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BPS 6370.501
Class Meeting Wednesday 7:00 – 9:45 PM SOM 2.801 Office Hours: Mon/Wed 3:00 – 4:30 PM Or by appointment

FALL 2005
Dr. Joseph C. Picken SOM 4.212 Email: Phone (UTD office): (972) 883-4986 Phone (McKinney office): (972) 562-5401

This course has been designed to provide an overview of the entrepreneurship process by focusing on new venture creation from idea generation and opportunity recognition to feasibility analysis and business formation. The course will require you to integrate your current knowledge of business functions and apply techniques of business analysis from other courses to the analysis of venture opportunities. The readings will provide a framework for understanding the entrepreneurial process and evaluating new venture opportunities, exploring the sources and processes of innovation, and developing an understanding of the various methods and techniques available for evaluating new business opportunities. Case studies will be used to explore the various steps involved in evaluating, creating and launching a new business venture, including assessing and acquiring the required resources, structuring the business, arranging financing, and managing the growing enterprise. We will also explore the identification, evaluation and acquisition of existing businesses, and the important activity of harvesting the value created by the entrepreneurial venture. The two most important economic issues to be addressed with respect to a new venture idea are: (a) what is it worth (today and at some future point in time)?; (b) how much cash will it take to get to that future point? The ability to analyze historical financial information, develop multi-year financial projections in MS Excel, and conduct various valuation analyses is essential to the case analysis process. Both group and individual assignments will be required, with individual assignments and class participation comprising half of the final grade, and group projects accounting for the remainder. A group project focused on the identification and evaluation of a new business opportunity will compris e a major part of the course.

• • • • Stevenson, H.H.; Roberts, M.J.; Grousbeck, H.I. and Bhide, A.V. 1999. New Business Ventures & the Entrepreneur. IrwinMcGraw Hill, New York. ISBN 0-256-20477-2 Drucker, P.F. 1993. Innovation and Entrepreneurship. HarperBusiness, New York. ISBN 0-887-306-187. (paperback) Bhide, A. 1996. The Questions Every Entrepreneur Must Answer. Harvard Business Review Nov-Dec 1996 (HBR 96603) Zider, B. 1998. How Venture Capital Works (HBR Reprint 98611)

It is expected that students will have a reasonable understanding of financial accounting and financial analysis, and a working knowledge of Microsoft Excel. Many of the case analyses will require the analysis of financial statements, the development of financial projections (including income statements, balance sheets and statements of cash flow) and the preparation of valuation analyses using MS Excel. Session 2 and the first written assignment will focus on developing and enhancing your skills in this area.

Each student should post a Self-Introduction in the Discussion area of WebCT prior to the first class. Guidelines are provided on the WebCT Discussion page. This information will be used to set up my gradebook and assist in the formation of groups for the course.

Much of the work in this course will be performed in small groups (3-4 members). The group members will be collectively responsible for completing each of the group assignments, including the Business Opportunity Identification and Analysis Project. The grades earned on group projects will be assigned equally to each group member, subject to adjustment based on the Peer Evaluation (see below).
BPS 6370 Fall 2005 Dr. Joseph C. Picken Revised: June 6, 2005 Printed: September 22, 2005



Students will have the opportunity to form their own groups during the first two weeks of the course, based on common interests and preferred group interaction times (see Self Introduction above). It is important that you select your groups to include a diverse set of skills and make sure that at least one member is proficient in accounting and spreadsheet analysis. A list of the members of each group (with name, email and telephone contact information) should be turned into the instructor by the beginning of class on September 7th . Anyone who has not joined a group prior to that time will be assigned to a group by the instructor.

The MS Powerpoint slides used in lectures and case discussions will be available on WebCT ( under course ID BPS 6370. You should be able to access WebCT with your UTD Unix ID and password. Call computer services at (972) 883-2911 if you need assistance.

