FNCE 213

Entrepreneurial
Finance

Class Timetable
Group

Date & Time

Venue

01

Tuesday
8:15 11:30

LKCSB
SR 2-4

02

Tuesday
12:00 15:15

LKCSB
SR 2-4

03

Wednesday
8:15 11:30

LKCSB
SR 2-4

04

Wednesday
12:00 15:15

LKCSB
SR 2-4

T Y THONG
email:
tythong@smu.edu.sg
Tel: 6828 0553
Off: LKCSB 4065

Teaching Assistants

Text Book

Group

Name

Email

Zhi Rong

Zr.phua.2011@accountancy.smu.edu.sg

Zhi Rong

Zr.phua.2011@accountancy.smu.edu.sg

Wei Lin

Weilin.yang.2011@accountancy.smu.edu.sg

Wei Lin

Weilin.yang.2011@accountancy.smu.edu.sg

Leach J. C. and R. W. Melicher

Entrepreneurial Finance, 5th edition
Cengage Technology Edition (print & electronic)
South-Western Cengage Learning, 2014
ISBN-13: 978-1-305-02820-3
Available at SMU Booklink now

Course Assessment
Description

Class Participation (20%)

Weight

1.
2.

Class Participation

20%

Mid-term Exam

10%

Case Group Presentation & Discussion

10%

Business Plan & Presentation

30%

Final Exam

30%

Total

100%

3.

4.

5.

You are encouraged to come to class every week.

Participating actively in good and constructive discussion,
and providing useful insights and foresights in class, i.e. casestudy discussion, web discussion, etc., and in business plan
presentation, you will be rewarded.
You may be called for at least once and/or more than once
during the term.
Tip: prepare before you come to class, read, share and
observe more.
Golden rule: Show your name tag in class every week. Raise
your hands if you want to participate in discussion.

Mid-term Exam (10%)

1.
2.
3.
4.
5.

6.

Date: 30th Sep & 1st Oct, 2014 (Week 7).

Duration: 90-min.
In-class mid-term.
Closed-book.
Short qualitative and quantitative questions from previous
weeks topics.
No make-up exam.

Case Group Discussion (10%)

1.

2.
3.
4.

Each group will be presenting and leading the case discussion

of a specified week.
Case group is the same as business plan group.
Duration: 15-min presentation and 5-min class participation.
Member(s) of the group is required to present a component of
the weeks case(s) and to field questions and comments.

Business Plan & Presentation (30%)

Business Plan Proposal:
1.
Group size: Max 5 members. No solo is allowed.
2.
One page business plan proposal due in Week 6 (23 & 24 Sep 2014) for
feedback and suggestion from the class. Format is on elearn.
3.
Submit the business proposal 1 day before the due date to elearn and submit
hard-copy in class.
4.
Some groups will be asked to share and present their business plans proposals
voluntarily with the class in Week 6.
Business Plan Final:
1.
Presentation Dates: Week 12 and 13 by balloting.
2.
Duration: 30-min presentation + 5-min Q&As.
3.
Submit the power point in Week 12 (All Groups), and the written report will be
due in Week 14 Friday in both hardcopy and softcopy .
4.
Presentation carries marks so all members must present.

Final Exam (30%)

1.
2.
3.
4.
5.
6.

7.

Structure of This Course

Past Year Grade Distributions

AY2013-14 Term2
Grades

B
B+

Combined G1 G4
(161/131 students)

38%
(AY13-14 T1: 37.3%)
60.5%
(AY13-14 T1: 59.7%)
48.8%

Date: 02nd Dec 2014 (Tuesday).

Time: 08:30 10:30 (2-hour).
Venue: TBA, check your Oasis in due course.
Closed-book exam.
Qualitative and Quantitative Sections.
Exam format and the past year papers with no solutions will be given
in Week 13.
No make-up exam.

1.
2.
3.
4.

Consists of 3-part to suit different needs

1st part: Innovation, Growth, and Entrepreneurship
2nd part: Valuation Methodologies of Startup
3rd part: VC Organization Structure, Investment
Strategies & Operation
Does this course fit your objectives?

Do You Know What is Business?

How It Relates to Finance?

Cash is King, Information is

Real King
This world fills with the uncertainties and risks, and we all know that business is
nothing but just buy low sell high. However, the key success is when, where and how
to buy low and sell high - easier said than done?
The solution is simply only one word - Information.
The story starts from the stock price charts which I call it "yo-yo". Why it yo-yo? How
many finance people or investors know about it? The markets have the
heterogeneous beliefs about the future of the firms (i.e., growth rate - g), i.e. some
posses more and quality information (90%), and some possess little and less quality
information (10%). We agree that the markets are totally efficient with the sum of
the people with 90% and 10% information about the "g" at large. However, the
markets move with the information, and we would like to follow the 90% instead of
10% as we will get it right 90% in terms of probabilities. Here comes the questions
we would like to ask then (1) why it yo-yo? (2) who are these 90% people? and (3)
how to capture it? Importantly, I would like to articulate the important
understanding and knowledge in finance that we are always positive and win no
matter good or bad times.

