him or her in a thesis or dissertation.
TENTATIVE CLASS SCHEDULE & TOPICS:
COURSE SCHEDULE (FIN657 X01 Fall 2021)
DATE DETAILS READING/EXERCISE
(1)Week of August 29 (Term starts September 1) (Bus 5-13 6PM)
Due Diligence Process
(Read the assigned readings, review the online due diligence lecture, and prepare
your own template for evaluating early- stage science-based technology firms)
Prepare Case: Three Dimensional Printing
On or about September 4th you will have access to videos of this year’s applicants’ interviews with CDL Fellows/Associates. In addition, you will
have access to their application materials. You will use these in your
next exercise.
Readings:
The Due Diligence Process – Guiding Principles for Early Stage Innovative Products and Venture Capital Investments, De Cleyn and Braet, The Journal of Private Equity, 2007 (10;3), 43-51.
What every biotechnology entrepreneur needs to know about VC due diligence, Sammut, Journal of Commercial Biotechnology, 2011, 72-77.
Due diligence practice.: You are paired in groups of 2. Each Group will receive application materials from 2 ventures that applied to last year’s CDL program. Groups will be asked to assess the applicants on the basis of a template I will provide. For each of the 2 ventures, the Group must provide an Admit/Reject recommendation and a rationale.
We will review and discuss in the September 8 class.
(2)Week of September5 (September 8, Bus 5-13 6PM)
Venture Evaluation Exercise We will discuss the results of your due diligence practice. This is not likely to take the full 3 hours. Please use the remaining time to start your review of
this year’s ventures.
You will have access to the videos of Interviews by now.
Start your due diligence on your assigned ventures.
Due Diligence Checklist, eClass Site.
REVISE THE FOLLOWING
Assignment: Group Company Analysis and Critique: At the beginning of the week students will be provided with their set of Ventures to evaluate and will be required to work in their assigned groups to begin to develop their own process for evaluating these Ventures. Tutorial assistance will be available from a Venture Leader. Assignment will be due by 11:59 PM on September 15.
Work in groups to complete the assessment of your venture.
Venture Decision Day will be September 18. This is a Saturday Zoom meeting with the CDL team and the Haskayne cohort.
(3)Week of September 12 (A VoPP and Zoom Meeting
on Saturday September 18
time TBA)
CDL-Rockies Program Introduction (CDL-Rockies Team will come for a
discussion.)
Alternative Sources of Financing Risk and Return Considerations
Readings:
TBD
Bootstrap Finance: The Art of Start-ups, Bhide, Harvard Business Review, 1992, 109-117.
Why Venture Capital Wasn’t Right for Me and 15 Alternative Financing Sources, Peterson, Fast Company, 2015. (ECLASS Site)
Venture Capital and Private Equity, Wright and Robbie, Journal of Business Finance & Accounting, 1998 (25;5-6), (pp. 521-570).
Everything You (Don’t) Want to Know About Raising Capital, J. A. Timmons and D.A. Sander, Harvard Business Review, Nov-Dec 1989.
How to Negotiate with VCs, Malhotra, Harvard Business Review, May 2013, (84-90).
How Venture Capital Works, Zider, Harvard Business Review, 1998 (76;6), (pp. 131-139).
How Venture Capitalists Make Decisions, Gompers, Gornall, Kaplan, & Strebulaev, Harvard Business Review, 2021 (99;2) (70-78).
*Venture Capital and Private Equity, Wright and Robbie, Journal of Business Finance & Accounting, 1998 (25;5-6), (pp. 521-570).
*Venture Capitalists as Principals: Contracting, Screening and Monitoring, Kaplan and Stromberg, American
Economic Review, 2001, (pp. 426-430).
*Optimal Investment, Monitoring, and the Staging of Venture Capital, Gompers, The Journal of Finance, 1995, (pp. 1461-1489).
(4)Week of September 19 (September 22 Bus 5-13 6PM)
Prepare Case : C16 Biosciences Private Firm Valuation Issues
Almost Off®
Readings:
The Liquidity Discount in Valuing Privately Owned Companies, Block, Journal of Applied Finance, 2007 (2), (pp. 33-40).