The course requirements are summarized in the Course Outline section below. Supplemental materials may be provided or posted electronically. Advance preparation and enthusiastic participation in class discussions is an important part of the learning experience in this course and will be evaluated. The course has been designed to allow flexible management of your time. There will be no quizzes or exams. Your grade will be based on group and individual written assignments, your contributions to class discussions, and a major group project, the Business Opportunity Identification and Analysis . These assignments, their due dates and page limits, and their relative weights in determining your final grade are summarized in the table below: Assignment
WA#1 – Case Analysis: SplatterMatter Paintguns, Inc. WA#2 – Opportunities for Innovation WA#3 – Case Analysis: Ice Delights WA#4 – Business Opportunity Identification and Presentation WA#5 – Case Analysis: Commercial Fixtures, Inc. WA#6 – Case Analysis: Onset Ventures WA#7 – Case Analysis: Allen Lane WA#8a – Business Opportunity Analysis WA#8b – Business Opportunity Presentation WA#9 – Peer Evaluation Class Participation

Due Date
9/7/05 9/21/05 9/28/05 10/5/05 10/12/05 10/26/05 11/9/05 11/28/05 11/30/05 11/28/05

Group or Individual
Individual Individual Group Project Group Project Individual Group Project Individual Group Project Group Project Form Individual

Outline or Essay
Outline Essay Outline Essay Outline Outline Outline Essay Powerpoint

Length (pages)
3-4 + Worksheet 4-5 5-7 7-10 3-4 + Worksheet 5-7 5-7 25-30 15 mins

10% 10% 10% 5% 10% 10% 10% 20% 0% 15% 100%

Overall Course Grade

A peer evaluation process will be utilized to adjust individual grades on all group assignments (maximu m range of +/- 20% of the group grade). The peer evaluation form (page 10) will be completed individually and turned in as WA#9 on November 28th .

Fifteen percent (15%) of your grade will be based on the quality of your preparation and active participation in class discussions and exercises. From time to time, it may be necessary to miss a class due to illness or personal business. Please let me know in advance. Keep in mind that written assignments must be emailed by the due date, regardless. If participation becomes an issue, your grade will be impacted.

• Evaluation: Eighty-five percent (85%) of your grade will be based on group and individual written assignments. Particular care should be taken to fully address the requirements for each paper detailed in the assignment. A written evaluation and critique will be provided on all graded papers. Written

BPS 6370 Fall 2005 Dr. Joseph C. Picken Revised: June 6, 2005 Printed: September 22, 2005



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assignments will be evaluated on multiple factors, including (a) clear and direct response to the case questions provided; (b) critical evaluation and effective insights into the case situation; (c) demonstrated ability to apply the course concepts and frameworks in your analysis; (d) logical conclusions and effective recommendations as required; and (e) effective communications. Identification of Assignments. All submitted assignments should be identified as follows: (a) a header on each page of the paper or spreadsheet should include your name and/or Group ID; (b) if submitted electronically, the file name should identify the course, assignment number and your name and/or Group ID. For example, “BPS 6370_2_JSmith.doc” would identify John Smith’s Written Assignment #2. Failure to properly identify your work will impact your grade. Format. Written assignments will be submitted in MS Word, MS Excel or MS Powerpoint format, as appropriate. Each assignment should comply with the specified page length guidelines specified. The use of charts and exhibits is encouraged, to the extent that they help you make your points. Cover pages, charts or exhibits, and lists of references will not be included in the page count. Charts and exhibits should be numbered and appropriately referenced in the body of the document. A list of references should be attached as required. The manuscript should use 11-12 point type, double-spaced, with 1” margins all around. Appropriate titles and section headings should be used. Number the pages and put the course number and your name(s) and group ID in a header at the top of each page. Outline Form Response. Some assignments specify an outline form response. I will expect a statement of the question followed by a bulleted or numbered list of the key items in your response. Essay Form Response. Some assignments specify an essay form response. I will expect a well organized paper that addresses the case questions and uses section headings, bulleted lists, charts and exhibits as appropriate to clearly communicate your message. Assignment Submission Instructions: Written assignments are to be submitted in hard copy form, with the exception of MS Excel spreadsheets, which are to be submitted by email. Do not submit assignments through WebCT. If you are unable to attend class, you may email the assignments to me, to arrive before the beginning of class. Group assignments are to be submitted only by one member of the group. This group member will receive the results and feedback on the assignment and will be responsible for sharing them with the other members of the group. Due Dates and Late Paper Policy: Written assignments are due on or before the beginning of class on the date assigned. Individual late papers turned in at or before the next class session following the due date will be graded, but 10 points will be deducted from the grade. Late papers turned in at or before the second class session following the due date will be graded, but 15 points will be deducted from the grade. Late papers not received by the beginning of the second class session following the due date will receive a zero. No late paper flexibility will be allowed on group papers or projects

Effective written and oral communications are critically important in the business world. It is equally important that students "put their best foot forward" in classroom presentations and written assignments. Poor organization, convoluted sentence structures, mangled grammar and misspelled words have no place in effective communications, and will be considered in the evaluation of your work and ideas.

