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Describes the steps necessary to purchase a small to medium size company. Provides an eight-part analytical framework. Issues covered in the framework include the following: the self-assessment, deal criteria, deal sources, resources necessary to purchase a business, the deal process, the evaluation process, negotiating the deal, and adding value and harvesting the venture.

Explores some of the issues involved in valuing cash flow streams. A simple model is presented that reveals the effect on value of changing assumptions about the appropriate discount rate, the level of profitability, the growth rate of sales, the asset intensity ratio, and the leverage ratio. Helps students address some of the following issues: 1) What is the definition of cash flow? 2) What effects do changes in the discount rate have on valuation? 3) How sensitive is value to changes in assumptions about the underlying characteristics of the cash flow stream? 4) How does growth affect value? 5) How does the use of leverage affect value? 6) What are price-to-earnings ratios? and 7) What factors affect price-to-earnings ratios?

Describes National Demographics and Lifestyles (NDL), a Colorado-based company that compiles a database from product "warranty registration cards" and sells mailing lists from this database. The company has burned through more rounds of financing than ever intended, and its founders must decide whether--and how--to approach their venture backers for more financing. And, the venture capitalists must decide whether to proceed or not. May be used with National Demographics & Lifestyles (B).

Describes the issues involved in designing and evaluating financial contracts between users and suppliers of capital and between companies and employees. A simple conceptual framework is introduced and some critical issues addressed: 1) How is cash allocated? 2) How is risk allocated? and 3) What are the incentives for all parties in the deal? The emphasis in the note is on providing the reader with a set of questions that must be addressed when designing and evaluating any deals. Created for use in Entrepreneurial Finance. Can be used to provide general background reading or as an assignment for a day devoted to the discussion of deals.

Focuses attention on a phenomenon we call capital market myopia, a situation in which participants in the capital markets ignore the logical implications of their individual investment decisions. Viewed in isolation, each decision seems to make sense. When taken together, however, they are a prescription for disaster. Capital market myopia leads to over-funding of industries and unsustainable levels of valuation in the stock market. Uses the Winchester Disk industry to elucidate the phenomenon. Argues that capital market participants should have seen the problem coming. They should have known that valuation levels were absurd, based in large part on the greater fool theory. The data necessary to anticipate the problem were readily available before the industry shakeout began and stock prices collapsed. Offers some simple lessons to help investors and entrepreneurs avoid charter membership in the greater fool club.

Describes a method for valuing high-risk, long-term investments such as those confronting venture capitalists. The method entails forecasting a future value (e.g., five years from the present) and discounting that terminal value back to the present by applying a high discount rate (e.g., 50%). Provides an explanation of this method, including a detailed discussion of the determinants of the key factors ranging from the discount rate to the terminal value. The pedagogic objective is to make students aware of the issues involved in valuing such "futures" investments. A model is provided that further elucidates the determinants of value.

Spreadsheet supplement for case 288006.

Designed to introduce students in Entrepreneurial Finance to the subject matter and modus operandi of the course. Also included is an annotated bibliography.

Two stories illustrate the American way of thinking about entrepreneurship. The first is the story of the entrepreneurial hero--found in every story by Horatio Alger--who uses energy, effort, daring, and good luck to rise in the world. But the story has an unhappy ending. The second story holds more promise, focusing not on the individual but on the team, as in Tracy Kidder's description of how a group of engineers pooled their talents to design a new computer. The differences between these two versions are profound. The first celebrates the individual and the second celebrates the group--even the organization.

Business owners who have found venture capitalists (VCs) willing to put money into their companies may be tempted to take the money on any terms. Because they need the capital, the last thing they want to do is upset a deal. Owners don't have to agree without negotiation to each provision the VCs want. Owners do have some leverage in the negotiations, particularly if their businesses already show a profit or if they are selling a highly desirable service or product.

