SOLUTION MANUAL
Entrepreneurial Finance, 7th Edition
J. Chris Leach, Ronald W. Melicher
Chapters 1 - 16 With CAPSTONE CASES
,TABLE OF CONTENTS
Part 1: THE ENTREPRENEURIAL ENVIRONMENT.
1. Introduction to Finance for Entrepreneurs.
2. Developing the Business Idea.
Part 2: ORGANIZING AND OPERATING THE VENTURE.
3. Organizing and Financing a New Venture.
4. Preparing and Using Financial Statements.
5. Evaluating Operating and Financial Performance. Part
3: PLANNING FOR THE FUTURE.
6. Managing Cash Flow.
7. Types and Costs of Financial Capital.
8. Securities Law Considerations When Obtaining Venture Financing. Part 4:
CREATING AND RECOGNIZING VENTURE VALUE.
9. Projecting Financial Statements.
10. Valuing Early-Stage Ventures.
11. Venture Capital Valuation Methods.
Part 5: STRUCTURING FINANCING FOR THE GROWING VENTURE.
12. Professional Venture Capital.
13. Other Financing Alternatives.
14. Security Structures and Determining Enterprise Values. Part 6:
EXIT AND TURNAROUND STRATEGIES.
15. Harvesting the Business Venture Investment.
16. Financially Troubled Ventures: Turnaround Opportunities? Part 7:
CAPSTONE CASES.
Case 1. Eco-Products, Inc. Case
2. Spatial Technology,
,Chapter 1
INTRODUCTION TO FINANCE FOR ENTREPRENEURS FOCUS
The purpose of this first chapter is to present an overview of what entrepreneurial finance is
about. In doing so we hope to convey to you the importance of understanding and applying
entrepreneurial finance methods and tools to help ensure an entrepreneurial venture is
successful.We present a life cycle approach to the teaching of entrepreneurial finance where we
cover venture operating and financial decisions faced by the entrepreneur as a venture
progresses from an idea through to harvesting the venture.
LEARNING OBJECTIVES
LO 1.1: Characterize the entrepreneurial process.
LO 1.2: Describe entrepreneurship and some characteristics of entrepreneurs. LO
1.3: Indicate several megatrends providing waves of entrepreneurial
opportunities.LO 1.4: List and describe the seven principles of entrepreneurial
finance.
LO 1.5: Discuss entrepreneurial finance and the role of the financial manager.LO
1.6: Describe the various stages of a successful venture‘s life cycle.
LO 1.7: Identify, by life cycle stage, the relevant types of financing and
investors.LO 1.8: Understand the life cycle approach used in this book.
CHAPTER OUTLINE
1.1 THE ENTREPRENEURIAL PROCESS
1.2 ENTREPRENEURSHIP FUNDAMENTALS
A. Who is an Entrepreneur?
B. Basic Definitions
C. Entrepreneurial Traits or Characteristics
D. Opportunities Exist But Not Without Risks
1.3 SOURCES OF ENTREPRENEURIAL OPPORTUNITIES
A. Societal Changes
B. Demographic Changes
C. Technological Changes
D. Emerging Economies and Global Changes
E. Crises and ―Bubbles‖
F. Disruptive Innovation
1
, 1.4 PRINCIPLES OF ENTREPRENEURIAL FINANCE
A. Real, Human, and Financial Capital must be Rented from Owners (Principle #1)
B. Risk and Expected Reward go Hand in Hand (Principle #2)
C. While Accounting is the Language of Business, Cash is the Currency (Principle #3)
D. New Venture Financing Involves Search, Negotiation, and Privacy (Principle #4)
E. A Venture‘s Financial Objective is to Increase Value (Principle #5)
F. It is Dangerous to Assume that People Act Against Their Own Self-
Interests(Principle #6)
G. Venture Character and Reputation can be Assets or Liabilities (Principle #7)
1.5 ROLE OF ENTREPRENEURIAL FINANCE
1.6 THE SUCCESSFUL VENTURE LIFE CYCLE
A. Development Stage
B. Startup Stage
C. Survival Stage
D. Rapid-Growth Stage
E. Early-Maturity Stage
F. Life Cycle Stages and the Entrepreneurial Process
1.7 FINANCING THROUGH THE VENTURE LIFE CYCLE
A. Seed Financing
B. Startup Financing
C. First-Round Financing
D. Second-Round Financing
E. Mezzanine Financing
F. Liquidity-Stage Financing
G. Seasoned Financing
1.8 LIFE CYCLE APPROACH FOR TEACHING ENTREPRENEURIAL FINANCE
SUMMARY
DISCUSSION QUESTIONS AND ANSWERS
1. What is the entrepreneurial process?
The entrepreneurial process comprises: developing opportunities, gathering resources,
andmanaging and building operations with the goal of creating value.
2. What is entrepreneurship? What are some basic characteristics of entrepreneurs?
Entrepreneurship is the process of changing ideas into commercial opportunities and
creatingvalue. While there is no prototypical entrepreneur, many are good at recognizing
commercial opportunities, tend to be optimistic, and envision a plan for the future.
3. Why do businesses close or cease operating? What are the primary reasons why businesses
fail?
