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Assignment Remit

Module Learning Outcomes:

1. To critique and assess the differences between traditional finance and entrepreneurial finance.

2. Identify, apply and evaluate a concept for seed corn funding that can be developed into a start-up.

3. Be able to identify and evaluate the contractual arrangements between entrepreneur and the external investor.

4. Identify domestic and global trends in the industry that finances early stage enterprises such as Angels, Venture Capitalists, Incubators and Accelerators, Crowd funding etc.

5. Be able to critically assess and choose between the range of funding sources available to an enterprise at different stages of its growth strategy.

6. critically explain various financial and ownership aspects of private equity and venture capital investments;

Assignment:

Assuming that you are the owner of an enterprise that you developed as a start-up two years ago. You own 80% of the firm’s equity and four external investors own a further 20% of the equity. The core business of your enterprise is providing a financial information system that can be tailor-made for small businesses. This is currently profit making. You have plans to expand the business scale in order to derive a high growth performance during its third year of business. The external investors are friends and family members that have no finance expertise. You have called a meeting with the external investors to outline your funding plans. The four external investors have strong opinions and each have suggested different types of investors you should target for funding.

Requirements:

(i) To prepare a report with outline briefly the various different sources of funding that might be available to the enterprise, and identify their strengths and weaknesses for the business. The additional funding is required to be in place by the end of its third year.            (30%)

(ii) Critically evaluate the factors that should be considered when deciding which type of funding source to target and assume you will present the arguments to the external investors at your meeting. The report will provide the basis of your discussions.      (30%)

(iii) To choose one source that is your preferred funding source and explain why to the external investors. (30%)

(iv) Presentation (10%)

Total Marks: 100%

Presentation requirements:

· Your assignment must be word processed, 1.5 line spaced and pages should be numbered.

· 2,500 words maximum (-5% minimum), (note: the cover page and any tables or graphs in the appendix and the list of references are not included in the word count).

Marking criteria:

When answering the above questions you need to provide an overview of the relevant funding sources and evaluate the benefits and drawbacks that could arise. Proof of these arguments can be provided by either drawing on specific examples or by using academic empirical evidence to substantiate your argument. The extent to which your arguments are convincing will determine how successful you have been in answering the question. Good answers will show engagement with both the concepts and the academic readings.

Feedback to Students:

Both Summative and Formative feedback is given to encourage students to reflect on their learning that feed forward into following assessment tasks. The preparation for all assessment tasks will be supported by formative feedback within the tutorials/seminars. Written feedback is provided as appropriate.  Please be aware to use the browser and not the Canvas App as you may not be able to view all comments.

Plagiarism:

It is your responsibility to ensure that you understand correct referencing practices. You are expected to use appropriate references and keep carefully detailed notes of all your information sources, including any material downloaded from the Internet. It is your responsibility to ensure that you are not vulnerable to any alleged breaches of the assessment regulations. More information is available at https://intranet.birmingh am.ac.uk/as/studentservices/conduct/misconduct/plagiarism/index.aspx.

Suggested reading lists:

Asel, P.,   Dennis Park and S. Ramakrishna Velamuri (2015), Creating Values through Corporate Venture Capital Programs: The Choice between Internal and External Fund Structures. The Journal of Private Equity.

Barclays, (2016) Venture Capital in the UK, https://www.barclayscorporate.com/content/dam/barclayscorporate-com/documents/insights/industry-expertise/venture-capital-in-the-uk.pdf

Bhaumik, S.K . and S. Fraser, M. Wright, (2015), What do we know about entrepreneurial finance and its relation to growth, International Small Business Review.

Brandon Gaillie, 16 Pros and Cons of Angel Investors,

https://brandongaille.com/16-pros-and-cons-of-angel-investors/

Business.com, Weighing the Pros and Cons of Angel Investing for Your Business. (2018)

https://www.business.com/articles/pros-and-cons-of-angel-investors/

Burchrdt, J. and U. Hommel,, D. Kamuriwo and D. Billitteri,  (2016), Venture Capital Contracting in Theory and Practise, https://www.city.ac.uk/__data/assets/pdf_file/0006/355371/venture-capital-contracting.pdf

BVCA, (2010), A guide to Private Equity https://www.bvca.co.uk/Portals/0/library/Files/Website%20files/2012_0001_guide_to_private_equity.pdf

Chemmanur, T.J.,  Elena Loutskina and Xuan Tian, (2013), Corporate Venture Capital, Value Creation, and Innovation,  Review of Financial Studies, Available using JSTOR.