Many of the written assignments and class discussions will require the analysis of case situations. Case analysis assignments are designed to evaluate and develop your skills in:
• • identifying key strategic or operational issues (decisions or actions required in a given situation) analyzing business situations (understanding the organizational and environmental context, identifying and analyzing situations, opportunities, risks and constraints; and identifying and evaluating options) recommending specific strategies and actions (to address the identified issues).

Discussion questions for each case are provided below to help you to focus your analysis. You are encouraged to work together in your study groups to discuss the cases, including the individual written assignment cases, with the understanding that individual assignments (including tables and figures) are to be prepared and written by yourself. The following general approach to case analysis is recommended:
• • Read the case quickly. Identify the key issues and decisions/actions required (the case preparation questions will help you to focus on the key issues). Prioritize the issues in terms of urgency and importance. Decide what kind of recommendations should be made (and to whom)

BPS 6370 Fall 2005 Dr. Joseph C. Picken Revised: June 6, 2005 Printed: September 22, 2005


BPS 6370.501 ENTREPRENEURSHIP • • • Choose appropriate analytical tools/frameworks from those introduced in the course Analyze the situation thoroughly using the frameworks and theoretical frameworks provided in the readings Draw logical conclusions based on your analysis Make specific recommendations for action in response to the questions posed in the case or the preparation questions (what should be done, who should do it, when and in what sequence).

In general, there are no “right” or “wrong” answers for a specific case – different approaches and insights are possible, depending on your individual perspective and approach. Regardless, I will expect you to draw logical conclusions and (if appropriate) make recommendations that: (a) address the identified strategic issues; (b) follow logically from your analysis and conclusions; and (c) make sense (are feasible) in the context of the case situation.

A group project focused on the identification and analysis of a new business opportunity will comprise a major part of the course. This project will have three major deliverables: (a) a preliminary report and class presentation on th October 5 ; (b) a final report (November 28th ) providing a thorough analysis; and (c) a brief (15-20 minute) presentation (November 30th ) highlighting the key points of the business opportunity. This project is designed to challenge you:
• • • • • • • To explore where business ideas come from and learn how to determine when a “good idea” is also a bona fide business opportunity To investigate how business analysis techniques can supplement the creative process in contributing to opportunity recognition and identification To research an industry, using information about industry trends and innovations to identify opportunities that exist in the industry and to evaluate the industry -level forces that drive the new business development process To research industry competitors to understand how their strategic position and competitive actions might influence the success of a specific product or service idea or concept To design and conduct market analysis to reveal information about the business potential of your product or service idea or concept, including investigating how market conditions and customer preferences influence opportunity analysis To use financial analysis to investigate the business potential of your product or service idea or concept, including exploring methods of financing new ventures and examining how the issues of cost, pricing and profit margins impact on opportunity analysis To consider other potentially important information such as location, seasonality, human resource requirements, knowledge and organizational management issues, and hidden costs that may affect the evaluation of your entrepreneurial product or service idea or concept. Select an industry and identify a specific business idea or opportunity to research. Conduct a preliminary evaluation of the business opportunity following the Checklist for Opportunity Evaluation (download from WebCT). Address items 1-8 in your preliminary report. Summarize your business opportunity in the context of the market and competitive environment in a 5-7 page paper and in a brief presentation to the class. Prepare a Business Plan for a new venture based on the Business Opportunity you identified in your preliminary report, following the guidelines provided in Stevenson et al. (Chapters 4 and 11 and Exhibit 11-1). Thoroughly evaluate the feasibility and attractiveness of the business idea or concept using the Checklist for Opportunity Evaluation (all items) and the concepts and frameworks provided in the text and lectures. Primary market research (talking to prospective customers) may be an important part of this process. Particular emphasis should be placed on the sources and sustainability of competitive advantage for your new venture. Use analytical techniques from other disciplines (marketing, finance, technology) to evaluate the strength of the business idea or concept. Market analysis and financial analysis techniques can be used to uncover weaknesses and identify the strengths of your specific idea or concept. Identify the critical competencies that must be mastered in order to ensure the success of the proposed venture and explain how these will be acquired or developed. Prepare pro forma financial projection for the venture (monthly for first year; quarterly for years 2-3; annual for years 4-5) including a statement of assumptions, income statements, balance sheets and cash flow projections. Prepare a Business Plan for your venture, following the outline provided in Exhibit 11-1. The Business Plan should not exceed 25-30 pages, not including exhibits or appendices. Thoroughly document your assumptions and

