DUE
November 20
The information needed to
find the answers in this scavenger hunt comes from all units of this
course, including the fourth one, as well as from your own brains and
past experiences. ALL of these can be related to
entrepreneurial finance. Some of them are
straight forward. Some are "around the
bend". And some will jump on you from behind. Have fun
thinking, talking, laughing, interpreting. Write down your
ideas. Turn in for a prize package
worth . . . (How does one value _______________; sorry! I
bet you thought I was going to tell you the prize, didn't
you?)
"When a defining moment comes along, you
define the moment, or the moment defines you." Kevin
Costner, Tin Cup, 1996.
When is a grocery store not a grocery store?
Why doesn't price necessarily equal value in the
case of the small business?
Explain the concepts of "minority
discount" and "control premium". How are they
used in doing valuation of an entrepreneurial firm?
How does one calculate Return on Investment?
Is the concept different for the entrepreneur than it is for the
venture capitalist? Is the equation different?
You are a business angel. You have
researched to find out that the probability of failure of new ventures
in your area of expertise is 90%. What is the probability of
failure if you invest in one of these new ventures? What is
the probability of failure if you invest in two different
ones? What is the probability that one of the two will
succeed? How many do you need to invest in to get the
probability of 1 SUCCESS up to, say, 70%?
What did Lillian Vernon, Tom Golsano, and Dave
Packard have in common?
Compare and contrast ROI, ROA, and
ROE.
Think about the stages of business development,
start-up, early growth, rapid growth, and exit to the
market. Draw a four quadrant graph that plots on the
horizontal axis, time (where t=0 is at startup), and on the
vertical axis, dollars. Draw the pattern you would expect
for Revenue, for Net Income, and for Net Cash Flow.
How does "liars' poker" describe the possible
relationship between an entrepreneur and an outside investor such as a
business angel or venture capitalist?
If a venture capitalist says "I need ten times my
money over a six year investment horizon", what rate of return is
being required? (This is a straightforward time value of money
question!)
Place in order of increasing degree of
diversification: typical venture capitalist, typical business
angel, typical entrepreneur. Consider as many aspects of
diversification as you can manage! List the aspects you
considered.
Respond to one or more of these quotations,
considering the topics of this course.
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"A little more drive, a little more pluck, a
little more work--that's luck" Jean Cocteau (1889-1963)
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"I make money using my brains and lose money
listening to my heart. But in the long run my books balance
pretty well". Kate Seredy (1939), The Singing Tree. |
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"I'm self-employed". Prince
Phillip. |
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"Nought venter nought have." John Heywood
(1497-1580) |
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"I have never seen a greater monster or miracle
in the world than myself". Michel de Montaigne
(1533-1592), Of Cripples. |
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"Vessels large may venture more, but little
boats should keep near shore." Benjamin Franklin
(1706-1790), Poor Richard's Almanac. |
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"I might have been a gold-fish in a glass bowl
for all the privacy I got". Saki (Hector Hugh Monroe,
1870-1916) The Innocence of Reginald. |
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"It is always worthwhile asking a question,
though it is not always worthwhile answering one." Oscar
Fingal O'Flahertie Wills Wilde (1856-1923). Pose a question
that is worthwhile asking, although answering it might not be of
much value. |
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"i am not you anymore / i am my own collection
of / gifts and errors." Saundra Sharp (1991), Double
Stitch. |
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"First honesty, then industry, then
concentration", Andrew Carnegie (1835-1919) |
What is meant by "bootstrapping"?
Assume a venture capitalist requires a 40% rate of
return per year. If the VC thinks that a company will be worth $5
million in 5 years, what percentage of ownership in the company will the
VC require today in exchange for a $3 million investment?
Define "mezzanine financing".
A venture requires an investment of $5 million today and
is expected to return $25 million in five years. The required rate
of return is 16%. What is the NPV of the potential
venture?
Why would one mention the following names in one breath? Queen
Isabella, A. C. "Mike" Markkulas, and Laurence Rockefeller
"Ich habe mein Mittagessen gegessen"
Explain how angel investing could be compared to panning for
gold. Would it matter if you were a "49'er" (term from
the California gold rush of 1849) or panning at the local Colorado
Rockies tourist attraction gold mining trough or digging through the
tailings of a Ouray, Colorado defunct mine operation?
A Golden Rule: The one who has the gold, makes the rules.
How is "convertibility" built into venture capital
agreements to provide funds to an entrepreneur?
What considerations would you use in choosing to
approach a business angel versus choosing to approach a venture
capitalist?
You’ve been assigned to write an essay entitled
“Why Smart Entrepreneurs Are Saying NO to Venture Capital”. Jot down some ideas that would need to be included in order
to logically support this argument.
Examine the 1987 balance sheet of Jiffy Lube on
page 199 of your textbook. (I know it’s old!
It’s still a legitimate balance sheet!) Estimate
the liquidation value, if Jiffy Lube were
to decide to stop doing business and shut down over the next year’s
time. How much
smaller would it be if Jiffy Lube just shut the doors immediately?
What do David Wetherell, Booklink, and Yesmail,
Inc. have in common?
Calculate the average annual growth rates being
implied by the four statements in Table 12.2, p. 232, under the heading
Risk/Reward Expectations.
Your firm borrows some money, with a very weak
covenant about additional borrowing.
You want to borrow more and go to a new lender, because
you’re pretty sure the old lender won’t want to lend you any additional money and you
REALLY HATE REJECTION. The
new lender is concerned about being the subordinate lender and asks you
to sign over senior status for the new debt, so that in the event of
default, the new lender would be paid first.
Choose one of the five ethical systems on p. 244, and explain how
to answer this dilemma if you base the answer on that one ethical
system. (NOTE:
this does not say, “Choose the one you believe in!”
I want you to try to THINK LIKE someone who believes in that
ethical system.)