Coleman, S. (2005) Free and Costly Trade Credit, Journal of Entrepreneurial Finance.

https://www.researchgate.net/publication/267842704_The_Importance_Of_Angel_Investors_In_Financing_The_Growth_Of_Small_And_Medium_Sized_Enterprises

Colombo, M., and S. Murtinu, (2017). Venture Capital Investments in Europe and Portfolio Firms’ Economic Performance: Independent versus Corporate Investors. Journal of Economics and Management Strategy.

Dibrova, A., (2015) Business Angel Investors, Risks and Opportunities,

https://core.ac.uk/download/pdf/82676621.pdf

Drover W., Lowell Busenitz, Sharon Matusik ,David Townsend, Anglin Texas ,Gary Dushnitsky. (2017),

A Review and Roadmap of Entrepreneurial Equity Financing Research: Venture Capital, Corporate Venture Capital, Angel Investment, Crowdfunding and Accelerators, Equity Finance Review. https://core.ac.uk/download/pdf/82897437.pdf

Dutta, S. and  T. Folta , (2016) A Comparison of the Effect of Angels and Venture Capitalists on Innovation and Value Creation, Journal of Business venturing. http://www.law.northwestern.edu/research-faculty/clbe/events/innovation/documents/Dutta_angel_VC.pdf

Hellman, T., and Manju Puri, (2002) Venture Capital and the Professionalization of Start-Up Firms: Empirical Evidence. Journal of Finance.

Hill, S., Internal corporate venturing; A review of five decades of literature., Cass Business School Working Paper, https://openaccess.city.ac.uk/id/eprint/19339/1/Internal%20corporate%20venturing%20A%20review%20of%20%28almost%29%20five%20decades%20of%20literature.pdf

Ivanov , V., and Fei Xie (2010),  Do Corporate Venture Capitalists Add Value to Start-Up Firms? evidence from IPOs and Acquisitions of VC-Backed Companies, Financial Management .

Kerr, W and  R. Nanda (2009) Financing Constraints and Entrepreneurship, Harvard Business School Working Paper.10-013

https://www.hbs.edu/faculty/Publication%20Files/10-013_10253923-5a0e-41e9-85df-e21c75b6c76c.pdf

Kerr, W and  R. Nanda, (2014), Financing Innovation , Harvard Business School Working Paper, 15-034

https://dash.harvard.edu/bitstream/handle/1/13479074/15-034.pdf?sequence=1

Lerner, J.,  and Ramana Nanda (2020), Venture Capital's Role in Financing Innovation, The Journal of Economic Perspectives , Available from JSTOR.

Mishra, C.S.,  and David H. Gobeli, (2000), Strategic Value of Corporate Venture Capital Programs, The Journal of Private Equity.

My Consultant, The Benefits of Investing in Private Equity.(2016),

https://www.jana.com.au/sites/default/files/insights/downloads/MyConsultant%20March%202016.pdf

Fletcher, D. (2019). PE Distribution Waterfalls and their Impact on Client Returns. [online] Icapitalnetwork.com. Available at:

https://www.icapitalnetwork.com/insights/private-equity/pe-distribution-waterfalls-and-their-impact-on-client-returns/

Glücksman, S.,  (2020), Entrepreneurial experiences from venture capital funding: exploring two-sided information asymmetry,  Venture Capital An International Journal of Entrepreneurial Finance

https://www.tandfonline.com/doi/pdf/10.1080/13691066.2020.1827502

Hellman, T., and Manju Puri, (2002) Venture Capital and the Professionalization of Start-Up Firms: Empirical Evidence. Journal of Finance.

Mulcahy, D. 2014 Harvard Business Review. (2014). Venture Capitalists Get Paid Well to Lose Money. [online] Available at: https://hbr.org/2014/08/venture-capitalists-get-paid-well-to-lose-money [Accessed 20 Feb. 2022].

Prowse, S. (1998). Angel investors and the market for angel investments. Journal of Banking & Finance, 22(6), 785–792. https://doi.org/10.1016/S0378-4266(98)00044-2

Inderst, R., and H. Mueller, (2009), Early-stage financing and firm growth in new industries, Journal of Financial Economics.

Jihye Jeong , Juhee Kim , Hanei Son  and Dae-il Nam , (2020), The Role of Venture Capital Investment in Startups’ Sustainable Growth and Performance: Focusing on Absorptive Capacity and Venture Capitalists’ Reputation . Sustainability.

file:///C:/Users/chellepl/Downloads/sustainability-12-03447-v2.pdf

Sanyal, P. and C. Mann, (2017), The Financial Structure of Startup Firms, The Role of Assets Information and Entrepreneur Characteristics, Federal Reserve Bank of Boston, Working Paper  10-17