04-Entrepreneurship and Startup "finance for geeks"

Homework required in preparation for this lecture

  • Try to understand 'valuation'
    • Read this article about Dropbox
    • Find other articles about that deal
    • Read up on the key expressions in the second paragraph: "valuation", "looking to raise $x million"
    • Deliverable: A blog post, in your own words, to the best of your ability to explain what that second paragraph means.

Learning Objectives

  • Business Structures
  • Finance For Geeks
  • Sources of money
  • Things to think about when starting a company

Business Structures

  • Partnerships, Corporations
  • Equity and Stocks
  • Discussion
    • What's a stock? 
    • What does it tell you that Google is $450+ / share and BP is $37 / share? 
    • Is Google 'expensive' or BP 'cheap'?

Finance For Geeks

  • "Naive" Finance: How much money will you be spending?
  • Why did Fernando think there was something wrong with Hagai's numbers?
  • Burn rate, runway and other odd terms

Sources of Money

  • "Friends and Family"
    • What it sounds like
    • What do they get in return
    • When is this a good idea or not?
  • Seed finance and the many new financing models
    • Brandeis "Sprout" Grants
    • Incubators of various kinds
    • YCombinator
    • TechStars
    • And many others
  • Venture Capital
    • Investment fund - Rich people/institutions (the Limited Partners)
    • Managers of the fund (also rich people :) - The General Partners
    • Investment Rounds: Founding -> A-Round -> B-Round .... -> 'Liquidity Event'
  • Valuation
    • What is it worth?
    • Deconstruct: "it" ? What is 'it'?
    • Worth? What is $1M worth right now?
    • What can else can I do with it
    • How much cash can it 'throw off'
    • But what about next year, and the year after?
    • Unlike money in a bank, it's ability to throw off cash change
  • Lingo: Pre-money, Post-money, valuation, etc
    • How Valuation changes.
    • What does it mean to invest 1.5M for 1/3 of the company?
    • What is it worth before the investment?
    • What is it worth with the investment?
    • Valuation (Pre, Post)
    • Don't worry -- it's confusing!
  • Cap Table Example

Things to think about if you are thinking of starting a company

  • Legal structure
    • Partnership?
    • LLC?
    • Corporation?
    • Trade-offs
  • When is it too early, when is it too late?
  • Intellectual Property and issues around that
  • Who owns what and what happens when things go sour

Videos from Class