Part of Unit: Financing the Business
Lesson Plan Overview / Details
Students will learn the steps and phases of equity investment for businesses. Through cases, quick-writes, pair-share activities and video clips the students will become engaged with the concept and value of marketing to investors, borrowing from simple concepts of investing. They will be presented the actual steps of the Venture Financing process through the “stage” model and will also be shown an example of the process. They will interact further with the steps and each other through a simulation activity. Teacher will assess understanding through observation during these activities and students will demonstrate mastery through a written application for their business plan.
- Lesson Time
- 2 - 4 Hours
California Career and Technical Education Standards
- FB.A.A2.2 Apply appropriate concepts and techniques to account for equity investmentsand w...
- FB.A.A3.3 Know the basic international terminology and theories used in accounting andfina...
- FB.C.C1.3 Understand how the financial needs of a business change in a dynamic and competi...
- FB.FS.5.4 Understand how financial systems and tools are used to solve business problems.
California Academic Content Standards (Reinforced)
- ELA.9-10.R.CAGT.2.3 Generate relevant questions about readings on issues that can be researched.2
- ELA.9-10.R.CAGT.2.5 Extend ideas presented in primary or secondary sources through original analysis...3
- HS.12.PE.12.2.8 Explain the role of profit as the incentive to entrepreneurs in a market economy.
- HS.12.PE.12.2.9 Describe the functions of the financial markets.
Objectives and Goals
- Students understand the basic choices and considerations of financing
- Students will identify, sequence and define the stages of equity financing, and the requirements and considerations for each stage.
- Students will apply their knowledge of the equity financing stages to solve cases; and write an explanatory “game plan” for their business’s financing through its growth phases
Activities in this Lesson
- Show me ?da money! - Hooks / Set
Teacher shows the resource videos introducing the concept of business financing and equity investments. (See "How to Finance Your Start-Up Business" and "How to Find Angel Investors" videos below.)
Teacher shows the "How to Finance Your Start-Up Business" video first. Ask students to summarize the sources mentioned.
Teacher shows the "How to Find Angel Investors video" video next. Ask students to summarize the method of attracting angel investors mentioned.
Teacher introduces the topic of business financing -- Including the Investor's view
Overview of Skill
Teacher provides an Orientation for business Start-Up Financing using a handout. Two important steps are covered: clearly assessing the business’s need for financing; and explaining debt and equity financing.
(See Start-Up Financing Orientation handout.)
Teacher provides an Orientation about Equity Capital using handouts and graphics.
The basic investor view is similar to farming and harvesting crops for cash. This is labeled “Farming Harvest Theory.” This model emphasizes the concepts of building value and then “cashing out” the investment for the investor (also called liquidity). Venture capitalists focus on what they call the “exit strategy.” Many students – and unfortunately many business owners — do not think that far ahead. (See “ Farming Harvest Theory” graphic or slide)
Students take notes and sketch the diagrams.
- Equity Stage Theory - Demo / Modeling
Teacher explains a generic investment stage using the “ Stage Theory” graphic. Teacher then explains the entire sequence of typical investment stages with the “ Equity Stages” graphic. Teacher may also use the “ Financing Stages” handout, or the Microsoft PowerPoint “ Equity Stage graphics slides” (see above activity).
Teacher gives hypothetical examples of small businesses needing financing.
Teacher discusses how to identify and differentiate the stages, using the criteria below:
- Business Development Phase
- Type of Investor
- Expected result “Milestone”
- Investor’s Exit
Students can use the graphic organizer to take notes as the teacher explains. (See “ Financing Stages graphic organizer” handout/key
- Stage Theory [ View Image ] [ Download Original ] Stage Theory graphic
- Equity Stages [ View Image ] [ Download Original ] Equity Stages graphic
- Financing Stages [ Download ] Financing Stages handout
- Financing Stages graphic organizer [ Download ] Financing Stages graphic organizer
- Financing Stages graphic organizer key [ Download ] Financing Stages graphic organizer key
- List and draw the Equity Stages - Check Understanding
Teacher asks students to:
- List and define the Equity Stages from memory
- Draw the Equity Stage chart from memory
Note: Teacher may make this“Check for Understanding” activity an individual student performance, or may allow students to pair-share.
- Initial Financing Cases - Demo / Modeling
Initial Financing Cases
Teacher reads the case of the three business startups, and the owners, Joe, Molly and Chang.
Point out that the list of criteria (“financing considerations”) does not fit all businesses, and students may not fill in every cell for every example. (See “ Initial Financing Cases” handout)
While the teacher reads the cases, students take notes with a graphic organizer, filling in as many criteria cells for each example as they can.
