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2012/2013  KAN-CM_U127  Financing the Entrepreneurial Business

English Title
Financing the Entrepreneurial Business

Course information

Language English
Exam ECTS 7.5 ECTS
Type Elective
Level Full Degree Master
Duration One Quarter
Course period Spring
Changes in course schedule may occur
Wednesday 08.00-09.40,week 6
Wednesday 08.00-11.30, week 7-13
Time Table Please see course schedule at e-Campus
Max. participants 60
Study board
Study Board for MSc in Economics and Business Administration
Course coordinator
  • Evis Sinani - Department of International Economics and Management
Administration: Birgit Dahlgren - bgd.int@cbs.dk
Main Category of the Course
  • Finance
  • Management
  • Management of Information and Knowledge Management
  • Economics, macro economics and managerial economics
Last updated on 16-10-2012
Learning objectives
This course is intended for master level students who wish to enhance their skills and knowledge in those areas of business that lead to successful entrepreneurship and/or small business management. The focus will be on those financial issues and decisions of particular concern to sole proprietors, partnerships, family-owned businesses and small non-public corporations. This will include the financial aspects of the relationship between the firm and its owners.
  • To describe, classify, structure, and combine the concepts, theories, methods, and models of the course
  • To experience the process: in terms of identifying and pursue a business opportunity in either an independent setting or with a team of motivated peers
  • To analyze concrete problems: ponder some fundamental issues related to venturing and learn to assess the risks, challenges and rewards involved in the venturing process
  • To bridge the gap between theory and practice: learn to transform ideas into action
  • To be able to measure and evaluate financial performance
  • To sharpen your ability to spot and evaluate opportunities for a new venture
  • Write a plan: develop a business plan for a new venture (as part of the course exam)
This course is opened to all master level students that have previous knowledge of economics, corporate governance, management and finance.
Financing the Entrepreneurial Business:
Type of test Oral Exam
Marking scale 7-step scale
Second examiner External examiner
Exam period Spring Term
Aids Without preparation
Duration 20 Minutes
Oral exam on the basis of a mini project (individual or group). Max. 15 A4-pages per 2-4 students. The mini project must be submitted two weeks before the date of the exam.
Course content
This course is designed to introduce you to the issues and practices of financing entrepreneurial businesses (start-ups, emerging growth companies, management buy-outs and buy-ins, etc.) The course covers matters regarding raising finance, pricing & structuring financings, and exiting from the points of view of the entrepreneur and of the investor.

The course is designed for individuals who want to start, buy or run their own businesses some day; those who want to work in the venture capital industry; those who expect to provide financial or consulting services to entrepreneurial companies; and those who want to learn about personal investing in privately-held companies. This is not a technical finance course; rather, the course follows a pragmatic approach designed to put in perspective various methods that you have learned in finance and economics courses in order to enable the assessment of the many issues that arise in financing entrepreneurial businesses.

This course introduces theories, knowledge and financial tools an entrepreneur needs to start, built and harvest a successful venture. The successful entrepreneur must know where and when to obtain financing necessary to launch and develop the venture. Therefore, the course will discuss various forms of financing available to new ventures, present the structure of financial contracts, as well as provide the student with the traditional valuation methods. For instance, we will review the standard tools of valuation applied to start-up situations and introduce the venture capital method and the real options approach to valuation.A significant part of the course will deal with venture capital and business angel finance. Hence, we will also highlight the main ways that entrepreneurs are financed and analyze the role of financial contracts as well as financial constraints in addressing information and incentive problems in uncertain environments. We will look at the structure of venture capital funds and their fund raising process. Finally, we will discuss how founders should exit. Should they sell to another company, take it public, or continue independently as a private company.

