Topics

in Entrepreneurial Finance

FINC-UB61 | Spring 2016 | Tues-Thurs UC24 | Section 1: 9:30-10:45 | Section 2: 11-12:15

Instructor: Professor Sabrina T. Howell
TAs: Jakyung Kim (Section 1), Greg Zimmerman (Section 2)

Syllabus

CLASS OVERVIEW

This course will introduce you to the lifecycle of high-growth new ventures (i.e. startups),
with a focus on how they are funded. Entrepreneurial finance is all about making decisions
under uncertainty, and one aim of the course is to learn how to balance good qualitative
judgment with quantitative valuation.

Due to the inherently ambiguous nature of the subject matter, this course will be less
mathematical than most finance courses. If you are uncomfortable with more qualitative or
non-formulaic approaches to problems, then this course is not for you.

We will follow a successful startups path from founding through the stages of new venture
finance. Part I of the course will teach you how to develop a business plan for a new idea and
pitch it to investors. We will also develop the core skills of valuation. In Part II we will study
the venture capital industry and learn how VCs make deals with startups. Part III will explore
experimentation in entrepreneurial finance. Finally, Part IV will examine how entrepreneurs
and investors realize returns, and discuss the IPO process.

You will learn from a mixture of cases, lectures, guest speakers, and startup simulation. The
scheduled outside speakers are a mix of entrepreneurs and investors. The guest will usually
come for part of the class (10-10:45 for the first section, and 11-11:45 for the second). Please
note that scheduling conflicts arise often for these busy individuals. We should expect some of
the speakers to reschedule, cancel, or limit themselves to one section.

There is a strong emphasis on in-class discussion. If you are not normally talkative in class,
this will be a safe opportunity to learn to be more outgoing. There are no wrong answers in
entrepreneurship failure is a badge of honor in Silicon Valley.

A key component of the course will be group work. In your groups, you will produce the
Startup Project deliverables. You are also encouraged to discuss cases prior to the case class
discussion in your groups. Working well in a group is an important skill for a career in
business, and peer evaluation will be a component of your grade.

RESPONSIBILITIES AND GRADING

You are responsible for:
A) Studying lecture materials for in-class quizzes and the midterm.

B)
C)
D)
E)

Preparing case questions for in-class discussion.

Identifying thoughts or questions about assigned reading to bring up in class.
Preparing Startup Project deliverables in your groups.
Attending class with your name placard.

Grading is as follows:
A) In-class quizzes (24%)
B) Midterm Exam (15%)
C) Class participation (16%)
D) Attendance (10%)
E) Startup Project deliverables (25%)
F) Peer evaluation (10%)

You will simulate the critical elements of founding a new venture through the Startup Project.
At the beginning of the course we will randomly divide the class into groups of roughly 5
students. You will pick your startup technology/idea from a set of options, and then will work
with your group on the following deliverables throughout the semester:
A) Business Plan
B) Pitch
C) Cap Table based on In-Class Negotiation Exercise
D) Growth and Exit Plan Memo

Peer evaluation will work as follows. You will have 100 points to allocate across the other
group members. If everyone contributes equally, you should give each person the same
number of points. If one person contributed more, you can give him/her more points and
others fewer points. The average number of points a person receives from his/her group
members will be used to generate the peer evaluation score. The TAs and I will keep your
allocation in strict confidence.

In-class quizzes take the place of a final exam. The quizzes will begin at the start of class and
take about 10 minutes; if you are late or absent without an excuse, you cannot take the quiz
and will receive a 0. The quizzes will cover only the most recent 2 classes, and will not include
company-specific material from cases. There will be 9 quizzes on random days, and your
lowest score will be dropped. So while there is no textbook for this class and required reading
is generally light and not tested, you do need to study the lecture notes on your own time to be
ready for quizzes.

You get one free missed class. After that, each missed class lowers your attendance grade by
2% (so if you miss one class your attendance grade will be 8%). You can have an excused
absence only with a documented illness or serious extenuating circumstances (e.g. a death in
the family).

Class Rules:
A) You must bring your name placard and place it in front of you each class.
B) No computers or phones are permitted in class.
C) Startup Project deliverables for the class are listed under the date in the schedule
below. Specific deadlines are in the assignment. We will not accept late deliverables

 a deliverable submitted after the deadline will receive a zero. If you have an
excellent reason you may ask for an extension at least 24 hours in advance.

Hard copies of lectures will be brought to class and, and a version with worked examples will
be posted online that day.

