Entrepreneurial Finance

ICampus: download case study + 6 questions (9am to 6pm end) Doyen A015 to A023 : we have the locals: tell him what we want (we have to book the locals) Entrepreneurial finance Different case studies cover the four parts (follow the IPO of Facebook) Project assessment: some toughts on business plan case studies: the knots and cachet tehnologies Introduction All these elements fits together. Business plan has to be written. Not a real predictor for success. People: ask you some questions Deal: as you do for edocs. Introduction Key elements that predict success. * Team : you need good managers

Not only a good team but a team that fits with the project * Are you able to defend or create a competitive advantage? Is it special? Are people ready to pay for it? => KEY * You have to know the different steps * How to extract value? You should make money! That’s key. For example: Facebook: out of the market in 5 year? Maybe. Not succeeding on smartphones! Are they ready to make money? Extract money from your customers? * Context * Deals should have the rights incentives. You have to find the right partner who ad value not only funding. * .. People To success you need the right person.

For example: cachet technologies: lack of management. Opportunity Market: what is the size of the market? The growth rate? Attractiveness of industry: obvious… Customers: Selling price is not a production cost + margin. It’s what your customer is ready to pay. When your able to produce this at a lower cost, you make a margin. What is the cost to acquire a new customer? Important. And how to retain a customer? Difficult or not? Competition: Very good market and customers BUT maybe the competition is very hard. Chance of success will be maybe very low. Pay attention. Graphical tools to understand a business model

Sales forecast – selling price – cost => makes you able to calculate the future cash flow. Usely it is like on the graph. Scenario 1 is what you expect but in real life it’s usely scenario two (more time to make money) or scenario three. When you negotiate you first funding, you know you will need a second round (scenario 2). (Give not to much right in the first round to the funding persons) What’s acceptable? Context * Legality? * Today is not the best market to raise money or to go to an IPO * Today? I believe smartphones is an opportunity. Deals Find the right partner! He may understand what you are doing.

Everyone has to understand the terms. * Because you need the right incentives. The two parties have to be comfortable. * .. * .. * The right incentive: the profit of the entrepreneur is in line with the success of the company. He has to share the success of the company. Or to lose all his money in case of not success. * .. Case studies The Knot * We asked us these questions. No one had experience in retail services… * Barriers for entry were very low so they need to create a brand. * .. * Internet was a very fast growing market. * 1997: a lot of venture capitalist were very active to spend their money on internet. Today?

Two sectors. Biotechnology (here in LLN! ) & Green energy? (funding comes more from state etc. ) & applications on smart phones. * Basic principle: the source of value is cash flow! What is the capacity of this company to generate cash flow! You cannot value a company when you say we will have 1 million customers. Like Facebook… 100 billion… Where comes the value from? Not from the cash flow they are making today. They make 1 billion cash flow today… You want to pay 100 times this?? They want to raise 10 billion in their IPO (22-28 € per share) It could make sense if they will made a cash flow of 15 billion/year.

Is Facebook capable? If you want to speculate, cash flow does not matter. But if you want to invest, look at the cash flows. (here, in the course, we think investors) Types of securities: the entrepreneur needs to share to company success. It’s like an option. Preferred convertible. Founder: 100 VC: 100 If <100 all the money goes to the VC (they protect themselves) * Or you failed: the VC takes all te money and sell your company Or you succeed and the VC helps you with your IPO. There is not really a situation between the two. Cachet Technologies Main question: do we continue the project? Dilemma: Two options: