15.391 | Fall 2010 | Graduate
Early Stage Capital

Syllabus

Course Meeting Times

Lectures: 2 sessions / week for seven weeks, 1.5 hours / session

Course Overview

If you are an entrepreneur, one of your priorities, in addition to building your company, is ensuring you have enough money at the right times. Early Stage Capital will consider a broad range of questions that entrepreneurs deal with on this front:

  • What should your strategy and your priorities be in raising early stage capital? When should you raise it and from whom?
  • Do you need to raise outside money at all? If you do, what will it cost you, in terms of ownership and control? Are all of your co-founders in agreement on your financing strategy?
  • What about different opportunities in entrepreneurship, such as raising a “search fund”? What’s involved?
  • What are the market norms and standards in structuring venture capital (VC) deals? What are the critical negotiating strategies and tactics?
  • How will your company be valued? How can you obtain the optimal valuation for your new venture? Aside from valuation, what are the other critical considerations in seeking and structuring a VC investment?
  • What are the critical elements in the relationship between venture capitalists and entrepreneurs? What is the optimal way to build that relationship?
  • How is the “venture model” evolving? Is it broken? What is the impact of Super Angels and micro VCs, particularly here on the East Coast? How do they affect how you should build your company?

These are key questions that face all entrepreneurs in 2010, particularly first-time entrepreneurs. This course aims to prepare you for these decisions, as either a potential entrepreneur or venture capitalist.

In addition to standard lectures, the course consists of two primary components: live case studies and simulation exercises. Using live interactions with leading figures in the venture finance community, most of the class sessions will analyze fundamental strategies of the venture capital investment process and the critical importance of the relationship between entrepreneur and investor. As well, we will have a tactical focus on demystifying the legalities and jargon of the term sheet and the “A Round” financing process. Significantly for 2010, we will also frequently consider the rapid and arguably fundamental change in VC today as the “lean startup” model threatens much of the traditional role and value of the venture investor.

During the course, students will work in teams to apply these principles in practical negotiations. In two rounds of simulations, the teams will travel to the offices of practicing lawyers and venture capitalists and attempt to structure the best deal for their businesses. These exercises are designed to both develop a practice-oriented understanding of the venture capital process, as well as to foster relationships that can help students as they develop businesses.

Grading and Assignments

Regular Class Attendance

Participation in class will account for one-third of the grade. Students should be prepared to discuss the topic in each class session. There will be friendly cold calling — these are not clapping-for-credit war stories but rather live case studies in which participation is critical.

As guests often provide materials quite late, you are responsible for all homework readings posted at least 24 hours before class. Attendance at every class is expected.

Simulations and Team Exercises

This will account for two-thirds of the grade. Grading will primarily reward the process of the exercises, including effectiveness of teamwork and thoroughness of written work product, rather than any particular result achieved in the simulation.

Very Important: There will also be an intra-team evaluation at the end of the course (you get to say who did the work).

ACTIVITIES PERCENTAGES
Class attendance 33%
Negotiation grade 67%

Find a Lawyer

5%

Lawyer strategy round

25%

VC negotiation round

70%

Other Important Points

  1. Small group lunches: For some of our higher profile guests, we will host a (free!) small lunch before class. These are really exceptional opportunities to get close to some very interesting investors. Please take advantage of these interactions.
  2. In addition to my fixed office hours, I am available to meet by appointment.
  3. Live case participants frequently do not provide their materials far in advance. Handouts and posted files are therefore particularly important in this course. Please check the course website regularly: overheads, handouts and other important announcements will be posted and you are responsible for all homework readings posted at least 24 hours before class.
  4. Please bring a face card on the first day of class.
  5. As this is a half-semester course with heavy team interaction, it is strongly requested that students planning to drop the course do so before negotiation exercises commence. Please be fair to your colleagues.
Course Info
As Taught In
Fall 2010
Level
Learning Resource Types
notes Lecture Notes
assignment Activity Assignments
assignment Written Assignments