After reading the three examples, the Teacher leads a discussion about the differences between each business owner. Although “Risk and Reward” and Liquidity are the same for all examples, the teacher should have the students discuss: Self-funding, Money Estimate, Valuation, Control, Experience, Debt, Growth, Experts, and Financing Result. (See “ Graphic Organizer” handout)
The teacher emphasizes the advantages and disadvantages of each approach by prompting the students.
- Practice Cases and Discussion - Lab / Shop
Teacher gives the first case to students to analyze. Teacher should ask students to think about all steps of the process, as shown in the case examples.
Teacher should also encourage students to make "educated guesses," given the facts of the cases.
Students Pair-share, using notes and diagrams to analyze the cases and write their analyses.
Case 1: idea phase; no product ( need: money to prove product concept)
Teacher leads discussion about first case, asking students to think about all steps of the process. ( Analysis: This is “Seed” stage, or possibly “Angel” financing)
After the case is discussed and no questions remain, the teacher repeats the process with the remaining cases, concluding each with discussion.
Case 2: 2-year startup ( need: wants to open a second store; but has no tested product)
Teacher leads discussion about this case, asking students to think about all steps of the process. ( Analysis: This is “Seed” stage, or possibly “Angel” financing. Students may also understand that two years and one store has burnt up a bit of cash – probably self-funded.)
Case 3: 5-year startup has product + successful and profitable store ( need: new store + online sales)
Teacher leads discussion about this case, asking students to think about all steps of the process. ( Analysis: This is “Angel” stage, or possibly “A-Round Early Venture Capital” financing. Students may also understand that online sales could greatly expand the reach into new markets, and increase the size of this company. Success will attract significant money.)
Case 4: 5-year startup w/ sales of $20M ( need: expansion into national/international market)
Teacher leads discussion about this case, asking students to think about all steps of the process. ( Analysis: This is “Expansion Venture Capital (“B-Round”)” stage, or possibly “C-Round” financing. Students may also understand that this company will greatly expand its reach into new markets, and increase size.)
Case 5: 8-year business w/ sales of $50M ( need: expansion into international market; anticipating a public offering of stock in the near future)
Teacher leads discussion about this case, asking students to think about all steps of the process. ( Analysis: This is “Expansion Venture Capital (“C-Round”)” stage, or “Mezzanine” financing. Students may also understand that “public offering of stock” is a significant milestone, and will attract many investors.
- Student ?Financing Game Plan? - Projects
Student “Financing Game Plan” Assignment
Teacher asks students to write a narrative “Game Plan” for venture financing of their planned business, emphasizing:
- What would improve the odds of getting an investment into their business
- What the business must offer investors at each stage of financing (Self-funding, Experience, Experts, Business Development Phase, Type of Investor, Purpose, Expected result “Milestone”)
- What they must do to expand company sales
- How the Investor will exit with their money
The written assignment is collected on a subsequent day.
- Application of Finance Skill - Closure
Teacher identifies application of skill in trade field via briefing, article and videos:
Besides obvious application in an Entrepreneur’s career, the other areas of benefit are Finance; and what is called the “Advisor Market” (what has been identified in this lesson as “Experts”: Legal, Audit, Appraisal, and Securities).
Teacher can show any of the following videos to feature occupations using these skills.
(All career videos are from New Jersey's Dept of Labor and Workforce Development, http://lwd.dol.state.nj.us/labor/wfprep/coei/media/English_Video_List_Capt.html#12)
- Entrepreneur [ Watch Video ] [ Download Original Video ] Entrepreneur career video (.mpg, 16.3MB); O*Net Code 11-1010.09
- Financial Analysts [ Watch Video ] [ Download Original Video ] Financial Analysts career video (.mpg, 15MB); O*Net Code 13-2051.00
- Accountants [ Watch Video ] [ Download Original Video ] Accountants career video (.mpg, 15.2MB); O*Net Code 13-2011.01
- Loan Officers [ Watch Video ] [ Download Original Video ] Loan Officers career video (.mpg, 12.5MB); O*Net Code 13-2072.00
- Assessment Types:
- Projects, Writing Samples, Demonstrations, Observations,
Teacher will assess with observation, and with student’s:
- Graphic organizer (See "Equity Stages graphic" as a grading rubric.)
- Notes (Use "Financing Stages graphic organizer key" as a grading rubric.)
- Equity Stages List and chart (Sketched diagram: See "Equity Stages graphic" as a grading rubric.)
- Initial Case analysis (Student write-up)
- Practice Case analysis (brief write-up of cases 1-5)
- Student “Financing Game Plan” write-up (Assessment should be according to usual rubric for the entire business plan; or Virtual Enterprise standards.)