Module Structure

The purpose of this module is to learn how to get from the valuation of a company to the actual deal (e.g., acquisition, financing round). This is the topic of financial deal making. The module shows how to use relatively simple finance tools to bridge valuation gaps and bring buyers and sellers together. It discusses the basic principles of financial deal making and shows the main elements of a typical deal structure. The terms of financial deals are usually summarized in the term sheet. We learn how to read or draft such term sheets, what the individual clauses actually mean, and how these clauses determine the allocation of returns, control, and liquidity among the parties of the deal. 

The module proceeds as follows:

• This introductory chapter motivates the topic and shows why deal structuring is so important. It also provides a comprehensive overview of the course and its logic.
    
• Second, we look at Staged Capital Contributions, a typical form of financing in new ventures.
    
• Third, we discuss the economic principles of financial deal making and how these principles are reflected in the typical structure of a term sheet. Based on this knowledge, the following sections then introduce the major elements of term sheets:
   
  
  • Preferred Returns: How to allocate the returns of the venture between the entrepreneur and the investors?
     
  • Valuing Financing Alternatives: How to value the various financing alternatives?
      
  • Protection and Participation: How do investors protect their valuation and make sure they participate in future rounds of financing?
     
  • Managing the Investment: How is control over the firm allocated between the entrepreneur and the investors?
     
  • Employee terms: How are employees motivated to fully commit themselves to the venture?
     
  • Exit: And how do investors make sure that they can exit from their investment in due time?
     
• We introduce the SAFE, an innovative financing instrument for seed financing rounds.
   
• We end the module with some concluding remarks.