Abstract
As a sign of the times, universities are increasingly under pressure to educate tomorrow’s entrepreneurs. As a result, many business schools and universities have added a compulsory course on entrepreneurship and basics of corporate finance issues into their curriculum. Gina Vega and Miranda S. Lam’s Entrepreneurial Finance: Concepts and Cases could potentially serve as a great textbook for this kind of course. The target audience of the book is upper level undergraduates in business, although the material should be accessible even to those who do not have any prior financial studies beyond the basics offered in almost any business school. A typical student would be someone who is studying entrepreneurship or considering a career as an entrepreneur one day. Obviously also students of other majors who want to learn more about setting up a business and financial issues involved in small businesses would greatly benefit from the material covered in the book.
Entrepreneurial Finance: Concepts and Cases focuses on the financial challenges of start-ups and small businesses. In its close to 400 pages, the book goes through a range of issues, starting from the very basics – raising money and getting going – to exit strategies. The book has 11 chapters which have been organized into seven modules. The authors suggest that the book could be taught across a full semester. The text in the book is very practically oriented, yet based on academic theory. The main ideas in the book are reflected in the 17 hands-on cases which have been written by a number of case contributors. The cases are excellent in helping students to learn the key questions faced by (aspiring) entrepreneurs and small-business owners. Moreover, cases provide a natural starting point for students of different backgrounds to engage in class-room discussion.
As the target audience of the book is students, there are two chapters that are mostly relevant for them. Namely, the whole book sets off by an introductory chapter ‘Getting started with cases’. It provides helpful information for students on how to read cases as well as how to prepare a case analysis – especially helpful if they are new to case analysis. At the other end of the book is Chapter 11 ‘How to win business plan competitions’ which is relevant for students considering participating in a business plan competition. Obviously, learning to write a good business plan goes a long way to finding potential financiers for the company even if one is not interested in participating a competition.
The chapters in between cover the whole lifespan of a company. The initial question is to set up a company and to choose the legal form of the business (Chapter 2). A parallel decision is to find financing for the business operations (Chapter 3). The emphasis is put on sources of financing that are most relevant to firms in their early stages. Even a very topical source of financing – crowdfunding – is covered. The next two chapters focus on short-term issues in a life of a business. The basics of financial statements and financial ratios are introduced in Chapter 4. Chapter 5 covers cash and working capital management. Chapter 6 focuses on how to calculate and forecast cash flows. Chapter 7 presents how cash flow forecasts can be turned into pro forma financial statements for longer term analysis needed for example for raising external funding. Chapter 8 introduces all the key concepts in finance that are necessary ingredients of understanding the key capital budgeting technique, namely, the net present value (NPV). Time value of money, discounting, and the weighted average cost of capital (WACC) with its components are also covered. Special attention is given on estimating the cost of equity of a small, unlisted firm. Chapter 9 shows how one can use the financial tools to valuate for a firm, again discussing how valuation of a small firm differs from the publicly listed firms that are more often covered in financial textbooks. Chapter 10 offers a natural conclusion to the main themes in the book by discussing raising new capital through financing rounds and its effect on valuation as well as different exit strategies.
The authors state that the book has been written ‘out of frustration’ with the current textbooks for non-finance students trying to learn basics of finance for entrepreneurship. They aim to provide a simpler ‘need-to-know’ approach to the subject, and utilize their commitment to teaching with cases. The authors have succeeded remarkably with their objectives. They strike a great balance between simplicity and academic rigour as well as coverage of the main topics that are relevant to entrepreneurs. Although the book covers some wide-ranging issues, there are also some really detailed, practice-oriented sections. The text benefits from the frequent use of examples that help the reader to learn hands-on how to apply the material in practice. The cases go one step further enhancing the learning process by forcing students to put themselves in the shoes of an entrepreneur or a small-business owner even if they do not have first-hand experience themselves.
In summary, Entrepreneurial Finance: Concepts and Cases is a commended addition to the literature on entrepreneurial finance. It is a well-written book and no doubt well received especially by students of various backgrounds interested in the financial questions relevant for small businesses as well as those who perhaps one day aspire to become entrepreneurs and set up a company of their own.