FINAN 6310 Lecture 0

Lecture 0, Course Intro

(Chad Jardine, University of Utah, FINAN 6310, 2008–)

This is an orientation to the course. Skip this lecture if you just want course content.

Let’s follow along with the slides.

Welcome to Finance 6310, Advanced Venture Capital with the focus on funding of new ventures. This is an overview of the course.

This course is a follow-on to Finance 6300

For each lecture, there’s an agenda slide.

In this lecture, we’ll cover an introduction to the course, an overview of the course requirements, and show you how to get an A in the course.

Here’s a photo and contact information for me as your instructor for this course. The best and preferred way to reach me is by email or electronically through Canvas. I regularly check both places for messages, so that’s usually the quickest way to reach me.

If you are desperate, you can also call or text me at this number. However, I am notorious for turning off my phone in meetings or at home, so email or Canvas is usually the best.

The text for this course is Venture Deals, third edition by Brad Feld and Jason Mendelson. Luckily this is not one of those $200 textbooks. I hate those too. It is over and over again the book I hear founders recommend in order to understand the whys and wherefores of a VC transaction.

In addition to the text, I’ll provide materials like articles, podcasts, videos and other resources to supplement the topics of the course.

What can you expect from Finance 6310?

We’ve got 10 full weeks ahead of us as we explore key concepts and familiarize you with the world of venture capital. There is a ton of ground to cover.

Everything about this course relates in some way to the financing of new ventures. Here’s the framework I’ll use to do that…

How do you fund a world-changing idea? Well, we start by looking at the company itself. What does it need to be investment-worthy?

We’ll look at the Context, the environment and culture around seeking investment in startup and growth companies. We’ll talk about identifying the resources available, ethical business practices, and the historical context of finance, the influence of government, and the economic factors that influence investors.

We’ll talk about Investors themselves. Financing your company requires that you understand your audience, what makes a great opportunity and how to craft a compelling pitch. What criteria do investors use to screen and evaluate the opportunities and risks of a prospective investment.

Finally, we’ll cover valuation strategies, heuristics, terms and implications for how funding deals go together. You’ll learn when and how to use alternative deal structures, understand various exit/harvest strategies as well as basics of term sheets and due diligence.

That covers the intro. Here’s what we’ll be doing this semester.

Here’s the variety of activities and assignments, which we’ll cover in more detail in the following slides.

The grading scale is the standard scale for the Business School. Nothing tricky here.

Also, since the course is points based, you can all get an A by capturing a sufficient number of points.

All assignments are due at the specified date and time. And I do not accept late work, except in cases of genuine emergency and according to university-approved exceptions.

I do this because there is no such thing as late in the real world. If you finally got a call with the investor you think will fund your company, there’s no missing the call or turning it in later. Even rescheduling comes at a cost of momentum and dependability. I encourage you to make timeliness something you do as a matter of course.

Current Events Discussions. Every week there will be a discussion assignment on Canvas to submit something you have found in the business or financial press that relates to our course. Many resources are included in the assignment description.

The purpose of this is not for you to toss up a link to any old article in the Wall Street Journal. Rather, this is a key exercise in making the course topics relevant and useful to you in the real world of startups and finance as it is, right now.

These are short and easy and a great way for you to connect this class to the broader conversation.

For full credit you need to submit your own article as well as making substantive comments on the posts of three of your classmates. You can lose points if your comments aren’t actually inviting discussion or critique, or showing some thought. No, “nice article” comments.

Online courses are inherently a more distant than in-person classes. To help us all get to know one another, I ask you to complete a short, 1-2 minute video introduction and to comment on at least 8 of your classmates’s videos.

As a bonus, this will also help you become familiar with GoReact, the software we will be using to submit part of your fundraising pitch assignment which I will explain in just a moment.

Each week there will be a video or videos, readings from the text, and often supplementary material which will cover the main course content for that week. A short, open book quiz will review that you were able to watch, read, or otherwise consume the week’s information. Each of these will be worth 35 points. And all together constitute the single largest source of points for the course.

