328 ENTREPRENEURSHIP
DISCUSSION QUESTIONS
- What are the components of a deal?
- What three things must the entrepreneur understand in order to successfully complete the
financing process? - What are the characteristics of the ideal investor?
- What are the characteristics of the ideal entrepreneur and new venture?
- Describe the investor process. What are the barriers and major pitfalls for the entrepreneur?
- Why is the negotiation over the harvest so important?
- How do risk preferences and risk sharing enter into the deal structure and the negotiation?
- How do options and warrants add value to the deal?
- Who are the constituents to a negotiation for financing the new venture? What roles do they
play and what tactics might they use to increase their outcomes? - Is it fairthat negotiating skill is so important in determining the outcomes for the new ven-
ture? Should the new venture succeed or fail based on its merits alone?
EXERCISES
- Calculate the cash flows for your proposed venture if you have not already done so.
- Partition these flows and segment your investor market.
- Calculate the amounts you need to raise from each source.
- Calculate the returns for each investor.
- Develop a risk-sharing financing proposal. Include an option to reinvest.
- Revise your financing plan to incorporate staged financing at the appropriate times.
- Add a warrant for your debt investors to raise their return. Calculate the price of the war-
rant in a five-year schedule. - Prepare a brief financial plan for your new venture. What are your financial requirements?
How might you negotiate with a banker? An angel? A venture capitalist?
KEY TERMS
Bargaining mix
Best Alternative to a Negotiated Agreement
(BATNA)
BFC proposal
Business negotiation
Deal
Deal structure
Demand rights
Distributive negotiations
Due diligence
Harvest
Intangibles
Integrative bargaining
Internal rate of return
Investment agreement
Option to abandon
Piggyback rights
Principled negotiation
Pre-emptive financing
Registration rights
Staged (phased) financing
Tangibles
Technological myopia
Term sheet
Warrant