COURSE GOALS The purpose of this course is 1. To introduce students to the topics of venture capital and entrepreneurial finance. 2. To expose students to the variety of challenges faced by different types of entrepreneurs, in the process of seeking funding for their entrepreneurial ventures. 3. To examine theoretical, applied and practice-based perspectives to provide a symbiosis of alternative perspectives that aim to understand the financing challenges of entrepreneurial companies and their venture investors. LEARNING OBJECTIVES What will the students be able to do at the end of the course? Students will be able to understand the complexities of raising funds for novel ideas. They will be able to critically evaluate a business plan and presentation and identify the key business and financing issues. They will learn how to generate financial projections for start-ups and they will also learn how to perform alternative valuations methods to assess the valuation and price of investment deals. They will know how to negotiate terms sheets and how to prioritize contractual clauses. Finally, they will be able to make recommendations on fundraising strategies for both entrepreneurs and venture capital firms. ASSESSMENT SUMMARY Class participation 30% Class assignments 20% Interim presentation 20% Final presentation 20% Investment proposal 10% PROGRAM GOALS (Check those that apply) MBA Critical & Analytical Thinking Integration Communication Ethics & Social Responsibility - 1 -
COURSE INFORMATION Division: BAEN 505 Term/period: Feb 28 th April 5 th, 2012 Instructor: Professor Thomas Hellmann Sauder School of Business Email: Hellmann@sauder.ubc.ca Tel: 604.822.8476 Office hours: when requested Class meeting times: Tuesday and Thursday 2pm-4 pm BRIEF COURSE DESCRIPTION Over the last two decades, venture capital has become an important segment of the financial system, and the economy at large. The venture capital industry provides vital equity financing to privately-held companies, and covers a surprisingly large spectrum of deals. In this class students will learn about the main challenges faced by venture capital practitioners, taking sometimes the investor perspective, sometimes switching perspective by looking at deal from the perspective of companies, or even limited partners. Students will become familiar with the terminology and institutional background of the industry, and learn to understand the underlying economic issues. While this course does not aim to provide a detailed treatment of financial valuation techniques, it will discuss many of the financial trade-offs that arise in the context of venture capital deals. It will also relate these financial trade-offs to the broader strategic decisions made by entrepreneurs and venture capital investors. - 2 -
COURSE MATERIALS & REQUIREMENTS Reading Materials: There will be a course package that includes case studies and some background readings. The case studies will be the basis for much of our classroom discussion. Obtaining the course package is mandatory. The course package includes the following texts: 1. How Venture Capitalists Evaluate Potential Venture Opportunities (HBS 9-805-019) 2. Hardina Smythe, Harvard Business School 9-811-073 3. Note on Free Cash Flow Valuation Models, Harvard Business School 9-288-023 4. Right Now Technologies, Harvard Business School 9-805-032 5. A Note on Valuation of Venture Capital Deals, Stanford Case Study E - 95 6. Athleta, Harvard Business School 9-803-045 7. Venture Capital, by Constance Bagley and Craig Dauchy, Chapter 15 of The Entrepreneurial Venture, W. Sahlman, H. Stevenson, M. Roberts and Amar Bhide (eds.), Harvard Business School Press, 1999Venture Capital (Bagley Dauchy) 8. Yieldex (A), Harvard Business School 9-809-090 9. The Founder's Dilemma, Harvard Business Review, February 2008 10. SpiffyTerm, Inc.: January 2000, Stanford Case Study, SM 86 11. Note on Private Equity Partnership Agreements, HBS 9-294-084 12. Highland Capital Partners: Investing in Cleantech, Harvard Business School 9-811-009 13. It Ain t Broke: The Past, Present, and Future of Venture Capital by Josh Lerner and Steven N. Kaplan,, Journal of Applied Corporate Finance, 22 (Spring 2010), 1-12. 14. Gobi Partners: Raising Fund II, Harvard Business School 9-807-093 15. Angels in British Columbia, Harvard Business School 9-811-100 16. Nantucket Nectars: The Exit, Harvard Business School 9-810-041 Other Learning Resources: to be discussed in class Technology Requirements: Laptop with Excel and Powerpoint Activity Fees: N/A - 3 -
ASSESSMENT Assessments of class participation will be based on attendance at classes and the level of quality participation. Assessment of presentations is based on feedback from the investor panel and professor. SCHEDULE Week by week class schedule, subject to change Day Date Class Theme Case study Tuesday 28-Feb-12 1 Introduction NA Thursday 1-Mar-12 2 Evaluating opportunities Hardina Smythe Tuesday 6-Mar-12 3 Financial projections RightNow Thursday 8-Mar-12 4 Valuation Atheleta Tuesday 13-Mar-12 5 Term sheets Yieldex Thursday 15-Mar-12 6 Control Lynx Monday??? 19 Mar 12 (evening) First Presentations Tuesday 20-Mar-12 7 VC portfolio strategies Highland Thursday 22-Mar-12 8 VC fundraising Gobi II Tuesday 27-Mar-12 9 Ecosystems Angels in BC Thursday 29-Mar-12 10 Exit Nantucket Thursday 5 Apr 12 Final Presentations TEACHING & LEARNING ACTIVITIES Students will be expected to attend ALL class and where they are unable to attend to notify the professor ahead of time. Every class contains a case study. Students will be expected to be prepared all case studies ahead of class, frequently also submitting a case memo. Students should be prepared to be called upon to contribute ideas during every class. This course will use a combination of case-study based discussion, lectures, guest speakers and a variety of other exercise. In addition, the course involves a team project described below. A detailed outline of the class by class schedule will be distributed the first day of class. - 4 -
OTHER INFORMATION Team Project COURSE: BAEN 505 This course includes a novel team project that involves a unique cooperation between course participants, and one of the leading Canadian venture capital firms. We are very fortunate to have the opportunity to work with Richard McKellar, who is a partner at Chrysalix (http://www.chrysalix.com). He will provide student teams access to real world business plans of entrepreneurs seeking venture capital financing. The objective of the project is for student teams to experience the entire process of selecting investment opportunities, performing due diligence, and making an investment recommendation to the senior partners of a venture capital firm. Due to the confidential nature of the information provided by Chrysalix, students are not allowed to make direct contact with the companies that they are evaluating. They are encouraged to perform a due diligence analysis of the company, its competitors, and its industry, but should never disclose the identity of the company that they are researching. We will set aside a little bit of class time to discuss the investment evaluation exercise, but much of the additional work will happen outside of class time. Teams will need to meet on a regular basis. In addition, there are two presentations that will be scheduled outside of regular class time. These presentations will be made in front of Chrysalix partners. On (date to be determined, outside of regular class time) we will have a first set of presentations concerning investment selection. Teams will present their preliminary evaluation of six business plans. They will also need to justify their selection of their choice of one business plan that they plan to use for the second part of the project. On (date to be determined, outside of regular class time) we will have a second set of presentations concerning investment proposals. Teams will present an in depth analysis of their selected business plan, and propose a complete investment structure for funding the company. On that occasion, each team will also submit a 10 page written investment proposal. Contact information for Richard McKellar Email: rmackellar@chrysalix.com Webpage: http://www.chrysalix.com/section.asp?catid=77&pageid=293-5 -