Course Overview

Entrepreneurial Finance (EF) is designed for students who plan to be involved with a startup venture at some point in their career: as a founder, early joiner, board member, advisor, or investor. The course is also relevant to students broadly interested in the financing landscape for young firms.

We will learn how to evaluate and finance young, high-potential ventures, with a specific emphasis on the frameworks, tools, deal terms, and varying sources of capital associated with high-growth startup companies. We will address a fundamental set of questions all entrepreneurs should ask themselves about their financing strategy: How much capital does the company need to raise at this stage? When should we raise this capital? From whom can and should we raise this capital, and under what terms can we raise it? How can entrepreneurship solve social problems and how should ventures be financed when there are benefits beyond the bottom line? And finally, but crucially, what are the strategic considerations of our financing approach?

Although the course is centered on the entrepreneur’s perspective, we also consider the investor’s viewpoint, since understanding the motivations and incentives faced by one’s counterparty is critical to avoiding financing pitfalls and negotiating the best financing outcome for one’s venture.

While some of the EF course material builds on topics introduced in TEM and FIN1/FIN2, this is not a remedial entrepreneurship course, nor is it a follow-on corporate finance course. For example, since an understanding of a company’s cash flow needs is central to understanding how to make financing decisions, we will spend time at the start of the course developing an analytical cash flow framework that will be used throughout the course. EF will place greater emphasis on the people involved in startups than a finance course typically does, as human capital is an important driver of value in startups in ways that do not show up on financial statements.

EF is explicitly designed to be pragmatic and to equip you with the practical tools you need, in addition to providing a broader understanding of how the financing landscape functions. We will spend time understanding not just the basic mechanics of term sheets and financing structures, but why they exist, who they serve, and how you should think about them when you encounter them in practice.

The EF course is structured as a mix of case studies and practical problem sets across five modules:

Module 1: Business Models and Cash Needs (4 Classes, 1 Guest)

In the first model, we learn how to evaluate startup business models. All financing decisions follow from strategic and cash-flow considerations. We introduce the three/multi-stage cash flow model, which sheds light on how a venture’s business model impacts projected cash flows and its need for external finance. This module provides a foundational understanding from both the entrepreneur and the VC perspective that we will build on for the rest of the course.

Module 2: Founding Decisions and Equity Mechanics (4 Classes, 1 Guest)

We next examine critical early-stage decisions and financing structures. We study initial equity allocations, founder agreements, and employee options. We explore how to go about the initial steps of fundraising and how to think about how much is “enough” to get started. By the end of the module, you’ll understand both unpriced investments through SAFEs or convertible notes, as well as the mechanics of priced rounds.

Module 3: Negotiation and Financing the Messy Middle (8 Classes, 6 Guests)

Starting in Module 3 and continuing through the rest of the semester, we will have guests in almost every class. One session will focus on defense tech commercialization, with three guests representing key parts of the puzzle: DoD’s first head of the new Office of Strategic Capital, a prominent VC in the space, and an entrepreneur who built an autonomous underwater vehicle company. In addition, this module will cover term sheet negotiations, including key deal terms. We’ll examine complicated, real-world financing situations where founders confront issues such as dilution and venture debt. Entrepreneurship inevitably involves setbacks and this module will explore how to navigate down rounds, bridge rounds, and recapitalizations.

Module 4: Financing Entrepreneurial Solutions to World Problems (4 Classes, 4 Guests)

By the end of Module 3, you will have confronted much of the good, the bad, and the ugly of entrepreneurial finance. In Module 4, we will consider the role of entrepreneurial finance in solving the world’s problems. The module will explore entrepreneurs and investors taking different approaches to addressing problems in healthcare, financing inclusion, economic development, and the environment.

Module 5: Managing Exits and Course Wrap (5 Classes, 4 Guests)

Module 5 closes the course by covering the three ways shareholders can achieve liquidity: secondaries, M&A, and public listings. We will explore the mechanisms, tradeoffs, and how the promise of liquidity (eventually) underpins the rest of the startup ecosystem.

Grading

Grading is based on the following rubric: 40% class participation (quality and responsiveness to peers are factored in), 40% a written case-based final exam, and 20% required pre-class polls (graded based on completion as long as a good-faith effort was made).

Related EC Courses

The four most closely related EC courses to EF are Financial Management of Smaller Firms, Private Equity Finance, Launching Technology Ventures (LTV), and Venture Capital and Private Equity (VCPE). Financial Management of Smaller Firms focuses on small, but typically mature firms, whereas in EF, we will focus on small, but high-growth firms. PE Finance is an advanced corporate finance course that focuses on detailed financial analyses, also of mature firms, along the lines undertaken by associates at private equity firms. Launching Technology Ventures largely focuses on product-market fit, value proposition, founding team considerations, with only a limited emphasis on seed / series A financing strategies. Finally, while VCPE does deal with companies in similar stages of growth as EF, it does so from the perspective of a VC partner, while also exploring VC fund portfolio management and the General Partner - Limited Partner relationship. Students who take EF along with one or more of these courses usually find the material to be quite complementary rather than repetitive.