entrepreneurial financial class syllabus - babson mba class

THIS SHOULD BE READ PRIOR TO THE FIRST CLASS

FINANCING ENTREPRENEURIAL VENTURESEPS 7510

LES CHARM, ADJUNCT PROFESSORFall, 2007, Olin 201

Mondays 6:30 PM - 9:00 PM (1) How to Read a Financial Report by(781) 239-5651 Phone John A. Tracy(781) 239-4178 [email protected] PRINCIPAL ELEMENTS of this course are:

1. Financing companies in various phases of their life cycles2. Understanding what’s in the numbers3. Presentation and discussion of your analyses , solutions AND QUESTIONS

We will look at FINANCING in start-ups, seasonal businesses, acquisitions, public offerings, etc. We will evaluate various financial techniques and “deal” terms. We’ll try to understand the implications of strategy, marketing and production decisions on finance. We will look at legal documents so you will have a practical experience with them. We will engage in a negotiation session to improve your techniques in this important aspect of financing. We will not write business plans. This is not solely a venture capital course; we discuss financing in all phases of a business.

A fundamental part of almost every case will be a practical discussion of WHAT’S IN THE NUMBERS. We will try to understand what numbers tell the reader. Emphasis will be given to ascertaining meaningful analysis for management, investors and lenders. Another important element will be gaining an understanding of cash flow. This includes the ideas of cash burn rate, cash conversion cycle, etc. Also we will try to improve your ability to “see” and “feel” the right numbers for any given circumstance. Early in the semester, we will have an “extra optional night” of help in this area. We are scheduled for 9/19/07 at 6:30. Yes I know this maybe a conflict for some, but there is no perfect answer.

Analyzing cases and writing clear business plans are important, but it is equally important to “sell” the business plan and your ideas. An investor or lender will require a face-to-face meeting, complete with an ORAL PRESENTATION AND DISCUSSION before providing money. Therefore, a fundamental part of the class will be practicing the skills for solid, concise presentations, and meaningful responses to question and discussions.

1. A MAJOR PROJECT will take the place of a final exam in this course. Individuals or groups of students will identify a particular segment of the investing/lending community to analyze. The students will describe where members of a segment fit in the risk chain, how they lend, and what they do differently from lenders who have different risk outlooks. Using numerical examples, you will be expected to describe

how lenders/investors operate based on interviews with them. Interviews with some of their borrowers is also very important to more fully understand how the lender/investor really operates and in what time frame and cost. You should present examples and comments of notes, loan agreements, etc. as well as a discussion of past experience, present activity and future plans of the lender. Because financial markets are changing rapidly, this is an important component of the project. Your written materials for the project will be distributed to everyone in class via Blackboard so that each student leaves the course with a reference book of descriptions and documents about the investing world. Examples of investor/lending sectors that may be analyzed are (also see Blackboard – Course Documents – Pre Work - for last semester’s topics):

2. Banks (large loan lenders, small loan lenders, savings banks)3. Venture capital (a particular segment)4. SBIR5. Import/Export finances6. Asset-based lenders (e.g., Bank of America Credit Corp., Congress Financial)7. Individual investors/lenders (“Angels”)8. Financing of growth in Germany9. Angel Investors in Chile10. Public offering for small companies.11. Government financing.12. Bartering13. Customer Financing

We will not be analyzing real estate lending/investing. If, however, there are other investor groups you would like to study, please let me know. You will need to finalize this decision by the third week of class. No project will be in the area of Venture capital. Prior classes have suggested there was not enough new learning, so we will skip that this semester.

This project is not to be a survey with lists; i. e. a list of all the secondary lenders is nice but not complete. YOUR INSIGHT AND ANALYSIS IS ESSENTIAL. For example, if you identify several subordinated notes, identifying the differences between one note and another is critical to helping your fellow students understand the issues involved. The objectives are: first, to make clear what makes the different lenders/investors work; and second, to show how, where and which particular lender/investor groups should be contacted for a particular deal. We want to be able to get to the correct investors for our deals. We want the report to be usable so you can acquire money faster, at less cost, and on better terms. We also need to know what borrowers have to say so we know what kind of lenders/investors they are. You will also need to prepare up to a five (5) minute summary of only the major points that will be presented to the class, 12/3/07.

CLASS ACTIVITIES

We will have case materials, readings and speakers during the semester. Speakers will bring their own information on the subjects of banking, unregulated lenders, etc. In addition, we will try to have speakers who are presently in the process of raising money or who have just

completed a round of financing and will give you a good understanding of what is required in the marketplace TODAY.