Entrepreneurial Finance, 7th Edition
J. Chris Leach, Ronald W. Melicher
Chapters 1 - 16 With CAPSTONE CASES
,TABLE OF CONTENTS
Part 1: THE ENTREPRENEURIAL ENVIRONMENT.
1. Introduction to Finance for Entrepreneurs.
2. Developing the Business Idea.
Part 2: ORGANIZING AND OPERATING THE VENTURE.
3. Organizing and Financing a New Venture.
4. Preparing and Using Financial Statements.
5. Evaluating Operating and Financial Performance. Part
3: PLANNING FOR THE FUTURE.
6. Managing Cash Flow.
7. Types and Costs of Financial Capital.
8. Securities Law Considerations When Obtaining Venture Financing. Part 4:
CREATING AND RECOGNIZING VENTURE VALUE.
9. Projecting Financial Statements.
10. Valuing Early-Stage Ventures.
11. Venture Capital Valuation Methods.
Part 5: STRUCTURING FINANCING FOR THE GROWING VENTURE.
12. Professional Venture Capital.
13. Other Financing Alternatives.
14. Security Structures and Determining Enterprise Values. Part 6:
EXIT AND TURNAROUND STRATEGIES.
15. Harvesting the Business Venture Investment.
16. Financially Troubled Ventures: Turnaround Opportunities? Part 7:
CAPSTONE CASES.
Case 1. Eco-Products, Inc. Case
2. Spatial Technology,
,Chapter 1
INTRODUCTION TO FINANCE FOR ENTREPRENEURS FOCUS
The purpose of this first chapter is to present an overview of what entrepreneurial finance is
about. In doing so we hope to convey to you the importance of understanding and applying
entrepreneurial finance methods and tools to help ensure an entrepreneurial venture is
successful.We present a life cycle approach to the teaching of entrepreneurial finance where we
cover venture operating and financial decisions faced by the entrepreneur as a venture
progresses from an idea through to harvesting the venture.
LEARNING OBJECTIVES
LO 1.1: Characterize the entrepreneurial process.
LO 1.2: Describe entrepreneurship and some characteristics of entrepreneurs. LO
1.3: Indicate several megatrends providing waves of entrepreneurial
opportunities.LO 1.4: List and describe the seven principles of entrepreneurial
finance.
LO 1.5: Discuss entrepreneurial finance and the role of the financial manager.LO
1.6: Describe the various stages of a successful venture‘s life cycle.
LO 1.7: Identify, by life cycle stage, the relevant types of financing and
investors.LO 1.8: Understand the life cycle approach used in this book.
CHAPTER OUTLINE
1.1 THE ENTREPRENEURIAL PROCESS
1.2 ENTREPRENEURSHIP FUNDAMENTALS
A. Who is an Entrepreneur?
B. Basic Definitions
C. Entrepreneurial Traits or Characteristics
D. Opportunities Exist But Not Without Risks
1.3 SOURCES OF ENTREPRENEURIAL OPPORTUNITIES
A. Societal Changes
B. Demographic Changes
C. Technological Changes
D. Emerging Economies and Global Changes
E. Crises and ―Bubbles‖
F. Disruptive Innovation
1
, 1.4 PRINCIPLES OF ENTREPRENEURIAL FINANCE
A. Real, Human, and Financial Capital must be Rented from Owners (Principle #1)
B. Risk and Expected Reward go Hand in Hand (Principle #2)
C. While Accounting is the Language of Business, Cash is the Currency (Principle #3)
D. New Venture Financing Involves Search, Negotiation, and Privacy (Principle #4)
E. A Venture‘s Financial Objective is to Increase Value (Principle #5)
F. It is Dangerous to Assume that People Act Against Their Own Self-
Interests(Principle #6)
G. Venture Character and Reputation can be Assets or Liabilities (Principle #7)
1.5 ROLE OF ENTREPRENEURIAL FINANCE
1.6 THE SUCCESSFUL VENTURE LIFE CYCLE
A. Development Stage
B. Startup Stage
C. Survival Stage
D. Rapid-Growth Stage
E. Early-Maturity Stage
F. Life Cycle Stages and the Entrepreneurial Process
1.7 FINANCING THROUGH THE VENTURE LIFE CYCLE
A. Seed Financing
B. Startup Financing
C. First-Round Financing
D. Second-Round Financing
E. Mezzanine Financing
F. Liquidity-Stage Financing
G. Seasoned Financing
1.8 LIFE CYCLE APPROACH FOR TEACHING ENTREPRENEURIAL FINANCE
SUMMARY
DISCUSSION QUESTIONS AND ANSWERS
1. What is the entrepreneurial process?
The entrepreneurial process comprises: developing opportunities, gathering resources,
andmanaging and building operations with the goal of creating value.
2. What is entrepreneurship? What are some basic characteristics of entrepreneurs?
Entrepreneurship is the process of changing ideas into commercial opportunities and
creatingvalue. While there is no prototypical entrepreneur, many are good at recognizing
commercial opportunities, tend to be optimistic, and envision a plan for the future.
3. Why do businesses close or cease operating? What are the primary reasons why businesses
fail?
