Prof. Thomas J. Chemmanur
Office: Fulton Hall 336
Phone: (617) 552 3980
E-mail: chemmanu@bc.edu
Syllabus: Click here
(i) What is entrepreneurial finance and how it is different from corporate finance
(ii) Valuation: Review of conceptual issues. Discussion of two valuation methodologies: Discounted Cash Flow (DCF) and Valuation using Comparable Multiples
(iii) Performance of alternative valuation techniques
Review: Chapter 1 (LM); Chapters 11 and 12 (MY)
Reading: Gompers, P. A., “A Note on Valuation in Entrepreneurial Ventures.”
CASE DISCUSSION (no write-up needed): Atlantic Corporation.
Please download these three valuation examples: Examples
Lecture Slides on Introduction
Lecture Slides on Valuation
Problem Set I
Link: Securities and Exchange Commission Website
Link: Advanced Video: Robert Shiller Nobel Prize Lecture on Stock Valuation
(i) The role of the venture capitalist and the private placement market in the early stages of financing a company
(ii) Differences between venture capital and other forms of private equity. Risk and return of private equity investments
(iii) Valuation of entrepreneurial firms using the Venture capital method
(iv) Alternatives to Venture Capital: Angel Financing and Crowd Funding
(v) Financial contracting, and the incentive effects of alternative venture capital contracts: Structuring a venture capital financing deal
(vi) A rationale for why venture capital deals often involve warrants and convertible securities
Review: Chapters 1, 2, 7 and 10 (MY); Chapters 10 and 11 (LM)
Reading: Sahlman, W. A., “Risk and Reward in Venture Capital.”
Reading: Lerner, J., and J. Willinge. “Note on Valuation in Private Equity Settings.”
Reading (Advanced): Chemmanur, T., K. Krishnan, and D. K. Nandy, “How Does Venture Capital Financing Improve Efficiency in Private Firms? A Look Beneath the Surface”, Review of Financial Studies, 2014. (Course Webpage)
Reading (Advanced): Mollick, E., “The dynamics of crowdfunding: an exploratory study”, Journal of Business Venturing, 2014. (Course webpage)
Reading: Smart Investors Foolish Choices
Reading: How Good are Private Equity Returns?
Lecture Slides on Venture Capital Financing Volume I
Lecture Slides on Venture Capital Financing Volume II
Problem Set II
Second Half: Venture Capital Deal Structures I: Financial Securities and Term Sheets.
(i) Securities used in venture capital financing of new ventures
(ii) Structuring a venture capital term sheet for financing an entrepreneurial venture
Review: Chapters 8, 9 (MY); Chapter 13 (LM).
Reading: Wasserman, N., F. Nazeeri, and K. Anderson: A “Rich-vs.-King Approach to Term Sheet Negotiations.”
Reading: Hardymon, F., and J. Lerner, “Note on Private Equity Securities.”
Anatomy of a Term Sheet (PDF file)
More Term Sheet Explanations (PDF file)
Book Recommendation (Word file)
Lecture Slides on Private Equity Securities Volume I
Problem Set VII
(i) Securities used in venture capital financing of new ventures
(ii) Structuring a venture capital term sheet for financing an entrepreneurial venture
Lecture Slides on Private Equity Securities and Termsheets Volume II
Problem Set VII
NVCA Termsheet
Second Half: How venture capitalists evaluate potential venture opportunities. How to Develop a Successful Business Plan.
Review: Chapters 2 and 3 (LM).
Reading: Roberts, M. J., and l. Barley, “How venture capitalists evaluate potential venture opportunities.”
Reading: Sahlman, W., “How to write a great business plan.”
Reading (Advanced): Kaplan, S. N., B. A., Sensory, and P. Stromberg, “Should Investors Bet on the Jockey or the Horse? Evidence from the Evolution of Firms from Early Business Plans to Public Companies”, Journal of Finance, 2009.
Lecture Slides on Venture Opportunity Screening
Second Half: Evaluating Financial Performance
(i) Financial Statement Analysis and Ratio Analysis
Review: Chapters 4 and 5 (LM)
Lecture Slides on Buiness Plan
Assignment 2, 3, 4 and 5
(i) Financial Statement Analysis and Ratio Analysis
Review: Chapter 4, 5, and 6.6 (LM)
Lecture Slides on Financial Evaluation and Anlaysis Volume I (Revised Version)
Lecture Slides on Financial Evaluation and Anlaysis Volume II (Revised Version)
Assignments 2, 3, 4 and 5
(i) Short-term and long-term financial planning
(ii) Projecting financial statements.