An indicative structure for the course is as follows:
  • From the Idea to the Business Idea
  • Organizing and Financing a New Venture
  • Measuring and Evaluating Financial Performance of New Ventures
  • Types of Financing and the Costs of Financial Capital
  • Venture Capital Valuation Methods
  • Valuing Early-Stage Ventures
  • Financially Troubled Ventures: Turnaround Opportunities?
  • Exit Strategies: Going Public? M&A? Going Private?
The teaching methods for this course will employ a combination of lectures, case studies and student presentations of their business plan mini project.
Progression:This course builds upon previous courses that all master level students have had in their respective programs such as: Corporate Finance, Finance, Micro-economics and Managerial Economics.
The course’s development of personal competences:
You will get this hands-on experience in the following ways:
Through the formation and ongoing work of a team work that will develop a comprehensive mini project for a new start-up or for a selected start-up. Through the lectures which are designed to familiarize you with the many dimensions of entrepreneurship and new venture development.
Hence, by the end of the course you should be well equipped to: (i) to assess different forms of entrepreneurial financing; (ii) to build your confidence and intuition about the entrepreneurial process of converting dreams and aspirations into reality; (iii) given (i) and (ii) be able to write an effective and professional mini project for a new or a selected start-up company.  
Teaching methods
The teaching methods for this course will employ a combination of lectures, case studies and student presentations of their business plan mini project.
Expected literature
Recommended literature:
J. Chris Leach, Ronald W. Melicher, "Entrepreneurial Finance, 4 edition" Thomson South-Western,
Additional Literature
From the idea to the business idea
Gans, J.S., and S. Stern. 2010. “Is There a Market for Ideas?” Industrial and Corporate Change19(3): 805-837.
A. Bhide. 1996. “The Questions Every Entrepreneur Must Answer” Harvard Business Review,pp. 120-130.
B. O’Reilly. 1999. “What it Takes to Start a Startup”, Fortune, June 7,pp. 135-140.
Amar Bhide. 1994. "How do Entrepreneurs craft Strategies that Work?" Harvard Business ReviewMarch-April.
W.A. Sahlman. 1997. “How toWrite a Great Business Plan”,Harvard Business Review, July- August 1997.
R.G. McGrath and I.C. MacMillan. 1995. “Discovery Driven Planning”, Harvard BusinessReview, July-August 1995.
Z. Block and I.C. MacMillan. 1985. “Milestones forSuccessful Venture Planning”, HarvardBusiness Review, September-October 1985.
Organizing and Financing new ventures
Nanda, Ramana, and Jesper Sorensen, 2010, Workplace peer effects and entrepreneurship, Management Science.
Ardagna, Silvia and Annamaria Lusardi (2009), “Explaining International Differences in Entrepreneurship: The Role of Individual Characteristics and Regulatory Constraints,” in Joshua Lerner and Antoinette Schoar (eds.), “International Differences in Entrepreneurship,” Chicago: Univeristy of Chicago Press.
Blanchflower, David and Andrew Oswald (1998), “What Makes an Entrepreneur?” Journal of Labor Economics, 16, pp. 26-60.
Sahlman, William, 1990, “The structure and governance of venture capital organizations,” Journal of Financial Economics 27, 473-521.
Evans, David and Boyan Jovanovic (1989), “An Estimated Model of Entrepreneurial Choice under Liquidity Constraints,” Journal of Political Economy, 97, pp. 808-827.
Evans, David and Linda Leighton (1989), “Some Empirical Aspects of Entrepreneurship,” American Economic Review, 79, pp. 519-535.
Holtz-Eakin, Douglas, David Joulfaian and Harvey Rosen (1994a), “Sticking It Out: Entrepreneurial Survival and Liquidity Constraints,” Journal of Political Economy, 102, pp. 53-75.