The new business development officer for Quaker Oats Canada Limited, has been asked to develop a proposal for the possible introduction of Gatorade into Canada. He must develop a complete marketing and financial proposal. The case focuses on decisions about channels, flavors, pack-types, pack-sizes, retail pricing, trade and company margins, forecast market outcomes and forecast cash flows. A follow-up case, Gatorade B is available.

A bank account manager is reviewing the risk and credit facility for a specialty food store operator. The case permits a size-up of the company and provides detailed information to decide the loan rate that should be charged.

Discusses the trials and eventual success of two young Harvard MBAs who chose to purchase a company immediately upon graduation from their MBA program. Having no assets of their own, Kirk and Jamie raised a search fund to meet expenses during their search process, and then spent two years locating an acquisition. Offers unique opportunities to value a business and explore fundraising opportunities. In addition, provides motivation for MBAs interested in going into business for themselves directly out of the MBA program.

At the outbreak of the Civil War, the Union army faced the task of supplying the growing numbers of Union conscripts with shoulder arms. Existing government stockpiles were inadequate, and the chief of ordnance was forced to consider the alternatives: government inventories of outmoded muskets; private manufacturers; and European arms manufacturers. Further confusing matters was the fact that, given recent strides in rifle development, new weapons promised higher rates of fire and easier handling, but high-quality innovations in rifle design were scattered among many impractical ones. Part A provides an overview of the complicated character of the ordnance environment at war's outbreak and lays out the tensions between improving Army rifle design and maintaining a smoothly functioning supply system. Part B chronicles the efforts of Christopher Spencer, inventor of an innovative repeating rifle, to secure contracts with army ordnance in the face of resistance. The case is designed to illustrate problems in the management of procurement and supply under critical circumstances and the place of innovation in that process: How reasonable is technological conservatism in times of crisis? It also raises issues of the interaction between existing strategic doctrine and new technologies. Finally, it illustrates some of the sources of innovation in weaponry and the paths by which such innovations may be adopted. HKS Case Number 772.0

At the outbreak of the Civil War, the Union army faced the task of supplying the growing numbers of Union conscripts with shoulder arms. Existing government stockpiles were inadequate, and the chief of ordnance was forced to consider the alternatives: government inventories of outmoded muskets; private manufacturers; and European arms manufacturers. Further confusing matters was the fact that, given recent strides in rifle development, new weapons promised higher rates of fire and easier handling, but high-quality innovations in rifle design were scattered among many impractical ones. Part A provides an overview of the complicated character of the ordnance environment at war's outbreak and lays out the tensions between improving Army rifle design and maintaining a smoothly functioning supply system. Part B chronicles the efforts of Christopher Spencer, inventor of an innovative repeating rifle, to secure contracts with army ordnance in the face of resistance. The case is designed to illustrate problems in the management of procurement and supply under critical circumstances and the place of innovation in that process: How reasonable is technological conservatism in times of crisis? It also raises issues of the interaction between existing strategic doctrine and new technologies. Finally, it illustrates some of the sources of innovation in weaponry and the paths by which such innovations may be adopted. HKS Case Number 772.1

Describes the evolution of Johnsonville Sausage through a generation of management and from a small operation to a large concern of over 500 employees. Describes how each of the functional areas in the firm has evolved, and how its structure and systems have changed over the years.

Describes the issues that entrepreneurs and their firms must deal with in attempting to make the transition from entrepreneurial to professional management. The note suggests that the delegation of responsibility and the implementation of formal controls are two key steps in this transition.

Innumerable business experts urge executives of growing companies to help themselves and their organizations by delegating responsibility. However well meaning, the dispensers of such advice usually underestimate the difficulty entrepreneurs have in giving up their cherished roles. Entrepreneurs pride themselves on their skills and talents and thrive on being in all places at once. But as their organizations expand, they can better spend their time coaching and planning rather than doing. Otherwise, their staffs can never mature, and they themselves won't have time to chart the company's future.

A recent MBA graduate has reached tentative agreement for an LBO of a forms-printing business with $43 million sales. At the eleventh hour, however, the seller has demanded that the buyer personally guarantee $4 million of accounts payable.