CONTACT INFO

To meet with Prof. Howell, email her to set up a meeting (Sabrina.howell@nyu.edu)
If you have a question about course material, grading, or attendance, email your section TA.
Section 1: Jakyung Kim (jlk597@stern.nyu.edu) will have office hours Tuesdays 12:151:45 pm (Tisch 7th Fl)
Section 2: Greg Zimmerman (gfz201@stern.nyu.edu) will have office hours Fridays
1:00-2:00 pm (Tisch 7th Fl)

CLASS SCHEDULE

January 26 The Entrepreneurial Financing Landscape (Lecture 1)

PART I: Founding and Valuing a New Venture
This part of the course will address how entrepreneurs conceive a new venture and begin the
process of raising early stage finance. It will give you the key tools that VCs and startups use to
price deals.

January 28 Finance Angle on Opportunity Recognition & Business Models (Lecture 2)
Guest Speaker: Alicia Thomas, Founder and CEO of Dibs
Required Reading: Required Reading: Blank. (2013). Why the Lean Start-Up Changes
Everything. Harvard Business Review.
Optional reading (purchase here): Applegate. (2014). Developing Business Plans and Pitching
Opportunities. HBS Core Curriculum 8062.
February 2 Methods of Valuation I (Lecture 3)
Optional reading (purchase here): Sahlman and Scherlis. (rev. 2009). Method for Valuing
High-Risk, Long-Term Investments: The "Venture Capital Method." HBS Industry Background
Note 288-006.
Optional reading (purchase here): Lerner and Willinge. (rev. 2011). Note on Valuation in
Private Equity Settings. HBS Industry Background Note 297-050.

February 4 Pitching (Lecture 4)
Guest Speaker: Allison Kopf, Founder and CEO of Agrilyst
Required Reading: Sample pitches (posted online).

February 9 Methods of Valuation II (Lecture 5)
Required Reading: Gurley vs. Damodaran Uber valuation debate (to be handed out.)
Optional reading (purchase here): Sahlman and Willis. (rev. 2009). The Basic Venture Capital
Formula. HBS Industry Background Note 9-804-042.

February 11 Angel Investment and the NYC Scene (Lecture 6)

Guest Speaker: Charlie ODonnell, Partner and Founder of Brooklyn Bridge Ventures

February 16 PE Securities and Punchtab Case (Lecture 7)
Required Reading: Nanda et al. (2011). Punchtab, Inc. HBS Case 9-812-033.

PART II: Venture Capital
This part of the course will introduce the VC industry and deal-making between VC firms and
entrepreneurs.

February 18 - Capitalization Tables (Lecture 8)
Guest Speaker: Jeff Behrens, CEO of Siamab Therapeutics and Angel Investor
Deliverable Due: Startup Project Business Plan
February 23 VC Deals and Term Sheets (Lecture 9)
Required Reading: Applegate, et al. (2011). Internet Securities, Inc. HBS Case 9-811-098.

February 25 Startup Project Pitches. Judges: Josh Wolfe (VC at Lux Capital), Alicia
Thomas, Founder and CEO of Dibs, and Adam Rentschler (serial entrepreneur).
Deliverable Due: Startup Project Pitch

March 1 Portfolio Company Sourcing and Evaluation/Discuss Pitch Evals (Lecture 10)
Guest Speaker: Adam Rentschler, Serial entrepreneur, currently CEO and Co-Founder of Valid
Evaluation

March 3 VC Partnerships: Organization and Compensation (Lecture 11)
Required Reading: Lerner et al. (2011). Note on Private Equity Partnership Agreements. HBS
Note 9-294-084.

March 8 Risk and Return; VC as an Asset Class (Lecture 12)
Required Reading: 1) Ghalbouni, J., and D. Rouzies (2010). The VC shake-out. Harvard
Business Review; 2) Nicholas and Chen (2012). George Doriot and American Venture
Capital. HBS Supplement.

March 10 Clean Tech Startup Finance (Lecture 13)

Guest Speaker: Alec Guettel, Co-Founder of Sungevity
Required Readings: Roberts et al. (2011). U.S. Department of Energy & Recovery Act
Funding: Bridging the Valley of Death. HBS Case 9-810-144; Eilperin, Juliet. 2012. Why the
Clean Tech Boom Went Bust. Wired Magazine, January 20.
Can skim, but try to find our guest as a penguin!: Himmelman, Jeff. 2012. The Secret to Solar
Power. The New York Times Magazine, August 9.
Optional Readings (handed out): Hales, Roy. 2015. Sungevity as the Partner of Choice for
Utilities. EcoReport, February 24; Edelman, David and Marc Singer. 2015. Competing on
Customer Journeys. Harvard Business Review. November.