There will also be a midterm exam which will review the course content to that point. I will provide a review for the midterm, and it will be taken on Canvas. It will consist of multiple choice, short answer, true/false, and essay questions. Throughout the course, slides with content that is likely to be on a quiz or the midterm will be indicated by this pencil icon.

Even though this course is online, we do have some important Group assignments. Teams will be randomly assigned in Canvas. You will be able to see your teammates info in Canvas and can start contacting each other after the first day of the course. I encourage you to make efforts to connect with your teammates as early as possible.

I know some of you may be groaning at the thought of that. However, very little important work is done solo in the real world.

I have consistently (both online and in person) had students tell me that the team projects they did in my class were some of the best in their program. I don’t think that’s because I have wonderful team assignments (although they are pretty cool). I think it’s because given a little flexibility and effort from all team members, you can have a pretty meaningful learning experience. That said…

When I die, I want the people I did group projects with to lower me into my grave so they can let me down one last time.

Don’t be the team member that makes the rest of your group feel like this.

That brings us to the next assignment you will complete this semester. A Case Analysis Report.

One of the best ways to understand the mind of an investor, is to spend some time in their shoes. For this assignment, you’ll be evaluating a business to determine whether it’s a good candidate for investment.

This scenario starts with some founders who have a company and they want money.

They package up their business idea and send it out to see what they can attract.

An investor has seen their idea and is considering investment.

He’s hired a consultant to help him with this investment decision. That’s you. Your job will be to evaluate the business idea and determine in your expert opinion if it’s a good investment or not. Then you’ll submit a report of your analysis to the investor.
Even though I’m showing a business plan here, business plans are really a thing of the past. What has taken their place in most venture capital circles is the Executive Summary and Pitch Deck. We’ll talk more about those later. What I will give you is a real-world set of fundraising documents that a company took out to raise money. They will be incomplete, messy, and real.

Your ultimate job is to recommend. Your report must include a BUY or SELL recommendation. If you miss on that, your work is meaningless and you will receive zero points for that assignment.

This is similar to how industry analysts rate public stocks. In each of these examples and investment recommendation is made.

These are ultimately about judging good companies from bad ones. As Elon Musk says, “if you’re trying to create a company, it’s like baking a cake. You have to have all the right ingredients in the right proportion.” The structure of this report is designed to figure that out. Here’s the required sections of the report. More detail is available in the assignment description on Canvas.

At the front of your report you will include a summary. 1-3 pages in length single-spaced. I only do single-spaced writing assignments because you would never see a double-spaced document in a business setting unless it was a lawsuit. [Click]

The summary must include your recommendation conspicuously on the front page. The rest of the summary should include your overall evaluation of the quality of the presentation of the investment materials and the rationale for your recommendation. The page length is flexible because you should take what you need to explain the rationale, but no more. I would always rather see well-written concise work over something that is just verbose.

Because it is a summary of your analysis, I recommend you complete this section last, even though it will end up being first in your report.

Next is a 1-page SWOT analysis. Here you need two things: a chart with one or two bullets for each quadrant, and a narrative with a sentence or two describing the same. As a refresher, Strengths and Weaknesses are focused on the internal workings of the company, while Opportunities and Threats are typically external to the company.

Next is a 1-page summary of the four strategic components of risk. These are product risk, market risk, team & Execution risk, and financial risk. You should rate the company from high to low-risk for each of the four and include a short paragraph or so about the risks as you see them.

The final page is a summary of your analysis of the Quantitative aspects of the business.

If you need to attach supplementary materials, you can add them as appendices.

There’s some work involved in putting one of these together, but everything is a summary. You can’t possibly analyze every single element of the business. This slide is the TL;DR for the assignment. The longer version is in the assignment description on Canvas.

Here’s how this assignment will be graded. 10 points are available for each section of the report. 50 points total. Notice the last section is how your report ranks with those of your peers. You are competing with the other groups for points.

Disclaimer: In real life, do not invest in any company you learn about in this course. I’ll try to discuss companies that are current and relevant, but I’m not advising or encouraging any of you to make investment decisions.

