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Fundamentals of Entrepreneurial Finance

Marco Da Rin and Thomas Hellmann

Publication Date - 18 February 2020

ISBN: 9780199744756

656 pages
7 x 10 inches

In Stock


Fundamentals of Entrepreneurial Finance provides a comprehensive introduction to entrepreneurial finance, showing how entrepreneurs and investors jointly turn ideas into valuable high-growth start-ups. Marco Da Rin and Thomas Hellmann examine the challenges entrepreneurs face in obtaining funding and the challenges investors face in attracting promising ventures. They follow the joint journey of entrepreneurs and investors from initial match to the eventual success or failure of the venture. Written with the goal of making entrepreneurial finance accessible, this book starts with the basics, develops advanced topics, and derives practical insights. Da Rin and Hellmann build on academic foundations from several disciplines and enrich the text with data, mini-cases, examples, and exercises.


  • Develops a comprehensive framework for understanding entrepreneurial finance
  • Provides many practical educational tools, including a case study that runs across the entire text, a set of novel spreadsheet tools, and a variety of applied examples and exercises
  • Helps the reader move seamlessly from concept to application, and thus to get started as entrepreneur or investor
  • Provides a contemporary, diverse, and global outlook on entrepreneurial finance for students from all over the world
  • Written by renowned researchers and pioneers of the field, this text has strong academic foundations that allow students to understand financial structures, the behaviour of entrepreneurs, and a wide variety of investor types
  • Custom-developed spreadsheets, review exercises, slides, tables, and numerous other tools and support materials available at www.entrepreneurialfinance.net

About the Author(s)

Dr. Marco Da Rin, Associate Professor of Finance, Tilburg Universty, Dr. Thomas Hellmann, DP World Professor of Entrepreneurship and Innovation, Saïd School of Business, University of Oxford.

Dr. Marco Da Rin is an Associate Professor of Finance at Tilburg University. He holds a PhD in Economics from Stanford University. He has designed and taught courses in entrepreneurship and entrepreneurial finance at the undergraduate, Master, doctoral, MBA, and executive level in several countries. His research and teaching focuses on entrepreneurial finance, entrepreneurship, venture capital and private equity, and public policy for entrepreneurship. He has also been a consultant to several international organizations, including the European Commission, the OECD, and the United Nations, as well as regional governments and private companies. He has advised and contributed to several start-ups.

Dr. Thomas Hellmann is the DP World Professor of Entrepreneurship and Innovation at the Saïd School of Business, University of Oxford. He holds a PhD in Economics from Stanford University. His research and teaching interests cover entrepreneurial finance, entrepreneurship, innovation, strategic management, and public policy. He was previously on the faculty of the Stanford GSB and also taught at the Harvard Business School and Wharton. He is the founder of the NBER Entrepreneurship Research Boot Camp, the Academic Advisor of the Oxford Foundry, the Academic Director of SBS Entrepreneurship Centre, and Academic Lead of the Creative Destruction Lab - Oxford.


"Da Rin and Hellmann masterfully combine academic and case studies to analyze how entrepreneurs with ideas and financiers with capital can strike mutually advantageous deals that power society's future innovations. The result is a lucid and comprehensive book that will be an invaluable resource for anyone with an interest in this topic."- Oliver Hart, Department of Economics, Harvard University, 2016 Nobel laureate in economics

"While getting to scale fastest in a global economy can take significant capital, money has always been just one part of venture financing. Using clear frameworks that show how venture financing really works, Da Rin and Hellmann point out how the networks of talent and expertise that investors can help entrepreneurs access are critical to a start-up's success. This is especially true for big, ambitious, and even contrarian ventures. So if you're an entrepreneur ready to pursue a truly bold idea, be sure to read this book." - Reid Hoffman, Co-founder of LinkedIn and co-author of Blitzscaling

"This textbook achieves a wonderful balance in providing students with a broad and insightful introduction to entrepreneurial finance; but at the same time opens up many avenues for interested students to pursue the material more deeply. The authors draw from a wealth of intriguing examples to make the material come to life and their in-depth knowledge of the subject matter shines through at every turn. A great resource for any student of entrepreneurial finance as well as a lay audience that wants to understand this fast growing part of finance better."- Antoinette Schoar, Michael M. Koerner (1949) Professor of Finance and Entrepreneurship at the MIT Sloan School of Management

"This book provides the foundational knowledge MBAs need to master entrepreneurial finance. The authors are leading academics, trained at Stanford, who taught and researched in many countries. They understand not only how Silicon Valley works, but also how venture financing is a global phenomenon."- Ilya A. Strebulaev, Professor of Finance, Stanford Graduate School of Business