Review: Chapters 6 and 9 (LM)
Lecture Slides on Short Term and Long Term Financial Planning
Lecture Slides on an Example Problem on Short Term Financial Planning
Assignments 1, 6 and 7
Second Half: Option Pricing
(i) Introduction to Option Pricing and the Binomial Model
(ii) Review of option pricing with the Black-Scholes formula
Review: Chapter 13 (MY)
Lecture Slides on Introduction to Option Pricing
Topic Note 7 on Derivative Securities
Topic Note 8 on Option Pricing Using Black-Scholes Formula
Normal Distribution Table Option Value Table
Problem Set V
(i) The option to delay undertaking a project
(ii) The option to expand a business in scale and to enter new markets
(iii) Valuing a new venture using the real options methodology
(iv) Using the real-option methodology to develop long-run financial strategy
Preliminary Proposal for the Final Course Project Due.
Review: Chapters 13 and 21 (MY)
Reading: Luehrman, T. A., “Investment Opportunities as Real Options: Getting Started on the Numbers”
Reading: Copeland, T. E., and Keenan, P. T., “How much is flexibility worth?”
Advanced Reading (Not Required for Exam): Luehrman, T.A., “Real Options Exercises.”
Problem Set VI
Lecture Slides on Real Options in Entrepreneurial Finance Vol I
Lecture Slides on Real Options in Entrepreneurial Finance Vol II
Link: RENAISSANCE CAPITAL – THE IPO EXPERTS – IPO CALENDAR AND PROFILES
Second Half: Initial Public Offerings I
(i) Why go public? The costs vs. benefits of going public
(ii) Theories of IPO pricing
(iii) The role of the underwriter in an IPO: The importance of underwriter reputation.
Reading: Ritter, J. R. and I. Welch, “A Review of IPO Activity, Pricing, and Allocations”, Journal of Finance, 2002.
Reading: Loughran, Ritter, and Rydqvist, “Initial Public Offerings: International Insights”, Pacific-Basin Finance Journal, 1994
Reading: Kim, M., and J. R. Ritter, “Valuing IPOs”, Journal of Financial Economics, 1999.
Reading (Advanced): Chemmanur, T., “The pricing of initial public offerings: A dynamic model with information production”, Journal of Finance, 1993.
Lecture Slides on IPO Volume I: The IPO Process
Lecture Slides on Valuing IPOs
First Half: CASE DISCUSSION AND WRITE-UP: Netscape’s Initial Public Offering.
Second Half: IPOs
(i) Discussion of IPOs and acquisitions
(ii) Recent developments in IPOs
(iii) The relationship between management quality and IPOs
(iv) The long-term (post-IPO) performance of newly public firms
Reading: Ritter, J. R., 1999, “The Long-Run Performance of IPOs”, Journal of Finance
Reading (Advanced): Chemmanur, T., J. He, S. He, and D. Nandy, 2018, “Product Market Characteristics and the Choice Between IPOs and Acquisitions”, Journal of Financial and Quantitative Analysis
Reading (Advanced): Chemmanur, T. J., and O. Bayar, 2011, “IPOs versus Acquisitions and the Valuation Premium Puzzle: A Theory of Exit Choice by Entrepreneurs and Venture Capitalists”, Journal of Financial and Quantitative Analysis.
Reading (Advanced): Chemmanur, T. J., and I. Paeglis, 2005, “Management Quality, Certification, and Initial Public Offerings”, Journal of Financial Economics.
Reading (Advanced): Chemmanur, T. J., G. Hu, and J. Huang, 2010, “The Role of Institutional Investors in IPOs”, Review of Financial Studies.
Reading (Advanced): Chemmanur, T. J., and P. Fulghieri, 1999, “A Theory of the Going-Public Decision”, Review of Financial Studies.
Lecture Slides on IPO Volume II: Market Players and Evidence
Lecture Slides on IPO Volume III: Long Run IPO Performance, the Going Public Decison, and the Role of Institutional Investors in IPOs