And that brings us to the final project and most important team project…

You get to pitch!

For those of you who haven’t seen these guys before, this is the team at FiberFIx, a Utah company, when they pitched on Shark Tank.

You’ll be in a similar situation. Your teams will band together to raise money for a startup idea of your choosing. Instead of pitching to sharks, you’ll pitch to me and your classmates, who will have some monopoly money to throw your way if you are worthy of it.

So, how is this going to go?

First your team needs to come up with a business idea.

The idea can be just about anything. Keep in mind though that the more real you make this simulation, the more you will learn from it. You can have fun with it, but it will hurt you and your teammates if you do a poor job here.

To drive this point home, remember this…

What do you get if you cross an Octopus and a Cow?

A stern rebuke from the Research Ethics Committee and immediate cessation of funding!

You just need to come up with an idea. As I said, the idea can come from anywhere you can use essentially any idea that you want. Here are some tools you can use to come up with a solid idea if you need them.

Solid companies solve a real problem. Another way to say ‘solve a problem’ is that they create value. This chart from consulting firm Bain & Company, outlines the many types of value that companies create. Read through these and see if they don’t help spark an idea for you.

Another place to see some identified problems is Y-Combinator’s request for startups. The most famous startup accelerator in the world, has identified these areas as the ones it thinks have the best shot at solving problems for lots of people in the future.

Ultimately it will serve you well if at least one team member feels passionately about the idea you resolve to pursue.

You can use a Business Idea Canvas to refine and improve your original idea. We went through this exercise in FINAN 6300. If you have an idea you developed in that course, and you still like it, you are welcome to use it. But you don’t have to.

Whatever idea you come up with, it must be original work, not someone else’s concept.

Here’s a copy of the Big Idea Canvas, which is one of my favorites in terms of vetting and improving on business ideas.

Now, after you’ve developed the idea, what next?

Well, you’re going to deliver a fundraising pitch and the related materials in order to secure monopoly money funding for your idea. It’s a competition. You will submit your pitch and related materials in two rounds, a first draft, which will allow you to get feedback from me and your peers, and a final pitch which will be due the last week of class.

As a team, you will submit for each round, a 1 to 3 page executive summary, a video of your fundraising pitch—this is your team presenting your business idea as if you were raising money for it. To create this video, you can co-locate or capture a Skype or Google Hangout of your team members remotely. Ultimately, you need a single video of your pitch with all team members participating. There are more resources and tools for this listed in the assignment description on Canvas.

And an accompanying PowerPoint, Keynote, or Google Slides deck supporting your presentation. You’ll upload a PDF of your slides and attach them to your video in Canvas, so I and your classmates can review the full presentation.

In addition, there are some individual deliverables.

You’ll give feedback on the other teams individually. GoReact, inside of Canvas will make this easy for you.

Finally, you will submit a 1-2 page Inter-team evaluation. This is where you discuss your team dynamics and where if you slacked off on team assignments, you may receive a commensurate lower score. Or vice versa, if your team is singing your praises, you’ll see extra points show up in your grade.

Here’s how the final project will be graded. I will post these slides on Canvas, so you can refer back to all the information contained here. You should only really need to take notes of things you don’t see on the slides

Wrapping up this assignment, I wanted to share with you an outstanding pitch from a pitch competition in Canada. You should be authentic to your personality, but this guy really knocks it out of the park.

You can see how he nails a memorable gimmick which makes him stand out from the competition, yet stays laser focused on his company and objective. All the while expertly handling the investor’s questions and building confidence that he is not just a showman, but a competent executive who knows his company.

This slide contains my obligatory policy disclosures.

That covers 2 out of our 3 agenda items. The third one is short. By far the biggest reason students struggle in my course is failing to turn in work. An A in my class does not require native genius or rare talent. It just requires a solid effort to turn in all the work.

So, don’t feel like this woman who thought if she swam with polar bears at the Berlin zoo, that everything would be okay. She survived, as I know each of you will, but getting an A is as simple as making an effort and doing the work.

That covers the course. I’m excited to have each of you in the course and look forward to our time together.