Preliminary Report: Business Opportunity Identification (Written Assignment #4 due 10/5/05)
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New Venture Business Plan (Written Assignment #8 due 5:00 PM on 11/28/05)
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BPS 6370 Fall 2005 Dr. Joseph C. Picken Revised: June 6, 2005 Printed: September 22, 2005


BPS 6370.501 ENTREPRENEURSHIP analyses in exhibits or appendices and provide a list of the references and information sources utilized in your research. Turn in 5 extra copies of your Executive Summary (for the judges) with your written assignment. Present your business opportunity and findings in a 15-20 minute oral presentation to the class and a panel of outside experts on November 30, 2005. Bring five copies of your presentation (6/page) for the judges. The Business Plan Evaluation Form to be used for the report and presentation is available on WebCT. One or more business plans may be selected to represent UTD in one of a series of Business Plan competitions held each year. Winners of these competitions receive substantial cash prizes.

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The following discussion questions are provided to help you complete a structured analysis focusing on the key issues in each case. It is important, in written assignments, to address each of these points. An MS Excel Template and a Teaching Note is provided on WebCT for each assignment (except WA#1) to assist you in your analysis. Case solutions will be posted after the due date for submission of assignments (one day after class for case discussions; two weeks after class for Written Assignments).
Written Assignment # 1: SplatterMatter Paintguns, Inc. (Session 02) 1. Download case from WebCT. Complete financial analysis problems and develop spreadsheet analyses based on instructions provided with the case. The DAG Group (Stevenson: 143-155) (Session 03) 1. Based on the information in the case, does the DAG Group’s “rollup” strategy make sense? Can they create a sustainable competitive advantage in a fragmented industry? If “yes”, how. If “no”, why not? 2. What kinds of risks and contingencies should they consider? 3. Should they (a) make an offer to buy Superb Cleaners; (b) build a business from scratch based on their business model; or (c) throw in the towel and get a job. Justify your decision with an analysis using the data from the case. 4. What additional information would have been helpful in reaching and supporting your recommendation? Written Assignment # 2: Opportunities for Innovation (Session 04) 1. Select an industry that you would like to explore for entrepreneurial opportunities. Briefly describe the industry and competitive environment. 2. Systematically analyze the industry to identify opportunities for innovation (purposeful innovation) following the approach outlined in Drucker’s Chapter 2 and detailed in Chapters 3-10. Identify and describe three unique and different opportunities for potential innovation in the industry. 3. Support your findings with reference to Drucker’s “seven sources” and appropriate research and analysis. Written Assignment # 3: Icedelights (Stevenson: 78-103) (Session 05) 1. Based on the information in the case, address the following questions from the Company’s (Mark, Paul and Eric’s) perspective: (a) is there real potential for this business in the Florida market? (b) do the option and franchise agreements make good sense? (c) what are the major risks involved? (d) do the returns justify the risks? If the answers to any of these are negative, what actions or changes would you recommend? 2. Assume that you have been approached as a potential investor by Mark, Paul and Eric. You have had an opportunity to review the materials in the case and the deal structure outlined in Exhibit 9. List, in priority order, the top five issues or questions that must be answered or resolved to your satisfaction before you would commit to investing in the Company. Would the deal structure be attractive to you? Written Assignment #4: Commercial Fixtures, Inc. (Stevenson: 104-122) (Session 06) 1. Based on the information in the case, and assuming a third party buyer, how would you assess the value of Commercial Fixtures, Inc.? Consider the merits of the different valuation techniques and justify your approach. 2. Develop a spreadsheet model to assess the present and future value of CFI. Begin with the template provided on WebCT (Exhibit 4 reformatted). Accept the numbers in the historical statements and the banker’s forecast as “givens” and extend the model through 2002. Based in the information provided in Exhibits 1, 3 and 4 of the case: a. Analyze the income statements for 1995-1997. Prepare an actual/projected income statement for CFI covering the period 1994-2002, using the format provided in the template (WebCT: Template-Commercial Fixtures, Inc.) b. Analyze the balance sheets for 1995-1997. Prepare an actual/projected balance sheet for CFI covering the period 1995-2002 using the format provided in the template. c. Calculate the net asset value of CFI at December 31, 1997, before and after making appropriate adjustments, if any, to the carrying value of the CFI assets (see section 7.2.1 of the Teaching Note). Make only the adjustments suggested in the case.
BPS 6370 Fall 2005 Dr. Joseph C. Picken Revised: June 6, 2005 Printed: September 22, 2005


