EBS BUSINESS SCHOOL / MSc Program Spring Term 2022

MODULE: ENTREPRENEURIAL FINANCE

COURSE: VENTURE FINANCING

COURSE ADMINISTRATION

Faculty Professor Ulrich Hommel, Ph.D.

Official E-Mail: ulrich.hommel@ebs.edu
Preferred E-Mail: hommelu@gmail.com

Noah Bani-Harouni (Assistant and Tutorial Leader)

E-Mail: noah.bani-harouni@outlook.de

Office Chair of Corporate Finance and Higher Education Finance

Gustav-Stresemann-Ring 3, 65189 Wiesbaden (Atrium)

Office Hours By appointment via Zoom

Language of Instruction English

ECTS Credit Points 3 (Total Module: 6 ECTS)

Grading Course Participation (I): 15 points

Reflection Paper (I): 30 points
Case Study (T): 45 points

Course Website Course-related documents will be uploaded to Campusnet, we

will set up a Slack channel as a platform for topic-related
discussion

LEARNING OBJECTIVES

The aim of Venture Financing is to encourage students (you as future managers) to think more
entrepreneurially about finance, in both start-up and in more mature corporate settings. The scope
of this module includes all stages of the venture's life cycle, from startup to exit. In so doing, we
shall cover the four fundamentals of entrepreneurial finance (screening & valuation, sourcing of
capital, financial contracting, management of risk and return incl. exit). Topic coverage will ensure
complementarity and linkages to the other course in this module, Venture Valuation.

Small companies and new businesses have always been important components of the economy;

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however, with the integration of technology into daily life comes the potential for rapid scaling-
up of new ventures, and the emergence of novel business models. The fundamental issue facing
entrepreneurial companies is access to capital. This reality shapes the dynamics of financing with
venture capitalists, angel investors and corporate investors playing a central role. This course will
explore the mechanisms, politics, and consequences of such relationships by addressing the topics
of fundraising and valuation.

The peculiarities of venture financing are such that knowledge asymmetry and moral hazard loom
large. Explaining and recognizing the significance of an innovation is critical to all parties but
assumes a shared understanding between participants that is often missing within traditional
financing models. Equally, the allocation of funds may be a source of contention between the
innovator and the investor. Here, the course will borrow from research in corporate finance,
specifically financial contracting theory. Contract design can include incentives and control rights
that shift a large proportion of the risk from the investor to the innovator, and the class will learn
to appreciate the freedoms and constraints imposed by such clauses.

COURSE POLICIES

The course will use a mixture of traditional facilitation with the flipped classroom approach. The
latter is a proven methodology designed to maximise the in-class learning. To do this, students
must read the assigned materials in order to understand the first principles of venture financing.
By covering the material in their own time and at their own pace, students are free to control their
own learning experience. As a result, classroom time can be dedicated to interactive learning, via
discussions and presentations. Given the maturity of the students enrolled in this course, and their
proven theoretical foundation, the pedagogy is designed to enable and support academic growth
through practice.

The course consists of a series of classroom sessions. Each session will begin with student
summaries of the allocated reading assignments. A discussion period will follow, in which students
can express their own opinions, and ask questions of teaching staff to clarify aspects that they did
not understand. Additional readings can then be offered for those students who would like to learn
more, or to try to understand the topic from a different author’s perspective.

Each class session will have a dedicated block of traditional teaching time. This portion of the
class is designed to cover trickier aspects of the course material that are core to future sessions.
Students will be asked to actively participate, both through traditional questions and answer
sessions but also through micro – assignments.

Given the highly interactive nature of this course, students are expected to come to class prepared.
The potential for high-quality learning and new experiences is extremely high, but it requires
students to make full use of their pre-reading, wrap up, exercise, homework and case study hours.

COURSE MATERIALS

The course uses the following textbook, which is available in the EBS library:

Marco da Rin, Marco / Hellmann, Thomas (2020): Fundamentals of Entrepreneurial

Finance, Oxford University Press, 2020.

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For the ones looking for a particularly gentle introduction into the topic, they can consult the
following book, also available in the EBS library:

Klonowski, Darek (2015): Strategic Entrepreneurial Finance, Abingdon: Routledge.

An alternative and widely used textbook is

Leach, Chris / Melicher, Ronald W. (2020): Entrepreneurial Finance, 7th edition,

CENGAGE.