March 15-17: Spring Break

March 22 Midterm

March 24 Private Equity Fundraising and Distribution (Lecture 14)

Part III: Experimentation and Growth
This part of the course will address why companies raise money in multiple rounds and the
importance of experimentation for new ventures.

March 29 - Fast Ion Battery Case (Lecture 15)
Required Reading: Nanda, et al. (2015). Fast Ion Battery HBS Case 9-815-025.

March 31 Experimentation and Real Options Method (Lecture 16)
Required Reading: Lassiter, et al. (2014). Airbnb, HBS Case 812-046
April 5 Rent the Runway Case (Lecture 17)
Guest Speaker: Jenny Fleiss, Co-Founder and Head of Business Development at Rent the
Runway
Required Reading: Eisenmann and Winig. (2012). Rent the Runway. HBS Case 9-812-077.

April 7 Startup Project-VC Negotiation Exercise (NO LECTURE negotiate during class
time in classroom or at another time that works for all members of both groups)
Deliverable Due: Term sheet - negotiation outcome

April 12 Crowdfunding and Non-Equity Financing (Lecture 18)

April 14 Flipkart Case (Lecture 19)
Guest Speaker: Tiffany Clay (Principal at TPG)
Required Reading: Iyer (2014). Flipkart: Valuing a Venture Capital-Funded Startup. MDI
Gurgaon Case W14467.
Deliverable due: Startup Project Cap Table

April 19 Terrapower Case (Lecture 20)
Required Reading: Sahlman, et al. (2013). Terrapower. HBS Case 9-813-108.

Part IV: Realizing Value
This part of the course will address how VCs and entrepreneurs transform a new venture into a
successful company. We will focus on how VCs usually earn returns, through IPO or acquisition.

April 21 The IPO Process (Lecture 21)
Guest Speaker: Jonathan Wolfson, CEO and Co-Founder of Solazyme
Required Readings (to be handed out): Cardwell, Diane. 2013. For Solazyme, a Side Trip on
the Way to Clean Fuel. The New York Times, June 22; Tam, Pui-wing, 2013. Mr. Clean Tech
Wont Back Down. The Wall Street Journal, May 29; Fehrenbacher, Katie. 2015. A Biofuel
Dream Gone Bad (Excerpts). Fortune Magazine, December.

April 26 The Facebook IPO Case (Lecture 22)

Required Reading: Compeau, et al. (2014). Facebook, Inc: The Initial Public Offering Ivey
Case W12453.

April 28 Exit Options and the Economics of Startups vs. Public Firms (Lecture 23)
Skim: Hrnjic. (2014). Alibabas IPO Dilemma: Hong Kong or New York? National University
of Singapore Case W14598.

May 3 Bubbles, Herding, and the Unicorn Problem (Lecture 24)
Guest Speaker: Josh Wolfe, Co-Founder and Managing Partner of Lux Capital
Required Readings (handed out): Cohan, William. 2016. VCs have pumped up the value of the
unicorn startups. Now tech IPOs are in trouble. Good luck getting out. Fortune Magazine;
Reichert, Bill. 2016. Interest Rates, Unicorns, and What the Fed Means to Silicon Valley.
TechCrunch.

May 5 Globalization of VC and High-Growth Startups (Lecture 25)
Deliverable Due: Startup Project Growth and Exit Plan Memo
Required Reading: Zhao, et al. (2011). Jiuding Capital: Private Equity Firm with Chinese
Characteristics. Tsinghua SEM Case TU0027.
Further Reading
1. Damodaran, A. (2009). The dark side of valuation: Valuing young, distressed, and
complex businesses. Ft Press.
2. Smith, J., Smith, R. L., Smith, R., & Bliss, R. (2011). Entrepreneurial finance: strategy,
valuation, and deal structure. Stanford University Press.
3. Ries, E. (2011). The lean startup: How today's entrepreneurs use continuous innovation
to create radically successful businesses. Random House LLC. [Relates to Lecture 2]
4. Metrick, A. and A. Yasuda. (2010). Venture Capital and the Finance of Innovation. Wiley.
[Relates to Lectures 3, 5, 9, 11, 12]
5. Meyer, M. H., & Crane, F. G. (2010). Entrepreneurship: An innovator's guide to startups
and corporate ventures. SAGE Publications.
6. Ralston, Geoff. 2015. A Guide to Seed Fundraising. Available here.