Week 1 - Introduction

Question 1

Entrepreneurial Finance Definition

Answer 1

Focuses on the financial management of a venture as it moves through its life cycle, beginning with its development stage and continuing to when the entrepreneur exits the venture.

Question 2

Entrepreneurial Finance vs. Corporate Finance

Answer 2

Entrepreneurial Finance:

• Deals with financial decision-making by entrepreneurs
• Evaluates investments in new ventures or privately-held business
• Investors are active: VC provides management services
• Incentive problems are addressed by contracts and close monitoring
• Risks are difficult to diversify
• Monetizing the investment is important and hard

Question 3

Entrepreneurial Personality Traits

Answer 3

• Sees and seizes a commercial opportunity
• Tends to be doggedly optimistic
• Plans to obtain resources necessary for venture
• Has focus on how strategic choices affect rewards

Question 4

Are successful entrepreneurs risk-seeking or risk-averse?

Answer 4

Risk-averse! All sane people are :)

Question 5

How does the parenting theory (Cardon et al, 2005) explain the less-rational behavior of entrepreneurs?

Answer 5

• Cognitive biases that minimize risk (love is blind)
• Persistence despite poor results (a parent never gives up)
• Extreme devotion to business, often with self-sacrifice
• Problems of founder succession (separation anxiety)
• Over-controlling founders (parents)

Question 6

Self-Employed vs. Entrepreneur

Answer 6

Entrepreneurs have a high degree of non-routine cognitive skills, work more hours, and earn more

Question 7

How do entrepreneurs initially fund their company?

Answer 7

Themselves
Then, FFF (Friends, Family, Fools)
Then, external funding

Question 8

Is VC more well-developed in Europe or the US?

Answer 8

US