Lecture 01

Stylized Facts I:
VC Backed Companies Going Public in
US

Introduction to
Entrepreneurship &
VC Industry Overview

Number of IPOs during 1980 2009

Number of VC-backed IPOs during 1980 2009
VC and Non-VC firm age during 1990 2009
Top management & CEO compensations of VC-backed firms
during 1992 2008
Top management age of VC-backed firms during 1992
2008

17

Number of US IPOs During

1990 to 2010
Number of VC and Non-VC Backed IPOs
400
375
350
325
300
275
250
225
200
175
150
125
100
75
50
25
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Non-VC

VC

AGE of US IPOs During

1990 to 2009

Net Proceeds of VCs in US During 1990 to 2010

Firm Age of VC and Non-VC Backed IPOs

35

Net Proceeds (mil) of VC and Non-VC Backed IPOs

180
160

30

140
25

120

20

100
80

15

60
10
40
5

20
0

0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Non-VC

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Non-VC

VC

Offer Price of VC IPOs in US During 1990 to 2010

VC

Top Managements Total Remuneration (VC-Backed Firms)

During 1992 2008

Offer Price of VC and Non-VC Backed IPOs

20

Total Remuneration Package of Top Management for

VC-Backed Firms

18
16

25000

14

20000

USD (Thousands)

12
10
8
6

15000
10000
5000

0
2

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Year

0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Non-VC

Total Remuneration Package

VC

CEOs Remuneration (VC-Backed Firms) During 1992 2008

Top Managements Age During 1992 2008 (VC-Backed Firms)

CEO Remuneration

Top Management Age

12000
60
50

8000
40

6000
Age

USD (Thousands)

10000

30

4000
20

2000
10

0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Year
Remuneration

0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Year
Age

Number of Offerings and Average First-day Returns on US IPOs,

1980-2009

80

80%

60

60%

40

40%

20

20%

0%

-20

Average First-Day Returns

Number of IPOs

Number of Offerings and Average First-day Returns on

Singaporean IPOs, 1980-2008

-20%

Average first day returns from IPO

Stylized Facts II:

VC Industry past & now

Average first day returns from IPO

VC Industry Number of Deals

Number of Deals
Time
IPO

to Cash-out
Value at Exit

Source: The VC Shakeout, HBR 2010, 88, p.21 23

VC Industry Exit Value

VC Industry Cash-out Time

Source: The VC Shakeout, HBR 2010, 88, p.21 23

VC Industry TOP INVESTMENT

2009

Source: The VC Shakeout, HBR 2010, 88, p.21 23

VC Industry TOP INVESTMENT

2010
Full Year 2010 - Largest U.S. Venture Capital Investments

Better Place, Inc.

Palo Alto

Develops transportation Morgan Stanley Private Equity,Undisclosed

systems that support
Firm,Undisclosed Firm,VantagePoint
electric vehicles.
Venture Partners

CA

Industrial/Energy

Expansion

350,000,300

Twitter, Inc.

San
Francisco

CA

Media and
Entertainment

Expansion

Provides online social

Kleiner Perkins Caufield &
200,000,000 networking and
Byers,Undisclosed Firm
microblogging services.

BrightSource
Energy, Inc.

Oakland

CA

Industrial/Energy

Later Stage

150,000,000

Develops utility-scale
solar power plants.

Draper Fisher Jurvetson,Morgan Stanley

Private Equity,Undisclosed
Firm,Undisclosed Firm,VantagePoint
Venture Partners

Abound Solar, Inc. Loveland

CO

Industrial/Energy

Expansion

111,000,000

Manufactures thin-film
photovoltaic (PV)
modules.

DCM,Invus Group Ltd., The,Technology

Partners,Undisclosed Firm

Trilliant, Inc.

Telecommunications Later Stage

105,999,800

Investor Growth Capital AB,Investor

Provides wireless network Growth Capital, Inc.,MissionPoint Capital
Partners,UMC Capital,Undisclosed
solutions for grid
management applications. Firm,Undisclosed Firm,VantagePoint
Venture Partners,Zouk Ventures, Ltd.

Elevance Renewable
Bolingbrook IL
Sciences, Inc.

Industrial/Energy

Expansion

100,000,000

Produces specialty
chemicals from natural
oils.

TPG Capital,TPG Growth,Undisclosed Firm

HighTower Holding,
Chicago
LLC

Business Products
and Services

Expansion

99,999,900

Provides investment
management services.

DLB Capital LLC,Franklin Templeton,M.D.

Sass Investors Services, Inc.,Undisclosed
Firm,Undisclosed Firm,Undisclosed Firm

Redwood City CA

IL

Casa Systems, Inc.

Andover

MA

Networking and
Equipment

Later Stage

Pierpont Securities
LLC

Stamford

CT

Financial Services

Expansion

Fisker Automotive,
Irvine
Inc.

CA

Industrial/Energy

Later Stage

Develops network edge

96,460,000 devices for IP video and Summit Partners
broadband IP services.
Operates as a brokerGeneral Atlantic LLC,Stone Point Capital
84,999,900 dealer of government
LLC,Undisclosed Firm
securities.
78,078,900

Manufactures electric
vehicles.

Advanced Equities Capital Partners

LLC,Kleiner Perkins Caufield & Byers,Palo
Alto Investors

Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree Report,

Data: Thomson Reuters

WHAT DO WE KNOW ABOUT VC?

Industry How Certainty We Know about the Future?

Locations
Stages of Development of Startups
Investment Amounts
Solo or Syndicates Investments

Next Week

From Idea to Business Plan

Innovation
Success Business Model