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Cases in Entrepreneurship

Terms in this set (32)

Finance is all about (2 terms)
1. Access to capital
2. Allocating capital
Investing made easy (2 components)
1. Compounding
2. Understand the financials, then understand how the financials trade in the market
Vanguard Funds
Investment management companies that creates ETFs (exchange-traded funds) for investors

ETFs can be purchased like a stock but are a conglomeration of fractional shares from different companies. ETFs have created a rise in passive investing and money management.
IPO (Initial Public Offering)
A way for privately-held company to utilize the public equity markets to:
1. Provide a real evaluation of the company
2. Provide capital for various purposes (acquisitions, R&D etc.)
3. Provide liquidity for founds and existing shareholders
IPOs are an alternative to other financing options or exit strategies such as: (5 options)
1. Raising more private equity which can be dilutive
2. Utilizing debt, such as bank debt or bonds, which can be more restrictive or may not always be available
3. Selling money to a strategic buyer (competitor)
4. Selling the company to a financial buyer (private equity firm)
5. Divesting of core or non-core assets
What a company must know before going public (2)
1. They will be exposed to a higher degree of regulatory oversight than being private
2. They will face greater public scrutiny
Pros of Going Public (7)
1. Access to capital at lower costs
2. Liquidity for investors
3. Raise large sums of money that do not require repayment
4. Higher and daily valuation of the company
5. Stock options as incentive compensation
6. Enhanced corporate reputation, visibility and prestige
7. Currency for mergers and acquisitions
Cons of going public (7)
1. Loss of freedom to act without BOD or shareholder approval
2. Wall Street and shareholder concentration on short-term/quarterly performance
3. High cost of the IPO (lawyers, underwriting fee etc.)
4. Ongoing reporting requirements and expenses
5. Sarbanes Oxley
6. Complete transparency
7. Potential for dissident shareholder activity
12 Lessons in Leadership
1. Good values attract good people
2. Love is the most powerful four letter word
3. Call yourself a teacher
4. Emotion is your enemy
5. It takes 10 hands to make a basket
6. Little things make big things happen
7. Make each day your masterpiece
8. The carrot is mightier than a stick
9. Make greatness attainable by all
10. Seek significant change
11. Don't look at the scoreboard
12. Adversity is your asset
Pyramid of success (5-4-3-2-1 structure)
5. Industriousness, Friendship, Loyalty, Cooperation, Enthusiasm
4. Self-control, alertness, initiative, intentness
3. Condition, skill, team spirit
2. Poise, confidence
1. Competitive greatness
Best efforts offering
The underwriter acts as an agent between an issuing company and investors, whereby the underwriter purchases only the amount required to fulfill its client's demand or the entire issue. If the underwriter is unable to sell all securities, it is not responsible for any unsold inventory
Bootstrapping
Doing more with less in terms of resources invested in a business, and, where possible, controlling the resources without owning them.

Done by start-ups to build cash flow to delay or eliminate the need for external funding
Chinese Wall
the ethical barrier between different divisions of a financial institution to avoid conflict of interest and maintain confidentiality
Due Diligence
An investigation or audit of information to confirm all materials facts in regard to a transaction
Dutch offering
A public offering structure where the price of the offering is set after taking in all bids and determining the highest price at which the total offering can be sold. Investors place bids for amount they are willing to pay in price and quantity. Once all bids are submitted, the allotted placement is assigned to the bidders from the highest bids down until all shares are gone
Flipping
Act of purchasing shares in an IPO and the quickly selling them for a profit.

Flipping is discouraged by underwriters/brokers since it doesn't create a stable investor base.
Greenshoe Provision
An over-allotment provision contained in an underwriting agreement that gives the underwriter the right to sell investors more shares than originally planned by the issuer, normally done if the demand for an offering is higher than expected
Underwriter
An investment banking firm engaged by an issuer to manage the process of marketing and selling new securities to the public in a public offering, usually through a syndicate of investment banks to maximize the sale and distribution of securities in the offering
Institutional Investors (Buy Side)
Organizations whose primary purpose is to invest their own assets or those entrusted to by others, the most common of which are employee pension funds, insurance companies, mutual funds, university endowments and banks
Jumpstart Our Business Startups (JOBS) Act of 2012
Act signed into law 4/5/12 which loosens restrictions on capital raising for small businesses, such as allowing them to go public with less than $1bn in annual revenue but comes with new provisions protecting potential investors

Gives more legitimacy to the practice of crowd-funding (where firms can solicit publicly for investments)
Lock-Up Agreement
A legally binding contract between the underwriters and insiders of a company prohibiting these individuals from selling any shares of stock for a specific period of time - typically lasting 180 days
Private Placement
Raising of capital via private rather than public placement

Predominately for private companies

Typically result in smaller number of investors
Private Investment in Public Equity (PIPE)
Selling stock at a discount to the current market value per share for the purpose of raising capital. Two types:

1. Traditional - using common or preferred stock
2. Structured - using convertible debt
"Red Herring"
A red herring is a preliminary prospectus filed with the SEC, usually in connection with an IPO—excludes key details of the issue, such as price and number of shares offered. The document states that a registration statement has been filed with the SEC but is not yet effective
Roadshow
The market process during an IPO or other public offering in which management of an issuer together with underwriters meet with and make presentations to potential investors to stimulate interest in the issuer and the offering.
Sell Side
Organizations whose primary role is selling securities and making recommendations for firms' clients

Broadly applies to all functional areas including investment banking, sales, research and trading
Stabilization
Stabilization itself is a practice used by underwriters to stabilize the secondary price of shares after an IPO

Bid is made on behalf of the underwriters to repurchase shares at the offer price, typically supporting a stock that has high selling pressure from investors looking to flip shares for quick profit. Stabilizing must be told to market's regulatory body.
Barqs Soft Drinks Takeaways (6)
1. Diversify your customer base (Risk is created if one customer creates 10% of revenue)
2. Good to have two banking relationships
3. Partnership must be logical and unemotional
4. The benefits of having a positive brand are massive
5. Sales mentality vs. Profit Mentality: You must have good margins and be willing to say no (Profit Mentality)
6. Fix financing problems with the balance sheet, not the income statement
Sidney Pulitzer Takeaways (5)
1. Businesses go through cycles
2. Continue to Network
3. Management teams need something to lose
4. To much debt with an ability to pay off is insurmountable (cash is king)
5. Margins! Margins! Margins!
Boysie Bollinger Case Takeaways
1. Two sick companies merging don't equal a healthy one
2. Never confuse assets and cash
3. Integrity is doing the right things when no one is looking
4. Dividends weaken your balance sheet
5. You always have to make money to run a business
Paradigm
A radical change in underlying beliefs
Countess Mara Case Takeaways (4)
1. Let someone resign when they want to
2. All decisions are business decisions
3. Better to make a wrong decision than no decision
4. Leave salespeople away from the financial side of the business - conflict of interest
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