If you require a more general overview of corporate finance, then we recommend using this book:

Brealey, Richard A. / Myers, Stewart C. / Allen, Franklin (2019): Principles of Corporate

Finance, 13th edition, New York: McGraw-Hill.

This book (as well as alternative introductions to corporate finance) can be found in the EBS
library as well.

All books listed here are also available online.

In addition, we will be assigning academic research articles on the topics covered in this course –
at most one article for each topic. We will also be assigning more applied literature, mainly to
underscore ideas developed in class, as well as selected case examples. This will all be provided
to you as links or as pdf on Campusnet.

We will post the class materials for each topical session a few days ahead including the
specification what needs to be prepared (except the first class session).

COURSE CONTENT

The course will be delivered as three parallel and interwoven pathways. This adds complexity to
the course, but also enriches the learning experience.

Please note that the planned and very ambitious learning journey will require extra session,
especially when welcoming guest speakers. The evolving schedule will be reflected in your
campusnet timetable.

I. Venture Lifecycle Sessions

These sessions represent the course’s backbone. They align with the lifecycle of venture financing.
You may read chapters 12-14 anytime as they contain a lot of introductory material, preferred
early on in the course.

(1) Introduction to entrepreneurial finance: entrepreneurial strategy vs. entrepreneurial finance;

corporate finance vs. entrepreneurial finance
- Textbook, chapters 1-2

(2) Capturing venture value – moving beyond traditional valuation approaches

- Textbook, chapters 3 (to be read before class, principles have been covered in
Venture Valuation)
- Textbook, chapters 4-5 (we will focus on topics not covered inVenture Valuation)
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(3) Venture financing – instruments choice and contracting

- Textbook, chapters 6-7, possibly parts of 10

(4) Venture governance, incl. managing venture risk

- Textbook, chapters 8-9

(5) Venture growth, harvesting and exit

- Textbook, chapter 11

Please note that textbook chapters offer conceptual background to the class sessions. We will not
be able to cover all textbook chapters in detail, we need to pick and choose. In addition, we will
assign in every session additional reading; some of that will be required (and should then be read
carefully), others serve extracurricular inspiration.

II. Reflection Talks

Supplementary session topics cover non-textbook items that are important in understanding the
state-of-the-art of venture financing. Topics will be prepared and presented by student groups.
Topics covered in this semester are:

(1) The perfect “White Paper” (part of session group work, covered by everybody)
(2) Automation of deal finding: What is its potential? How does it work?
(3) Novel forms of venture debt financing: Private credit funds and beyond
(4) Government-backed VC funds – an excellent way of squandering taxpayer money or…?
(5) Do venture investors care about SDG and ESG and, if so, why and, if not, should they?

III. Guest Speaker Talks

We will also invite speakers to talk about specific topics to the class. Again, the purpose is to give
students a mind-expanding experience. Some will however also link to the main sessions of the
course. We announce them as we go along in the class.

Each guest speaker talk will be managed by one student group. This involved (a) preparing a brief
for the class, (b) producing a short video on the topic that challenges students’ thinking on the
topic, and (c) leading the class discussion.

COURSE ASSESSMENT

The course will be assessed in three parts:

(1) Class participation (15 points): (Individual Grade)

- Based on attendance of class sessions, contributions and quality of group work and
contributions to class sessions directly.
- Special focus on contributions in the context of in-class assignments (incl. contribution as
a working group member).

(2) Reflection Paper (30 points): (Individual Grade)

- Each workgroup will be assigned one supplementary topic that they present/manage for
the class. These can be reflection talks or work related to guest speaker talks. We will
allot max. 25 minutes to each plus discussion.
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- Each workgroup member will then expand on the assigned topic and write a reflection
paper that advances group thinking and links the topic to the relevant literature. More
detailed instructions will be provided later.
- Submission deadline: 11 May 2022, noon.

(3) Case Study (45 points): (Group Grade)

- Topic of the case work will be published towards the end of the regular term.
- Submission deadline: 18 May 2022, noon.

Specific grading rubrics will be applied to every assessment component.

CAMPUSNET VS. SLACK

Campusnet is the official communication channel for the course. All course materials and official
announcements will reach students via this platform. In addition, we have created a special course
channel on Slack (we have shared the link for joining already). Slack serves the purpose of
providing more structure when we share learning materials and to facilitate an ongoing exchange
in- and out-of-class (it adds valuable functionality compared to Campusnet).

Please join the Slack channel with the link provided and follow our instructions re. how to use
your name (“Last Name, First Name”).