Introduction to Entrepreneurial Finance

Entrepreneurial Finance
Philippe Gregoire
Louvain School of Management – Université catholique de Louvain

Reference book : Entrepreneurial finance, a casebook. Paul A. Gompers and William A. Sahlman. John Wiley & Sons, Inc. 2002
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Entrepreneurial finance
Project assessment (POCD) Funding (amount, firm’s value, best partner)

Deal (ownership / control / incentives)
Exit (IPO)

Project Assessment
• 4 critical success factors for entrepreneurial ventures
   

People Opportunity Deal Context

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People
I’d rather back a ‘A’ team with a ‘B’ idea than a ‘B’ team with an ‘A’ idea

• Who are the key players

• What is their experience
• How does this experience prepare or not prepare them for the opportunity that exists

• What are strengths and weakness of the people involved on all sides of the transaction
• Are there key individuals that the company should add or replace

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Opportunity
• New product / service


Smartphone,

• New method of delivery


Amazon.com

• New production technique


Ernest Solvay patent (1861) to manufacture soda ash (enter in detergent, glass, …)

• Is there a sustainable competitive advantage • Must the opportunity be exploited immediately • Are there intermediate milestones
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Deal
• Spending money is not enough. Incentives and contingencies are important considerations.


Key to all these structural features is the concept of the entrepreneur earning his/her equity through value creation.

• Moral hazard and adverse selection


Entrepreneur bear the downside risk

• Choice of appropriate investors


for whom you raise capital is often more important than the terms

• Selection of the proper financial instrument
  

Debt Equities Convertibles / preferred convertibles

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Securities held by Venture Capitalists

• (Source: Kaplan-Strömberg, 2003)
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Context
• Competition • Regulation • International environment • Economic conditions

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