Title: Funding a New Enterprise Code: BUS 28 Instructor: James A. Terranova Location: TBD Time: Thursdays 6:30 9:00 PM Course Summary: BUS 28 focuses on all aspects of financing the startup/early-stage company from the perspective of both the enterprise and the investors. Paying particular attention to the motivations of the company and the financiers, students will be provided with a balanced technical and historical perspective of the role and methodology of venture capital and angel investing. Text-like information is shared with students via e-mail each week before class sessions, along with relevant current media posts. Students are encouraged to read these to gain a basic understanding of the concepts that are, in turn, presented by real world practitioners as guest speakers in class. The speaker sessions are designed to be highly interactive for the benefit of all students. Course Schedule: Week 1: September 28 Introductions and course overview, including investment risk/return concepts and macroeconomic environments in the public and private equity marketplaces Week 2: October 5 Incubators, accelerators, angel investors / who they are, their motivations and goals Don Ross Sand Hill Angels, Life Science Angels, HealthTech Capital Week 3: October 12 Venture capital industry overview, history and current trends / fund structure, motivations and goals Rich Simoni Asset Management Ventures Week 4: October 19 Planning to raise funding / preparing the perfect presentation, business plan Ron Weissman, Band of Angels
Week 5: October 26 Term sheet analysis of early stage financing convertible notes, Series Seed and Series A equity rounds / valuation negotiation Week 6: November 2 Legal organization of the startup enterprise for optimum funding, valuation Shauna Bracher, Wilson Sonsini Goodrich & Rosati Week 7: November 9 Subsequent equity financing rounds / merger/acquisition, initial public offering basics Michael Coke, Partner, Wilson Sonsini Goodrich & Rosati Week 8: December 16 Comprehensive course review, investor presentations
Selected Readings: Venture Deals: Be Smarter than Your Lawyer and Venture Capitalist Brad Feld / Jason Mendelson The Entrepreneurial Bible to Venture Capital: Inside Secrets from the Leaders in the Startup Game Andrew Romans Venture Capitalists at Work: How VCs Identify and Build Billion Dollar Businesses Tarang Shah Angel Financing for Entrepreneurs Susan Preston Term Sheets and Valuations A Line by Line Look at the Intricacies of Term Sheets and Valuations Alex Wilmerding Deal Terms The Finer Points of Venture Capital Deal Structures, Valuations, Term Sheets, Stock Options and Getting VC Deals Done Alex Wilmerding The Entrepreneur s Guide to Business Law Constance Bagley / Craig Dauchy Venture Capital Due Diligence: A Guide to Making Smart Investment Choices and Increasing Your Portfolio Returns Justin Camp The Art of the Start: The Time-Tested, battle-hardened Guide for Anyone Starting Anything Guy Kawasaki The Hard Thing About Hard Things: Building a Business When There are No Easy Answers Ben Horowitz Zero to One Peter Thiel
Other Select Information: Founder Institute: Daily Newsletter A16z Weekly Newsletter (Andreessen Horowitz) YCombinator Startup Library Paul Graham (YC) Essays Stanford University Online Lectures (ecorner) YouTube: Stanford Entrepreneur Videos Something Ventured: Risk, Reward and the Original Venture Capitalists (Documentary Film)
Valuation: First, investors determine by their percentage ownership of the company; e.g., $1 million @ 20% = $5 million valuation Not book value or any objective measure Set too low, founding team not incentivized too high, difficult future path to increased valuations; no one wants down rounds Negotiation akin to an employment contract must be win/win for both parties Want a higher valuation? Reduce your company s risks! Debt vs. Equity: Why convertible notes? Simple, quick, inexpensive; best for small initial round, bridge to equity round Recent use of valuation caps, discounts to next equity round; for investors, equity risk for debt returns Convert to equity priced high, founder wins; priced low, investor wins Desperate money notes can be windfall for investors near failure risks, ultra high returns Term Sheets: Money/Economic Terms vs. Control Terms Liquidation preference: Reason for preferred participating vs. non- Antidilution : Company issues new shares at lower price than prior round ; weighted average vs. full ratchet Right of first refusal: Prior investors given opportunity to maintain their pro rata ownership of the company Board of Directors: which investor group chooses? Drag-along Rights: greater than 50% of preferred shareholders can approve sale of company Protective provisions: Investors may want the right to (1) Sell the company, (2) change size of the Board, (3) changes articles of incorporation, (4) declare/pay a dividend, (5) borrow money above certain limit, (6) change prior investor stock terms, (7) authorize creation of more stock