First of all, I think this document is really worth its price, I achieved a very good result with it and the case and exam questions are very valuable.
Structure of the Document:
1. Example Questions:
The document begins with example questions from different academic years ( and ).
2. The C...
ENTREPRENEURIAL FINANCE
1. Example Questions
2. Case (7pages)
3. Summary incl. Self-reading chapters (91 pages)
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,Example Questions
2023-2024
Theory
1. Mention 2 advantages and 2 disadvantages of convertible notes.
2. 1 question about the guest lecture.
3. Explain 4 forms of crowdfunding and provide a definition; give 2 risks and 2 rewards for both the
investor and the entrepreneur.
4. Describe 4 methods to value a young company and explain the advantages and disadvantages of each
method; state whether it is a good method for young companies.
5. Explain liquidation preference, anti-dilution mechanism, employee and stock options, and drag-along
rights, as they are often found in a VC term sheet.
Exercises
1. A cap table exercise with preferred convertible shares and preferred dividend yield shares.
2. Another cap table exercise.
3. A valuation exercise with P/E multiple, number of shares, %ownership, post-money valuation, and exit
value calculation.
2022-2023
Theory
1. Explain the 2 main problems of asymmetric information. Explain the mechanism by which this can be
resolved before the deal. Mention 3 ways that can help during or after the deal/negotiations.
2. Give one advantage and one disadvantage of digitalization. Explain this for both the entrepreneur and
the investor.
3. Mention 3 funding sources provided by universities and the government. Give one advantage and one
disadvantage of the funding from these two institutions.
Exercises
1. Provide a capitalization table, but there is also a bridge loan where the repayment is converted into an
equity stake. The second part of the question was to calculate the payoff at exit, depending on whether
the investor had common or preferred shares.
2. Large exercises with just capitalization tables, without dilution.
3. Small exercises with a full anti-dilution ratchet.
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,The Case
Here are the answers to the questions. I haven’t included the questions or details of the case
itself, as the professor was very particular about copyright and didn’t even post the solution on
Blackboard—only in person. These answers earned a score of 185/200 (92.5% or 3.7/4). You
might want to double-check for any changes, but this should be quite helpful ;)
Question 1
Figures on value creation:
We compared the period before Digi-Tec had a private investor on board (2007-2010), with the period when
SRIC was on board (2011-2013). When taking a look at the financial statements, we found some key insights on
the sources of the value creation:
Revenues grew from €9,446,000 in 2010 to €15,167,000 in 2013. This is a growth of 60.56% in revenues
in only 3 years. The Compound Annual Growth Rate (CAGR) in revenue since SCIR joined in 2011 is equal
to 20.39%, meaning that the company experienced an average annual growth rate of 20.39% over this
period.
EBITDA and EBIT also grew respectively from €2,439,000 and €2,106,000 in 2010 to €4,434,000 and
€3,575,000 in 2013. This is a growth rate of 81.80% for EBITDA and 69.75% for EBIT. The margins of both
EBITDA and EBIT are also slightly higher in 2013 than in 2010. The margins increased respectively from
25.82% and 22.30% in 2010, to 29.23% and 23.57% in 2013. However, the increase is not stable, as both
the margins decreased between 2010 and 2011, and 2012 and 2013.
Net profit is also an important source of value creation. Between 2010 and 2013, Digi-Tec managed to
increase their net profit by 69.47%, going from €1,405,000 in 2010 to €2,381,000 in 2013.
The net financial debt has also been very volatile in the years between 2010 and 2013. The most
important thing to notice is that it decreased strongly in 2013, to a negative net financial debt of €2,281.
This means they have a strong liquidity position and have the potential to pursue growth opportunities
which can further increase their value creation.
Sources of value creation and key success factors:
A first important key success factor was the strong management team. Oliver and Patrice were driven
individuals and open to input from their investors. They were a complementary team, as Oliver was the
entrepreneur with strong technical and commercial skills, and Patrice was the smart operational
manager with strong financial and organizational skills who brought structure to the company. With the
introduction of SRIC, they were able to assemble a management team that was not only stronger but
also more experienced. SRIC also acquired a CFO to further professionalize the company. Because SRIC
bought out all the minority shareholders, they were able to align their interests and objectives.
Another success factor was their innovative business model. Rather than charging their customers by
the hour, they implemented an annual subscription fee structure. This strategy ensured stable and
predictable cash flows, offering higher margins compared to industry standards. Recurring revenues
accounted for over 40% of their total revenue, indicating a strong financial foundation.
Digi-Tec’s success was due not only to its robust management team and innovative business model, but
also to its commitment to financial discipline and operational efficiency. Under Oliver and Patrice’s
leadership, the company embraced a culture of prudent financial management, leading to impressive
revenue growth and profitability. With SRIC’s support, Digi-Tec strengthened its financial foundation and
achieved remarkable growth in EBITDA and EBIT. In addition, strategic cost control initiatives and a
reduction in net financial debt emphasized the company’s skill in maximizing shareholder value while
pursuing growth opportunities.
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, Question 2
The private equity investor SRIC did several things to align the interests of both parties. Here are three of them:
To motivate the management, a ratchet agreement was discussed. Oliver and Patrice were set to obtain
17.5% of the earnings that SRIC would accumulate from the exit exceeding a 25% Internal Rate of Return
(IRR), on the condition that SRIC succeeded in multiplying its initial investment by two. This setup would
allow Oliver and Patrice to secure a significant portion of the extra value in the event of a highly
successful exit.
SRIC took a balanced approach in their involvement in the company. While they were not directly
involved in day-to-day operations and gave the management team the freedom to explore their own
innovative ideas, they played an important role in shaping the strategic direction of the company. They
provided management with essential tools and guidance and actively participated in strategic decision-
making processes. This ensured that the interests of shareholders and management were aligned in
terms of the company’s overall direction and growth strategy. In this way, SRIC fostered an environment
where creativity could thrive within a shared vision of the company’s future.
The management team agreed to a modest base salary, but it was supplemented by a bonus system
directly linked to Digi-Tec’s EBITDA. As these bonuses were performance-based, SRIC was able to
encourage the management team to prioritize cash management and expansion. This resulted in a
strong correlation between management remuneration and shareholder value creation.
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