BPS 6370.501 ENTREPRENEURSHIP d. Calculate the available Borrowing Capacity, if any, under CFI’s current banking arrangements, based on the December 31, 1997 financial statements. e. Prepare a valuation analysis for CFI based on its historical performance (1995-1997), using valuation multiples of 5, 7.5 and 10 times net income (see section 7.2.2 of the Teaching Note). f. Prepare a post-buyout valuation analysis for CFI based on its historical and projected performance, after adjustment for the elimination of all buyout-related financing and payments, using valuation multiples as above (see section 7.2.2 of the Teaching Note). g. Calculate the net present value of the future net income stream (1998-2002) after the adjustments for buyout related items (do not adjust for depreciation). Consider the residual value in 2002 based on a 7.5X multiple of net income (see section 7.2.3 of the Teaching Note). Use a 15% discount rate. h. Consider a pro forma bid of $600,000 up front and $10,000 in annual non-compete payments. Adjust your financial projections (from (g) above) to include the buyout-related debt (amortize over 10 years with interest at 10%) and non-compete payments (5 years). Modify your financial projects to include these elements. Is a bid of this magnitude feasible from a cash flow perspective? What impact does this have on the valuations calculated in items (c), (f) and (g) above? i. Adjust your financial projections (from (h) above) for the higher sales levels Gordon believes are possible. What impact does this have on the valuations calculated in items (c), (f) and (g) above? j. Estimate a range of possible bid prices for Gordon, following the assumptions used in (h) and (i) above, using three valuation methods: (a) current valuation based on earnings multiples; (b) adjusted net asset values; and (c) net present value of future income streams and residual values. Remember that Gordon is buying only a 50% interest, but consider that his partner will not share in the future income streams. k. Analyze the financial tradeoffs between money up front or money over time in non-compete payments. Consider the aggregate amount and cost of borrowing required, tax implications and the time value of money. l. Analyze a range of potential bid scenarios, taking into account the value of the firm, available resources (assume either partner can borrow up to $650,000, amortized over 10 years at 10% interest) and after financing, after tax cash flows. Update your projected financial statements to reflect the additional borrowing required. What kinds of constraints will affect the bid price? What risks and uncertainties should be considered in valuing the company (consider economic, operating and financial risks)? Use your spreadsheet model to evaluate each (sensitivity analysis). Would your assessment of risks affect your recommended valuation? If you were in Gordon’s position, how much would you offer Albert for his share of the company? How much do you think Albert would be willing to offer? How would you structure the deal to minimize your risk? What economic constraints or non-financial considerations would you take into account? How would these influence your bid?



Written Assignment # 5 Business Opportunity Identification (Session 07) (See Group Project instructions above.) Heather Evans (Stevenson: 245-280) (Session 08) 1. Assume that you have been approached by Heather Evans as a prospective investor (VC or individual) and have been provided with all of the material in the case. Would you be willing to invest under the terms and conditions outlined on page 251 of the case? If not, what changes would you propose? What value would you place on this company? 2. Analyze the Liz Claiborne prospectus to determine the multiples of net income and annual sales used to price the company’s shares in its initial public offering. Can these ratios be used to value Heather Evans’ business or do they need to be adjusted? 3. Analyze Heather Evans’ financial projections and use this analysis and the assumptions in Exhibit IV to project the company’s financial performance and condition over a five year period: a. Design an interactive spreadsheet so that you can vary the annual (year over year) growth rate assumptions to test the sensitivity of the projections to the assumed growth rate. b. Develop income statement and balance sheet projections over a five year period (you may condense the detail provided in the income statement as appropriate). You will need to design the spreadsheet so that the analysis will “flex” depending on the level of annual revenue. c. Analyze the “base case” scenario using the growth rates implicit in the case for the first two years, followed by year over year growth of 100%, 50% and 50% in the next three years. Value the company at the end of the fifth year using (a) net asset value; (b) multiples of sales; (c) multiples of net income; (d) discounted five year cash flows; and (e) discounted five year cash flows with residual value. Based on these analyses, estimate the value of the company at the end of the fifth year. d. Repeat the analysis in c. above using growth rates half as much as those in the previous analysis. e. Repeat the analysis in c. above using annual year-over-year growth rates of 15%. f. Assume that an outside investor is looking for a 50% return on investment. What percentage of the equity should
BPS 6370 Fall 2005 Dr. Joseph C. Picken Revised: June 6, 2005 Printed: September 22, 2005