"The financing of start-ups is crucial for their very survival and development, yet it is often thought of as a narrow technical issue. It is not! Da Rin and Hellmann build a comprehensive framework that helps the reader understand the entire entrepreneurial financing process, and how entrepreneurs and investors navigate through it. I highly recommend this book to anyone who wants to understand the fuel that fires the modern innovation economy, and especially to those venturing into it." -- Eugene Kandel, CEO of Start-Up Nation Central, and Professor of Economics and Finance at the Hebrew University of Jerusalem

"This book will help students from different backgrounds understand how venture financing works. The authors masterfully combine insights from finance, economics, strategic management, organizational behavior, legal studies and other academic fields. They introduce many new practical tools and present materials in a direct and engaging style." -- David Hsu, Professor of Management, Wharton Business School

"Da Rin and Hellmann have crafted a seminal contribution to the teaching of Entrepreneurial Finance. The issues addressed in their book are critical for any entrepreneur who is considering starting a company and raising capital. The material is applicable to any industry or country context making the book a 'must read.' Furthermore, the lessons are rigorous yet practical and allow an entrepreneur to put the recommendations into action. The book will become a staple not only in the classroom, but on the shelf of every aspiring entrepreneur." -- Paul Gompers, Eugene Holman Professor of Business Administration, Harvard Business School

"The financing of start-ups has become a global phenomenon with ambitious start-ups being funded by venture investors across many countries, including China. This is the first book to provide a truly global perspective on entrepreneurial finance. Da Rin and Hellmann build their framework step-by-step from core academic concepts, making the material accessible and engaging to the students at all levels around the world." -- Yingyi Qian, Distinguished Professor and former Dean, School of Economics and Management, Tsinghua University

"Having taught entrepreneurial finance for many years, one of the problems has been to find an appropriate textbook, which both provides practical skills and at the same time is grounded in modern research. I am happy to see that this problem has now been solved. Da Rin and Hellmann are two of the most well-known and accomplished researchers in this area. They have managed to write a comprehensible, accessible, and up-to-date textbook, which I predict will become the standard reference for courses in entrepreneurial finance and venture capital for years to come." -- Per Strömberg, SSE Centennial Professor of Finance and Private Equity, Swedish House of Finance, and Member of the Committee for the Prize in Economic Sciences in Memory of Alfred Nobel

Table of Contents

    Chapter 1 : Introduction to Entrepreneurial Finance

    1.1 What is entrepreneurial finance?
    1.2 Why is entrepreneurial finance challenging?
    1.3 Why is entrepreneurial finance important?
    1.4 Key facts about entrepreneurial finance
    1.5 The entrepreneurial financing process
    1.5.1 The need for frameworks
    1.5.2 The FIRE framework
    1.5.3 FIRE in practice
    1.6 Who are the investors?
    1.6.1 Main types of investors
    1.6.2 The FUEL framework
    Review questions

    Chapter 2: Evaluating Venture Opportunities

    2.1 Assessing Opportunities
    2.1.1 The Venture Evaluation Matrix
    2.1.2 The WorkHorse case study
    2.2 Explaining the Venture Evaluation Matrix
    2.2.1 Need
    2.2.2 Solution
    2.2.3 Team
    2.2.4 Market
    2.2.5 Competition
    2.2.6 Network
    2.2.7 Sales
    2.2.8 Production
    2.2.9 Organization
    2.3 Drawing conclusions from the Venture Evaluation Matrix
    2.3.1 Three perspectives on attractiveness
    2.3.2 Three competitive advantages
    2.3.3 Assessing risk
    2.3.4 Interactions across cells
    2.4 How entrepreneurs use the Venture Evaluation Matrix
    2.4.1 The entrepreneur's decision
    2.4.2 Writing a business plan
    2.5 How investors use the Venture Evaluation Matrix
    2.5.1 The Venture Evaluation Matrix spreadsheet tool
    2.5.2 Investor due diligence
    2.5.3 The investor's decision
    Review questions

    Chapter 3: The Financial Plan

    3.1 The purpose of the financial plan
    3.2 Financial projections
    3.2.1 The three reflections
    3.2.2 The structure of financial projections
    3.2.3 Sources of information
    3.2.4 Developing financial projections
    3.3 Defining a timeline with milestones
    3.4 Estimating revenues
    3.4.1 The top-down approach
    3.4.2 The bottom-up approach
    3.4.3 Combining approaches
    3.5 Estimating costs
    3.5.1 Terminology
    3.5.2 Costs of goods sold
    3.5.3 Operating expenses
    3.5.4 Capital expenditures
    3.6 Pro forma financial statements
    3.6.1 The structure of financial statements
    3.6.2 Interpreting financial projections
    3.6.3 Income versus cash flows
    3.6.4 Testing financial projections
    3.6.5 Simplifications
    3.7 Formulating the financial plan
    3.7.1 The attractiveness of the venture
    3.7.2 Financing needs
    3.7.3 Pitching the financial plan
    Review questions