The Value of Corporate Control and the Comparable Company Method of Valuation, Finnerty and Emery, Financial Management, 2004 (33;1), (pp. 91-99).
Review the NACO Sample SAFE Agreement found at the following website:
https://www.nacocanada.com/commondocs/
National Angel Capital Organization Website, 2017.
(ECLASS)
(5)Week of September 26 (September 29 Bus 5-13 6PM)
Private Firm Valuation Issues Introduction to Term Sheets
Readings:
WeNap® Questions for October 6 class discussion.
(6)Week of October 3 (October 6, Bus 5-13 6PM )
WeNap Discussion Prepare Case: TaKaDu
Reading:
Why Your Equity May Be Worth Less Than You Think (or Nothing at All), C. Conner, Forbes, Sept 25, 2012.
(7)Week of October 10 (October 13, Bus 5-13 6PM)
Prepare Case: MedMetric Experiments and learning in start-ups
Private Firm Governance
Readings:
I will distribute the questions for your Individual Valuation Assignment.
(8)Week of October 17 (October 20, Bus 5-13 6PM)
Prepare Case: FastIon Private Firm Governance Continued Scope of Work and being a consultant
Investment Management, Staged Financings, and Exits, Financing New Ventures: An Entrepreneur’s Guide to Business Angel Investment, G. Gregson, Harvard Business, 2014.
I will distribute the questions for your Individual Valuation Assignment. It is due on November 1, 2021.
Please submit via email before 11:59PM on the due date.
Email it to me at [email protected]. Save your document as YourLastname_IVA.docx. You can also provide any spreadsheets you used in completing your exam. Those should be named YourLastname_IVA.xlsx.
(9)Week of October 24 (October 27, Bus 5-13 6PM)
Prepare Case: Optiguard Getting Ready for G7 Session 1 (Discussion by CDL-Rockies Staff)
Readings:
MBA Golden Rules 2018, CDL-Rockies Team.
You will be given access to another case at this time.
This is the Final Case. Align yourselves into the groups that you were in for the due diligence assignments at the start of the semester. Each group will prepare a case solution. This is due on Wednesday December 1.
Assignments received after 11:59 PM on the 1st will have a 15% reduction in grade for any 24 hour period (or portion thereof) that it is late.
(10) Week of October 31 (Nov 2, 3, & 4 CDL Session 1)
And so it begins!
You are invited to attend the G7 Sessions on either Tuesday November 2
(Energy), Wednesday November 3 (Prime), Thursday November 4 (Ag).
Each G7 Session will last from 8:30 until 17:30.
During the CDL Session, the Associates and Fellows will assign each continuing Venture three deliverables it needs to complete before the next CDL Session in January. Please indicate to Natasha Spokes which of the ventures you would like to work with. You will be assigned to a venture and you are to meet with your Venture Leader to discuss what is entailed with each of the Venture deliverables and start to identify which deliverable you would like to help the venture complete before the next G7 Session in January 2022.
You will prepare a scope of work document for this first deliverable. It is due by 11:59 PM Nov 17, via email. Name file YourLastname_SOW.docx.
(11)Week of November 7 Reading Week
But you will be negotiating and preparing your scope of work documents.
You will also receive a take home mid-term on Friday November 12. It is due on Friday November 19 by 11:59 PM. Email it to me at [email protected]. Save your document as YourLastname_MTE.docx. You can also provide any spreadsheets you used in completing your exam. Those should be named YourLastname_MTE.xlsx (12)Week of
November 14 (No Class
Meeting)
You may use this time to work on your midterm
(13)Week of November 21
(No Class Meeting)
Work on your Deliverable for your Venture
Continue Work on your Deliverable for your Venture
(13)Week of November 28
(No Class Meeting)
No Class Work with your venture
Final Case!
11:59 PM on Wednesday December 1. Please save your documents as FC_lastname.docx and FC_ lastname.xlsx.
Where “lastname” is the last name that is first in alphabetical order in your group.
There is no Final Exam in this Course