BPS 6370.501 ENTREPRENEURSHIP Heather expect to give up to attract an investor under each of the scenarios c-e? 4. List, in priority order, the top five issues or questions that must be answered or resolved to your satisfaction before you would commit to investing in the Company. 5. Given the responses to these questions as an indication of investor interest, if you were Heather Evans, how would you evaluate the proposed joint venture with Helen Neil Fashions as a financing option? Written Assignment #6: Onset Ventures (Stevenson: 281-310) (Session 09) 1. Focus on the TallyUp decision from the perspective of ONSET Ventures: (a) should ONSET invest an additional $1 million to develop a beta product, or go to the market now to raise $3-4 million and use the money for both product development and marketing; (b) should the “step-up” assumptions be the same under each scenario?; and (c) if they decide to go to the market, what is an appropriate valuation for TallyUp? 2. Develop a spreadsheet analysis that reflects the ONSET business model and use it to evaluate the various alternatives. The model should reflect the pre-and post-money valuations of Tally-up, and the investments and percentage ownership held by ONSET, its venture capital partners, and Tally-up’s management team as they progress through the various funding stages projected out through the seed and first two rounds of venture capital financing. Assume a terminal value equal to the post-money evaluation at the end of the second round. Calculate the cash flows and IRR for ONSET and its VC partners under each scenario 3. Given the financial return expectations of ONSET and the prospective venture capital partners, plus the desire of the company to set aside some shares for stock options, how would the ownership be distributed (post funding) under each alternative? 4. Is this a purely economic decision, or do other factors (risk, consistency with ONSET’s operating philosophy, etc.) come into play? What risks are involved? How do these other considerations impact the decision? 5. Focus on the decision from the perspective of TallyUp’s management team: (a) would you prefer to have ONSET increase its commitment now to develop the beta product, or (b) would you prefer to go to the market now to raise $3-4 million? How much ownership would you be willing to give up under each scenario? How would this impact your anticipated return? ArthroCare (Stevenson: 543-571) (Session 10) 1. What insights did you gain about the process of innovation from the “Background” section of this case? 2. How would you evaluate ArthroCare’s financial performance to date (as compared to the projections provided in Exhibit 3)? Is this performance fairly reflected in the stock price, or has the market over-reacted? 3. What key assumptions (implicit in ArthroCare’s strategy and business model) have changed materially from the time of the initial IPO until the end of the case? How have these changes impacted ArthroCare’s strategy and financial performance? 4. At the end of the case, Dr. Thapliyal faces two strategic decisions: (a) pricing for the controller; and (b) level of investment in R&D to broaden the Company’s markets. Both involve tradeoffs between short term performance and long term growth, marketplace viability and financial return. To what extent do the expectations of the marketplace and key shareholders constrain his options? What would you recommend in each case? Why? (justify your recommendations). 5. In order to answer question (a) above, develop a spreadsheet that calculates the future revenues from the sales of wands and controllers under various pricing and volume scenarios, recognizing that controllers represent a one-time sale that provides an installed base that will drive the future sales of wands (the more controllers installed on a cumulative basis, the more wands that will be sold in each future period). Written Assignment # 7: Allen Lane (Stevenson: 417-440) (Session 11) 1. Assume that you are Allen Lane’s partner. Prepare a prioritized (in terms of relative importance) checklist of the items that must be taken into account in valuing the business of PTI. Explain why each of these items is important to the valuation. 2. Based on the historical financials provided, develop pro forma income statement and balance sheet projections for the next five years (1982-1986). Explore the implications of various sales growth and purchase price assumptions on financial performance, financing requirements, and return on equity for the investors. 3. Critically examine the valuation report (Exhibit 4) and the letter from the accountants on contingent liabilities (Exhibit 7). What issues, questions, or red flags do these reports raise? Why are they important to your valuation? What risks and contingencies should Lane consider in establishing a purchase price. What risks should he be willing to assume? 4. Use your pro forma model to explore the implications of the various IRS audit scenarios on the transaction (don’t forget penalties and interest on delinquent amounts). What impact would this risk have on your proposed valuations? 5. Prepare a bid (in the form of an offer letter) for the purchase of PTI, addressing the proposed purchase price, structure and terms of the deal, exclusions, proposed financing arrangements, etc. Attach a spreadsheet analysis (not part of the offer), detailing the development and calculation of the purchase price and analyzing the projected return (IRR) on the initial $200K investment to Lane and his partner over a period of five years. Explain your assumptions.

