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CHAPTER 1 INTRODUCTION AND OVERVIEW FOCUS The purpose of this first chapter is to present an overview of what entrepreneurial finance is about. In doing so we hope to convey to you the importance of understanding and applying entrepreneurial finance methods and tools to help ensure an entrepreneurial venture is successful. We present a life cycle approach to the teaching of entrepreneurial finance where we cover venture operating and financial decisions faced by the entrepreneur as a venture progresses from an idea through to harvesting the venture. LEARNING OBJECTIVES 1. Explain the economic importance of small and emerging businesses 2. Describe entrepreneurship and some characteristics of entrepreneurs 3. Indicate three megatrends providing waves of entrepreneurial opportunities 4. List and describe the seven principles of entrepreneurial finance 5. Discuss entrepreneurial finance and the role of the financial manager 6. Describe the various stages of a successful venture’s life cycle 7. Identify by life cycle state the relevant types of financing and investors 8. Understand the life cycle approach used in this book CHAPTER OUTLINE 1.1 ENTREPRENEURSHIP FUNDAMENTALS A. Who is an Entrepreneur? B. Basic Definitions C. Entrepreneurial Traits or Characteristics D. Opportunities Exist But Not Without Risks 1.2 SOURCES OF ENTREPRENEURIAL OPPORTUNITIES A. Societal Changes B. Demographic Changes C. Technological Changes 1.3 THE INTERNET ECONOMY AND E-COMMERCE 1.4 PRINCIPLES OF ENTREPRENEURIAL FINANCE A. Real, Human, and Financial Capital must be Rented from Owners B. Risk and Expected Reward go Hand in Hand C. While Accounting is the Language of Business, Cash is the Currency D. New Venture Financing Involves Search, Negotiation, and Privacy E. A Venture’s Financial Objective is to Increase Value F. It is Dangerous to Assume that People Act Against Their Own Self-Interests G. Venture Character and Reputation can be Assets or Liabilities 1.5 ROLE OF ENTREPRENEURIAL FINANCE 1
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Chapter 1: Introduction and Overview 1.6 THE SUCCESSFUL VENTURE LIFE CYCLE A. Development Stage B. Startup Stage C. Survival Stage D. Rapid-Growth Stage E. Maturity Stage 1.7 FINANCING THROUGH THE VENTURE LIFE CYCLE A. Seed Financing B. Startup Financing C. First-Round Financing D. Second-Round Financing E. Mezzanine Financing F. Liquidity-Stage Financing G. Seasoned Financing 1.8 LIFE CYCLE APPROACH FOR TEACHING ENTREPRENEURIAL FINANCE 1.9 SUMMARY APPENDIX: INTERNET CONCEPTS AND DEVELOPMENTS Internet Industry Structure Components of the Internet Economy E-Commerce and Your Venture E-Commerce Resources DISCUSSION QUESTIONS AND ANSWERS 1. What is entrepreneurship? What are some basic characteristics of entrepreneurs? Entrepreneurship is the process of changing ideas into commercial opportunities and creating
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