FIN 328 Chapter 1
Terms
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- Entrepreneurship
- process of changing ideas into commercial opportunities and creating value
- First-round Financing
- equity funds provided during the survival stage to cover the cash shortfall when expenses and investments exceed revenues
- Secondary Stock Offering
- founder and venture investor shares sold to the public
- Free Cash
- cash exceeding that which is needed to operate, pay creditors, and invest in assets
- Venture Capital Firms
- firms formed to raise and distribute venture capital to new and fast-growing ventures
- Owner-debtholder Agency Conflict
- divergence of the owners' and lenders' self-interests as the firm gets close to bankruptcy
- Venture Law Firms
- law firms specializing in providing legal services to young, fast-growing entrepreneurial
- Venture Capital
- early-stage financial capital often involving substantial risk of total loss
- Initial Public Offering (IPO)
- a corporation's first sale of common stock to the investing public
- Free Cash Flow
- change in free cash over time
- Early-Stage Ventures
- new or very young firms with little operating history
- Cash build
- the excess of cash receipts over cash disbursements including payments for additional investment
- Rapid-growth Stage
- period of very rapid revenue and cash flow (+1.5 to +4.5)
- Maturity Stage
- period when the growth of revenue and cash flow continues but a much slower rate than in the rapid-growth stage
- Development Stage
- period involving the progression from an idea to a promising business opportunity (-1.5 to -.5 = 1 year average)
- Five Life Cycle Maturities
- 1) Development Stage; 2) Startup Stage; 3) Survival Stage; 4) Rapid-growth Stage; 5) Maturity Stage
- Entrepreneur
- individual who thinks, reasons, and acts to convert ideas into commercial opportunities and to create value
- Small Business Administration (SBA)
- established by the federal government to provide financial assistance to small businesses
- Public Financial Markets
- standardized contracts or securities are traded on organized securities exchanges
- Entrepreneurial Opportunities
- ideas with potential to create value through different or new, repackaged, or repositioned products, markets, processes, or services
- Owner-manager (agency) Conflict
- differences between manager's self-interest and that of the owners who hired him
- Mezzanine Financing
- funds for plant expansion, marketing expenditures, working capital, and product or service improvements
- Startup Stage
- period when the venture is organized, developed, and an initial revenue model is put in place (-.5 to +.5 = average 1 year or less)
- Seed Financing
- funds needed to determine whether the idea can be converted into a viable business opportunity (Development Stage)
- Startup Financing
- funds needed to take the venture from having established a viable business opportunity to initial production and sales (Startup Stage)
- Second-round Financing
- financing for ventures in their rapid-growth stage to support investments in working capital
- Commercial Banks
- financial intermediaries that take deposits and make business and personal loans
- Survival Stage
- period when revenues start to grow and help pay some, but typically not all, of the expenses (+.5 to +1.5)
- Venture Capitalists (VC's)
- individuals who join in formal, organized firms to raise and distribute venture capital to new and fast-growing ventures
- Private Financial Markets
- customized contracts or securities are negotiated, created, and held with restrictions on how they can be transferred
- Government Assistance Programs
- financial support, such as low-interest-rate loans and tax incentives, provided by state and local governments to help small businesses
- Seasoned Securities Offering
- the offering of securities by a firm that has previously offered the same or substantially similar securities
- Trade Credit
- financing provided by suppliers in the form of delayed payments due on purchases made by the venture
- Investment Banking Firms
- advise and assist corporations regarding the type, timing, and costs of issuing new securities
- Cash burn
- the gap between the cash being spent and the cash being collected from sales
- Financial Distress
- when cash flow is insufficient to meet current debt obligations
- Entrepreneurial Finance
- application and adaptation of financial tools and technique to the planning, funding, operations, and valuation of an entrepreneurial venture
- Seasoned Firms
- firms with successful operating histories and operating in their rapid-growth or maturity life cycle stages
- Bridge Financing
- temporary financing needed to keep the venture afloat until the next offering
- Venture Life Cycle
- stage of a successful venture's life from development through various stages of revenue growth
- Principles of E-Finance
- 1) Real, human, and financial capital must be rented from owners; 2) Risk and expected reward go hand-in-hand; 3) While accounting is the language of business, cash is the currency; 4) New venture financing involves search, negotiation, and privacy; 5) A venture's financial objective is to increase value; 6) It's dangerous to assume that people act against their own self-interests; 7) Venture character and reputation can be assets or liabilities
- Business Angels
- wealthy individuals operating as informal or private investors who provide venture financing for small businesses
- Investment Banker
- individual working for an investment banking firm who advises and assists corporation in their security financing decisions and regarding mergers and acquisitions