    Chapter 4: Ownership and Returns

    4.1 The mechanics of ownership and valuation
    4.1.1 Pre-money and post-money valuation
    4.1.2 Price and number of shares
    4.1.3 Stock options
    4.1.4 The capitalization table
    4.1.5 Dilution with multiple rounds
    4.2 Investor returns
    4.2.1 Risk and return
    4.2.2 Three measures of return
    4.2.3 Comparing return measures
    4.2.4 Returns with multiple rounds
    4.3 The determinants of valuation and returns
    4.3.1 The relationship between valuation and returns
    4.3.2 The economic determinants of valuation
    4.4 The determinants of founder ownership
    4.4.1 Founder agreements
    4.4.2 Principles for internal allocation
    4.4.3 The FAST Tool
    Review questions

    Chapter 5: Valuation Methods
    5.1 The valuation of entrepreneurial companies
    5.1.1 The purpose of performing a valuation
    5.1.2 The challenges of performing a valuation
    5.2 The Venture Capital method
    5.2.1 Valuation with a single investment round
    5.2.2 Valuation with multiple investment rounds
    5.2.3 Estimating the inputs
    5.2.4 Model variants
    5.3 The Discounted Cash Flow method
    5.3.1 The mechanics of the DCF method
    5.3.2 Estimating the inputs
    5.4 Methods of Comparables
    5.4.1 The Investment Comparables method
    5.4.2 The Exit Comparables method
    5.5 Modelling uncertainty
    5.5.1 Scenario analysis and simulations
    5.5.2 PROFEX
    5.6 The choice of valuation model
    Review questions

    Chapter 6: Term Sheets

    6.1 Term sheet fundamentals
    6.1.1 The role of term sheets
    6.1.2 Contingent contracting and milestones
    6.1.3 Overview of terms
    6.2 Cash flow rights
    6.2.1 Convertible preferred stock
    6.2.2 Participating preferred stock
    6.2.3 Reasons for using preferred stock
    6.3 Compensation
    6.3.1 Founder employment agreements
    6.3.2 Employee stock option plans
    6.4 An overview of other terms
    6.4.1 Control rights
    6.4.2 Future fundraising
    6.4.3 Investor liquidity
    6.4.4 Additional clauses
    6.5 Valuation versus terms
    6.6 Convertible notes
    6.6.1 How convertible notes work
    6.6.2 Valuation caps
    Review questions

    Chapter 7: Structuring Deals

    7.1 The art of structuring deals
    7.2 The fundraising process
    7.2.1 Preparing the fundraising campaign
    7.2.2 Executing the fundraising campaign
    7.2.3 Valuing an idea
    7.3 Finding a match
    7.3.1 Investor deal sourcing
    7.3.2 Investor screening
    7.3.3 The MATCH tool
    7.4 Syndication
    7.4.1 Reasons to syndicate
    7.4.2 The structure of syndicates
    7.5 Deal Negotiations
    7.5.1 Bargaining theory
    7.5.2 Negotiation analysis
    7.5.3 Closing the deal
    7.5.4 Deal negotiations with investor competition
    7.6 Living with the deal
    7.6.1 The importance of trust
    7.6.2 A long-term perspective
    Review questions

    Chapter 8: Corporate Governance

    8.1 The need for corporate governance
    8.1.1 Why companies need investor involvement
    8.1.2 Why investors oversee their companies
    8.2 Corporate governance structures
    8.2.1 Voting rights
    8.2.2 Board of Directors
    8.2.3 Informal control
    8.3 Investor value-adding
    8.3.1 Picking versus making winners
    8.3.2 How investors add value
    8.3.3 Where investors add value
    8.3.4 The question of replacing managers
    8.3.5 Assessing value-adding fit
    Review questions

    Chapter 9: Staged Financing

    9.1 The rationale for staged financing
    9.2 Structuring staged financing deals
    9.2.1 Staged investments and ownership
    9.2.2 The option value of staging
    9.2.3 Tranching
    9.2.4 Old versus new investors
    9.3 Term sheets for staging
    9.3.1 The liquidation stack
    9.3.2 Anti-dilution rights
    9.3.3 Additional rights
    9.4 Managing financial difficulties
    9.4.1 Down rounds
    9.4.2 Turnarounds
    9.5 Dynamic strategies
    9.5.1 Dynamic investment strategies
    9.5.2 Dynamic valuation profiles
    Review questions