Banerjee, A. and Duflo, E. (2004). "Do Firms Want to Borrow More? Testing Credit Constraints Using a Directed Lending Program." M.I.T. Working Paper.
Types of Financing
Brav, Omer, 2009, Access to capital, capital structure, and the funding of the firm, Journal of Finance 64, 263-208.
Bottazzi, Laura, Marco Da Rin and Thomas Hellmann (2008), "Who are the active investors? Evidence from venture capital" Journal of Financial Economics, 89(3), 488-512.
Kaplan, Steven, and Per Strömberg, 2003, “Financial Contracting Theory Meets the Real World: Evidence from Venture Capital Contracts,” Review of Economic Studies 70, 281–315.
Kerr, William, Josh Lerner, and Antoinette Schoar, 2011, “The Consequences of Entrepreneurial Finance: Evidence from Angel Financings” Working Paper, Harvard University and MIT
Samila, Sampsa and Olav Sorenson “Venture Capital, Entrepreneurship, and Economic Growth” Review of Economics and Statistics, 93 (2011): 338-349
Tian, Xuan, “The Causes and Consequences of Venture Capital Stage Financing,” Journal of Financial Economics, 2011, Forthcoming.
Goldfarb, Brent Gerard Hoberg David Kirsch Alexander Triantis, 2009, “Does Angel Participation Matter? An Analysis of Early Venture Financing” Working Paper, University of Maryland.
Sorensen, Morten, 2007, “How smart is the smart money? A two-sided matching model of venture capital” Journal of Finance 62:6, 2725-62.
Financial performance of new ventures
Gottschalg, Oliver and Ludovic Phalippou (2008) “The Performance of Private Equity Funds”, Review of Financial Studies.
Kaplan, Steven N. (1989), “The Effects of Management Buyouts on Operating Performance and Value,” Journal of Financial Economics 24: 217-254.
Kortum, Samuel and Josh Lerner (2000) “Assessing the Contribution of Venture Capital to Innovation,” Rand Journal of Economics 31: 674-692.
Venture capital valuation methods
Aswath Damodaran, Damodaran on Valuation, (New York: John Wiley & Sons, 1994).
Shannon P. Pratt, Robert F. Reilly, and Robert P. Schweihs, Valuing a Business: The
Analysis and Appraisal of Closely Held Companies (4th ed.), (Burr Ridge, IL: Richard D.
Irwin, 2000).
W. Sahlman. 1998. “Aspects of Financial Contracting in Venture Capital”,Journal of Applied
Corporate Finance, Summer 1998.
Financially troubled ventures
Foster, L., J. Haltiwanger and C.J. Krizan. 2006. "Market Selection, Reallocation, and Restructuring in the U.S. Retail Trade Sector in the 1990s, Review of Economics and Statistics.
Foster, L., J. Haltiwanger, and C. Syverson. 2008. “Reallocation, Firm Turnover and Efficiency: Selection on Productivity or Profitability,” American Economic Review, March 2008.
Asplund, M. and V. Nocker. 2006. “Firm Turnover in Imperfectly Competitive Markets.” Review of Economic Studies, 73(2): 295-327.
Baily, M., C. Hulten, and D.Campbell.1992. “Productivity Dynamics in Manufacturing Establishments.” Brookings Papers on Economic Activity: Microeconomics, 187-249.
Bartelsman, E. and M. Doms. 2000. “Understanding Productivity: Lessons from Longitudinal Microdata.” Journal of Economic Literature, 38(3): 569-595.
Exit Strategies: Public, Private, M&As?
Chemmanur, Thomas J., Shan He, and Debarshi K. Nandy, 2010, The Going-Public Decision and the Product Market, Review of Financial Studies 23, 1855-1908.
Saunders, Anthony, and Sascha Steffen, 2009, The costs of being private: Evidence from the loan market, Unpublished working paper, New York University.
Dunne, T. M. Roberts, and L. Samuelson. “Patterns of Firm Entry and Exit in U.S. Manufacturing Industries.” RAND Journal of Economics, 19(4): 495-515, 1988.
Hopenhayn, H. “Entry, Exit, and Firm Dynamics in Long Run Equilibrium.”Econometrica, 60(5): 1127-1150, 1992.
Jovanovic, B., “Selection and the Evolution of Industry,” Econometrica, 50(3), 649-670, 1982.
Last updated on 16-10-2012