Fin. 341 Ch. 1

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Fin. 341 Ch. 1
2012-08-24 17:13:34

Finance 341 Entrep. Finance
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  1. Entrepreneurship def.
    process of changing ideas into commercial opportunities and creating value
  2. Entrepreneur def.
    individuals who thinks, reasons, and acts to convert ideas into commercial opportunities and to create value
  3. Entrepreneurial Traits or Characteristics

    A successful entrepreneur:
    1. Sees and seizes commercial opportunity

    2. Doggedly optimistic

    3. Plans ahead to obtain the physical, financial, and human resources needed for the venture to succeed
  4. Opportunities Exist but Not Without Risks

    1. New U.S. business formations in the millions annually

    2. Firms with less than 500 employees

    •represent over 99 percent of all employers

    •account for about one-half of the annual gross private domestic product
  5. Trends suggesting possible entrepreneurial innovations are derived from
    1. Societal changes

    2. Demographic changes

    3. Technological changes

    4. Other Changes
  6. Societal Changes Examples
    •“Industrial Society” to “Information Society”


    •Conservative/Liberal shifts

    •Two career families

    •Preferences in styles, foods, etc.
  7. Demographic Changes Examples
    •Aging Society

    •Family size

    •Ethnicity, culture and language


    •Urbanization and suburbanization

    •Regional shifts (sunbelt)
  8. Technological Changes Examples
    1. Information Age

    2. Computers/Internet

    3. Wireless

    4. Alternative Energy

    5. Bio-technology

    6. Cross-functionality

  9. Other Changes Examples
    • 1. Environmental
    • •Global warming

    2. Major world events

    •Credit Crisis


    •Trade treaties


    *Regulatory changes
  10. E-Finance Principle #1

    Real, Human, and Financial Capital Must be Rented from Owners
    1. Money has owners and therefore opportunity costs

    •Time value


    2. Expect to provide a reasonable risk adjusted return on all inputs or the venture will not survive in a market economy
  11. E-Finance Principle #2

    Risk and Return Go Hand in Hand
    •Entrepreneurial ventures are all about future potential business, sales, cash flows and earnings

    •Evaluating the appropriate level of risk (discount rate) in venture businesses is extremely difficult

    •Risk is Investor and Market-determined
  12. E-Finance Principle #3

    While Accounting is the Language of Business, Cash is the Currency
    1. Two important reasons to employ accounting

    •Tracking and accountability for actions taken

    •Quantifying different visions of the future

    2. But, remember cash flow is a new venture’s lifeblood

    •“Get enough accounting to see through the accruals to the cash account”

    •Cash burn: gap between cash being spent and collected

    •Cash build: excess of cash receipts over cash distributions
  13. E-Finance Principle #4

    A Venture’s Financial Objective is to Increase Value
    1. Many objectives including personal ones

    2. But, the unifying financial objective is to increase value

    •rather than price, margin or sales

    •rather than profit, return or net worth

    3. (Market) Value derives from the ability to generate cash to pay capital providers for their capital
  14. E-Finance Principle #5

    New Venture Financing Involves Search, Negotiation, and Privacy
    •Public Financial Markets: standard contracts traded on organized exchanges

    •Private Financial Markets: customized contracts bought and infrequently sold in inefficient private negotiations