    Chapter 10: Debt Financing

    10.1 Fundamentals of debt
    10.1.1 What is debt?
    10.1.2 The structure of debt contracts
    10.2 Debt versus equity
    10.2.1 The fallacy that debt is cheaper than equity
    10.2.2 Comparing debt and equity
    10.3 Why banks don't lend to startups
    10.4 Alternative types of debt
    10.4.1 Personal loans and credit cards
    10.4.2 Trade credit
    10.4.3 Discounting and factoring
    10.4.4 Venture leasing
    10.4.5 Venture debt
    10.5 Valuation with debt
    10.5.1 Enterprise versus equity value
    10.5.2 Adjusting valuation methods for debt
    Review questions

    Chapter 11: Exit

    11.1 The importance of exiting investments
    11.1.1 Reasons for exit
    11.1.2 The four main types of exit
    11.1.3 The exit decision
    11.1.4 The timing of exit
    11.2 Initial Public Offerings
    11.2.1 Benefits and costs
    11.2.2 Preparing for an IPO
    11.2.3 Pricing the IPO
    11.2.4 Structuring the IPO
    11.2.5 After the IPO
    11.3 Acquisitions
    11.3.1 Strategic motives
    11.3.2 Preparing for an acquisition
    11.3.3 Structuring an acquisition
    11.3.4 After the acquisition
    11.4 Sale to financial buyers
    11.4.1 Buyouts
    11.4.2 Secondary sales
    11.5 Closing down the company
    11.6 Determinants of the exit decision
    11.6.1 Market forces
    11.6.2 Economic fundamentals
    11.6.3 Internal company dynamics
    Review questions

    Chapter 12: Venture Capital

    12.1 The venture capital model
    12.2 Institutional investors (LPs)
    12.2.1 Portfolio allocation choices
    12.2.2 Building a VC portfolio
    12.3 Limited Partnership Agreements
    12.3.1 Fund structure
    12.3.2 Fund rules
    12.3.3 GP compensation
    12.3.4 GP incentives
    12.4 VC firms (GPs)
    12.4.1 Internal structure
    12.4.2 Fundraising
    12.4.3 Networks
    12.4.4 Alternatives to the partnership model
    12.5 Investment strategies
    12.5.1 The investment strategy
    12.5.2 Investment strategy styles
    12.5.3 Implementing the investment strategy
    12.5.4 An example
    12.6 Risk and return in VC
    12.6.1 Gross returns to the VC fund
    12.6.2 Net returns to limited partners
    12.6.3 Assessing VC fund performance

    Chapter 13: Early-Stage Investors

    13.1 Founders, family, and friends
    13.1.1 Reasons for investing
    13.1.2 How family and friends invest
    13.2 Angel investors
    13.2.1 Different types of angel investors
    13.2.2 How angels invest
    13.3 Corporate investors
    13.3.1 The motivation of corporate investors
    13.3.2 The structure of corporate investors
    13.3.3 How corporates invest
    13.4 Crowdfunding
    13.4.1 The structure of crowdfunding platforms
    13.4.2 Motivations in crowdfunding
    13.4.3 Crowdfunding campaigns
    13.4.4 Returns from crowdfunding
    13.5 Initial Coin Offerings
    13.5.1 The Blockchain and cryptocurrencies
    13.5.2 The structure of Initial Coin Offerings
    13.5.3 The current debate about Initial Coin Offerings
    13.6 Further investor types
    13.6.1 Accelerators and incubators
    13.6.2 Technology transfer funds
    13.6.3 Social impact venture investors
    13.7 Comparing early stage investors
    Review questions

    Chapter 14: Ecosystems

    14.1 Entrepreneurial ecosystems
    14.1.1 Ecosystem structure
    14.1.2 Overview of leading ecosystems
    14.2 How do entrepreneurial ecosystem work?
    14.2.1 Interactions within the talent pool
    14.2.2 Interactions with investors
    14.2.3 Interactions with supporting parties
    14.3 The role of government
    14.3.1 Should the government support entrepreneurial ecosystems?
    14.3.2 Government funding
    14.3.3 Tax credits
    14.3.4 Capital markets
    14.3.5 Framework conditions
    14.3.6 Demand side policies
    14.4 Global ecosystems
    14.4.1 The global movement of capital
    14.4.2 The global movement of talent
    Review questions