BPS 6370 Fall 2005 Dr. Joseph C. Picken Revised: June 6, 2005 Printed: September 22, 2005


BPS 6370.501 ENTREPRENEURSHIP Gordon Biersch Brewing Company (Stevenson: 511-532) (Session 12) 1. Conduct a thorough analysis of the financial projections contained in Exhibits 7, 9, and 10. Compare these projections to the actual financials summarized in Exhibit 3. Construct a pro forma income statement for 1992-1997 based on the data provided in Exhibits 3,7,9 and 10 and a balance sheet projection for 1992-1997 beginning with the balance sheets summarized in Exhibit 3 and consistent in future years with the income statement projection for the same period. Are their financial projections consistent with their experienced history? What assumptions are implicit in their projections? Are these assumptions realistic? 2. Use your pro-forma balance sheets to estimate the financing requirements to support the projected growth and expansion of the business through 1997. How would you propose to finance the requirements for working capital, new construction, fixed assets, etc. to support the proposed expansion? 3. What elements of the Company’s strategy have been important to its success to date? Has it been more important to be efficient or effective? What role has the hands-on involvement of the founders played in that success? Is it reasonable to assume that they can continue to be as actively and directly involved as the business grows? If not, what kind of organizational structure, decision-making processes, management incentives and internal controls would you recommend to ensure the continued success of the Company? Grand Junction (Stevenson: 629-643) (Session 13) 1. The decision of the founding shareholders to “cash out” by the sale of the Company (acquisition) vs. the sale of part of the Company (shares) through an IPO has very different implications for the Company’s shareholders. Analyze and quantify the personal financial implications of the alternatives for Charney, Moses & Birenbaum under two scenarios: (a) sale of the company to Cisco for $325 million; or (b) taking the Company public at $16/share. 2. Regardless of whether the Company was sold to Cisco or taken public, much of the wealth of the founding shareholders would be held in the form of publicly traded shares (either Cisco or Grand Junction) for a number of years. Evaluate the risks and opportunities inherent in the two scenarios. 3. Assume that the financial risks and returns are roughly comparable. Identify and discuss the non-financial considerations that must be taken into account by Charney, Moses and Birenbaum in making the decision on how to “cash out”. Prepare a list of non-financial “pros” and “cons” for discussion. 4. Given all of the considerations addressed above, which scenario would you recommend? If you recommended sale to Cisco, what would be your “rock bottom” price? If you recommended an IPO, at what price would a sale to Cisco become attractive enough to change your mind?

Session S01 1/12/05 Readings/Preparation
What is Entrepreneurship? Readings: Stevenson: 3-17 (perspective) Prepare for class discussion based on readings and your entrepreneurial experiences Lecture: Introduction to Entrepreneurship Basics of Financial Analysis Readings: Teaching Note on Financial Analysis and Projections (WebCT) We will work through a series of problems in class to illustrate the kinds of financial analyses required to analyze the cases assigned. Download ABC Electronics Case from WebCT, print spreadsheet and bring to class. Download SplatterMatter Paintguns, Inc. case from WebCT and bring to class. Guest Speaker: Dennis Wells, CHI, LLC Finding the Opportunity Readings: Stevenson: 18-33 (startup strategies); Drucker: 1-36 (innovation) Guest Speaker: Tim Quilici – Lecture: Finding the Opportunity Case Discussion: The DAG Group (Stevenson: 143-155) Finding the Opportunity: Sources of Innovation Readings: Drucker: 37-140 (sources of innovation); download A Checklist for Opportunity Evaluation from WebCT and bring a copy to class for discussion Lecture: Sources of Innovation Guest Speaker: James F. Young, Jr. – Jambo Networks


S02 1/19/05

S03 1/26/05

Written Assignment #1 (Individual)– SplatterMatter Paintguns, Inc.

