Subject Entrepreneurship

Segment Financial Elements

Topic Introduction

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Table of Contents
1. Background
2. Reading
3. Segment Overview

1. Background
We looked at the rationale behind a business plan and the essential elements of a
business plan. Not only did we explore the various facets that comprise the
substance of a business plan, but we also studied the importance of documenting the
plan in an understandable format, using a good presentation style and editing it.
A primary reason for writing the business plan is obtaining funds from investors.
When the business plan is written, the entrepreneur and the rest of the team need to
set out and find financing for the business. In a corporate setting, the larger
corporation serves as the financial marketplace and makes the decisions, based on
risk, return and strategic considerations. In a stand-alone enterprise, the financial
community, such as bankers, angel investors, venture capitalists and others, are the
sources of funding. The entrepreneurs must be able to develop financial plans and
projections, a valuation model and a deal structure to entice investors to their
business.
We learned that one of the prime uses of the business plan is to explain the financial
elements of the business model and attract investors. The financial elements of the
new venture are derived from the plans and realities of the business operations. The
top line of financial projections (revenues) is derived from decisions about scale,
marketing activities and target market potential. The bottom line of the financial
projections (profit or cash flow) also derives from a series of business decisions, such
as operating expenses, wage rates and salaries and capital expenditures.
During the course of this segment, you will read about the LiveREADS case. The key
concepts taught in each topic will be illustrated further with examples from this case.

2. Reading
Reading: Textbook and Other Readings
Required Textbook Readings:
You are required to read the following chapters of the textbook: Dollinger, Marc J.
Entrepreneurship: Strategies and Resources. 4th ed. Marsh Publications LLC, 2008:
 Chapter 7, "Foundations of New Venture Finance"
 Chapter 8, "Securing Investors and Structuring the Deal"
Other Required Reading:
 The LiveREADS case
Reference Readings:
 Felsted, A., "Hard lessons in cyber cafes", The Financial Times (20 Feb 2002):
30

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Subject Entrepreneurship
Segment Financial Elements
Topic Introduction

 Paula Lynn, P. and G.D. Gallop. "Financing option", Black Enterprise 29 no. 12
(July 1999): 38-39
 Case studies at the Fairtrade website.
 Marija, S. "New Business-NGO Partnerships Help the World's Poorest",
International Trade Forum issue 2 (2007): 6-8
 Engardio, P. "How to Help Africa Help Itself", BusinessWeek Online (11 July
2003)
 Michael R.L. "Can earning prompt-payment discounts really save money?",
Healthcare Financial Management vol. 51 issue 9 (Sept 1997): 72-74
 Bhidé. A. "Bootstrap finance: The Art of Start-Ups" , Harvard Business Review
(November – December 1992): 190-117
 "What's Love Got To Do With It?", Profit vol. 26 issue 2 (May 2007): A11-13
 Oanh Ha, K. "San Jose, Calif.-Area Entrepreneurs Turn to Bartering", Knight
Ridder Tribune Business News (5 August 2003): 1
 Matsumoto, C. "How Cisco beat chip world to net", Electronic Engineering
Times issue 1137 (23 Oct 2000): 1-2
 Andy, S. "The Village Vanguard", Fortune 142 issue 2 (10 Jul 2000): 154-157
 Royster, G.D. "The Sarbanes-Oxley Solution", Best's Review 104 issue 5 (Sept
2003): 45-48
 "US Corporate-Disclosure Law Confuses Lawyers Outside US", PR Newswire
(15 Sept 2003): 1
 Jorgensen, B. "The dos and don'ts of fund raising", Electronic Business 27
issue 5 (May 2001): 29
 "British Tycoon Puts Car Supermarket Business into Liquidation", Knight
Ridder Tribune Business News (15 Sept 2002): 1
 Aswath Damodaran, "The Promise and Peril of Real Options"
 Bob, Z. "HOW VENTURE CAPITAL WORKS", Harvard Business Review 76 issue
6 (Nov/Dec 98): 131-139
 Ben, R. "The real art of succession planning", NZ Business vol. 20 issue 2
(Mar 2006): 16-17

3. Segment Overview
This segment discusses the important financial decisions unique to developing new
enterprises.
In addition to the content described, each topic includes a self-assessment that will
help you check your understanding of the material.

Now, let us review a brief description of the topic contents.

This topic, Determining Needs, develops the decision framework that is required to
determine how much money is needed to start the business. Different categories of
expenses are reviewed, and the cash flow needs of the firm are presented in a
model.
This topic, Sources of New Business Financing, offers the entrepreneur different
sources for the new venture financing. Sources of financing range from
bootstrapping the operation to venture capital and finally public capital markets. You
will investigate NGO financial alternatives available in your countries. You will also
learn to match investors to the preferred types of returns, in order to secure the
money.
This topic, New Venture Valuation, provides the tools to do basic financial
evaluation. Valuing new business ventures may seem strange while still in the

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Subject Entrepreneurship
Segment Financial Elements
Topic Introduction

development stage. However, without a valuation estimate, it is impossible for

investors and the entrepreneurial team to determine how to structure a financial
deal.
This topic, Approaching Investors, offers advice to entrepreneurs on how to
approach investors. Because the investing environment may differ from country to
country, you will be asked to research how your venture's location is affected by
these differences.
This topic, Structuring the Deal, shows how different kinds of deal elements and
strategies can be offered in a deal structure. The topic emphasises the risk sharing
approach to new venture financing.
This topic, Legal and Tax Issues, provides a framework for you to investigate the
special country specific laws and tax regulations regarding business start ups. Each
country is different, and country specific knowledge is needed for the final project.
This topic, Buying and Selling a Business, focuses on the buying and selling of a
business, one of the most important uses of entrepreneurial negotiation skills.
Buying a business instead of starting a new one may, sometimes, be the most
attractive way for an entrepreneur to start a business; conversely, an entrepreneur
can cash out or exit a business by selling it.

Objectives: Financial Elements

Upon completion of this segment, you should be able to:
 determine the financing needs for a new venture
 bootstrap a new venture if appropriate and possible
 construct a plan for approaching different sources of financing and investors
 craft a deal structure that maximises value for investors and entrepreneurs
 perform a valuation analysis of a new venture
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