READING MATERIALS

A text to help improve your financial analysis and understanding balance sheets, profit and loss statements and cash flow statements, How to Read a Financial Report by John Tracy published by John Wiley & Sons, Inc. is the recommended reading. This is the shortest (160 pages), least expensive ($18) and clearest book on the subject that I have found. FINISHING IT BEFORE CLASSES BEGIN WILL GIVE YOU A RUNNING START AND IS A MUST!! There will also be many handouts and postings to Blackboard for additional readings. These are posted for those who want to delve deeper.

GRADES

I want to take this opportunity to tell you how I think about this subject.

One of the major objectives of this course is to increase your skills in analysis and oral presentation. Therefore, it is important that you are present in class and active in class dialogue. Comments and questions that move the class forward are particularly appreciated and valued. Dynamic, thoughtful dialogue among students enhances everybody’s learning. Preparation for each class becomes necessary to generate stimulating discussion. This will improve your skills as a presenter, negotiator and listener. All of these skills will help you obtain financing on better terms and conditions in your deals. Because of the importance I place on these skills, presentation and importantly, consistent classroom participation will represent 50% of your course grade. If you find that class participation is difficult for you, please see me early in the term to discuss ways to enable you to participate more effectively. Otherwise, non-participation will count against you in your grade. By the way, my standard for this is what I see the business world expects!

A second major objective is to increase your individual financial analysis ability. I want you to be able to understand “what song the financials sing.” I hope you will be able to “feel the numbers on your fingertips.” Since you are all candidates for MBA’s and have many demands on your life, including family, careers and other courses, I will expect you to hand in your class preparation numbers and analysis for just four of the five cases which are asterisked in the case list. To meet your own schedules, I will let you choose which four of the cases you individually want to analyze for submission, except for the write-up due November 26, 2007, which is required of everybody. Please provide only your financial analysis, not a review of the case. Do not repeat basic case information. Explain the critical numbers and why you think they are important. Do not list all possible analyses. If you make a statement like “The company needs more equity”, you must tell me how much and what price the company should be prepared to pay, or the investor might want, with explanation.

You should know by the end of the classroom discussion how you did and where to improve. You will be expected to grade your own papers before you submit them to me. I may not comment back to you. The classroom discussion should be your feedback. Financial analysis skills will represent 10% of the course grade. Of course, to get a great grade in class participation, one has to have done the case financial analysis. I will look favorably upon students who have made progress throughout the course. Not completing the four hand-ins will count as a zero in this area of grades and will at least drop your grade a minimum of one full grade. I will post on Blackboard what papers I have received. It is your responsibility to see that this posting is accurate!!!

The final project, which I described earlier, represents a major outside work required for the course and brings together many of the skills I see as most important. Consequently, the written submission and oral presentation for the final project will count for 40% of the course grade.

THE FINAL POINT ABOUT GRADES IS THAT AVERAGE WORK DESERVES AVERAGE GRADES, BUT CONSISTENT AND IMPRESSIVE WORK WHICH ADDS TO CLASS KNOWLEDGE WILL BE THE ONLY WAY TO EARN IMPRESSIVE GRADES. I have HIGH STANDARDS, the same as the outside world!!!

OTHER CLASS BUSINESS

Please bring a place card with your name on it to every class. This will enable you to get to know one another quickly and initiate dialogue. I would also like you to fill out an information card so I will know more about you. I will give you the cards on opening night.

In order to prepare well for this course, you will need to review the calendar schedule so that you can organize your case work, the preparation of financial analyses, and the final project, all of which will be done primarily outside of class. Be sure to get all the required materials as listed on the schedule.

There is another assignment that the class will have to finish. I have divided the class into 12 groups. On each class a group has been assigned. They will be responsible for posting on Blackboard by Thursday of the week after the class session the KEY TAKE-AWAYS. The group will be able to discuss via Blackboard, and then post their combined thought. Following their posting, the balance of the class can comment on the take-aways. The entire class will have their opportunity to take the lead in this assignment over the semester.

The reading for the opening class is “How to Avoid Getting Lost in the Numbers” which is in the case packet. I also recommend you read pages 172-182, 208-226, and 234-235 in Portable MBA in Entrepreneurship, if you can. Also, as I have said having finished and understand How to Read a Financial Report BEFORE class begins would be helpful ..

At the last class of the semester, which is 12/3/07, - your written final project is to be distributed to all classmates. We will use Blackboard as source of distribution of many materials. Additional readings to those suggested in the syllabus will be posted by class on Blackboard. You should get use to how I organize blackboard BEFORE you come to class on 9/3 (Yes it is Labor Day evening).

IF you have any questions, or are having any difficulties, please see me before or after class or email me at [email protected].