S04 2/2/05

BPS 6370 Fall 2005 Dr. Joseph C. Picken Revised: June 6, 2005 Printed: September 22, 2005



S05 2/9/05

S06 2/16/05

S07 2/23/05 S08 3/2/05

Developing Startup Strategies Readings: Stevenson: 57-62 (road travelled); Drucker: 209-252 (generic strategies) Guest Speaker: Jim Young – Chairman, Teleportec, Inc. Case Discussion: SplatterMatter Paintguns, Inc. Lecture: Startup Strategies Evaluating the Opportunity Readings: Stevenson: 34-42 (valuation); 159-168 (attracting stakeholders); Bhide, The Questions Every Entrepreneur Must Answer (HBR 96603) Case Discussion: Icedelights (Stevenson: 78-103) Lecture: Opportunity Evaluation Group Presentations: Business Opportunities

Written Assignment # 2 Opportunities for Innovation (Individual)

Written Assignment # 3 Icedelights (Stevenson: 78-103) (Group)

Written Assignment #4 Business Opportunity (Group) Written Assignment # 5 Commercial Fixtures (Stevenson: 104-122) (Individual)

S09 3/16/05

S10 3/23/05

S11 3/30/05

S12 4/6/05

S13 4/13/05

S14 4/20/05

Business Plans for Entrepreneurial Ventures Readings: Stevenson: 43-56 (business plans, legal forms); 214-220 (selling process). Take a look at and Case Discussion: Commercial Fixtures (Stevenson: 104-122) Lecture: Developing a Business Plan Attracting Stakeholders: Financing the Venture Readings: Stevenson: 169-195; Zider, How Venture Capital Works HBR 98611; see Deal Structure Example posted on WebCT. Guest Speaker: Steve Winn, CEO RealPage Case Discussion: Heather Evans (Stevenson: 245-280) Lecture: Financing the Venture SEC & Legal Issues Readings: Stevenson: 196-214, 465-482 Guest Speaker: Frank St. Clair Case Discussion: Onset Ventures (Stevenson: 281-310) Lecture: SEC & Legal Issues Acquiring an Existing Business Readings: Stevenson: 374-409 Guest Speaker: Pete Huff, former CEO Dynamco Case Discussion: ArthroCare (Stevenson: 543-571) Lecture: Acquiring a Business Managing the Growing Business Readings: Stevenson: 460-464 Case Discussion: Allen Lane (Stevenson: 417-440) Lecture: Managing the Growing Business Exit Strategies: Harvesting the Venture Readings: Stevenson: 574-588 Guest Speaker: Jan Collmer, HVPSI Case Discussion: Gordon Biersch Brewing Company (Stevenson: 511-532) Lecture: Exit Strategies: Harvesting the Venture Entrepreneurial Leadership Case Discussion Grand Junction (Stevenson: 629-643) Lecture: Entrepreneurial Leadership Presentation of New Venture Business Plans

Written Assignment #6 Onset Ventures (Stevenson: 281-310) (Group)

Written Assignment #7 Allen Lane (Stevenson: 417-440) (Individual)

S15 4/27/05

Written Assignment # 8 New Venture Business Plans (Group) Due 5:00 PM on April 25, 2005. Group Presentations

BPS 6370 Fall 2005 Dr. Joseph C. Picken Revised: June 6, 2005 Printed: September 22, 2005



The peer evaluation process is intended to provide group members with an opportunity to contribute to the evaluation of the performance of your team members on group activities. On the form below, you may rate the performance and contributions of your team members (including yourself) in the preparation of the group assignments. Instructions follow:
1. 2. 3. 4. 5. Enter the names of your group members (alphabetically by last name). Include yourself. Evaluate each assignment separately. Each team member will begin with 100 points on each assignment. You may reallocate the total number of points among team members within a range of 80 to 120 points for each individual, based on their contributions to the group effort on that assignment. The total number of points allocated on any single assignment must equal 100 times the number of members of the team. If you have four members on the team, the total for each column should be equal to 400. I will calculate an overall assessment as a weighted average of the individual ratings, using the percentage weights indicated below.

Please sign the evaluation at the bottom of the page, place it in a sealed envelope and turn it in with your final group assignment on November 28th .

WA-3 IceDelights 15% WA-4 Opportunity ID 15% WA-6 Onset Ventures 15% WA-8 New Venture Business Plan 55%

Group Member (list alphabetically)

1 2 3 4 5

Group Member 1 2 3 4 5 Comments (please support and justify any assessment below 90% or above 110%) Continue on reverse if necessary.

Prepared by: ____________________________________
BPS 6370 Fall 2005 Dr. Joseph C. Picken Revised: June 6, 2005 Printed: September 22, 2005