Book Review: Entrepreneurial Finance

Entrepreneurial Finance: The Art and Science of Growing Ventures. 2018. Edited by Luisa Alemany and Job J. Andreoli.

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For investors in start-ups, 2019 promises to be a consequential year. Some of the most storied venture-backed companies of the past decade will be looking to finally subject themselves to the scrutiny of the public markets. The results of that exposure will influence the valuations of countless other venture holdings that have been maturing in portfolios over the years. Lyft recently went public on the NASDAQ on 28 March. Its big brother Uber will likely follow later this year at an expected $120 billion, while Airbnb is aiming to go public this year or next at a reported valuation of over $30 billion.

The rise of these and other “unicorns” (i.e., tech ventures that have reached billion-dollar valuations) has led to heightened interest in start-ups and, more precisely, the ways in which investors have been able to facilitate and profit from their success. Entrepreneurial Finance: The Art and Science of Growing Ventures, an impressively comprehensive collection of essays on venture financing published by Cambridge University Press, provides a superb introduction to the subject for investors and entrepreneurs alike. Luisa Alemany and Job J. Andreoli, the collection’s editors, have done an admirable job of incorporating perspectives from academics, entrepreneurs, and investors on topics ranging all the way from the entrepreneur’s initial capital raise to the eventual path to an exit.

The book’s organization broadly follows the lifespan of a new company, with a few instructive detours on such topics as alternative forms of entrepreneurship and impact investing. While particularly well suited to an academic setting, the articles are nonetheless very readable and accessible to the lay public. They follow a common format (one that will feel familiar to CFA charterholders), beginning with a statement of learning objectives and ending with a series of “key takeaways” and follow-up questions — and often including one or more case studies along the way. Investment professionals can thus quickly zero in on subjects of interest and find tools to consider applying in a “real world” setting.

A distinctive feature of Entrepreneurial Finance is its European perspective. The editors teach at European business schools and have drawn heavily from contributors with European connections. Considering that the United States remains the global reference point for venture investing in ways that the authors acknowledge through contrasts and comparisons, the non-US bent is both unobtrusive and illuminating. For example, “Public Sources of Funding” by Isidro Laso contains a worthwhile discussion of the various efforts European governments have made to promote venture activity in their respective jurisdictions. Elsewhere, in the article on corporate governance entitled “The Term Sheet and Negotiating with Investors,” Stefano Caselli draws attention to how different countries have different perspectives on the role a company should play in society. Caselli associates the “shareholder perspective” with Anglo-Saxon countries and the more broadly defined “stakeholder perspective,” which implies that companies have responsibilities to society beyond their immediate obligations to their investors, to continental Europe. These cultural differences, assuming they hold firm, should be of the utmost interest to a global investor who may eventually need to rely on a corporate board to make critical decisions concerning a company’s financial circumstances.

This is not, and does not aspire to be, a book along the lines of Peter Thiel’s Zero to One, which lays out a successful venture capitalist’s intellectual framework for evaluating start-ups. It is instead an excellent introduction to the practical considerations of venture investing, providing numerous entry points to the subject matter and many tools for deepening one’s understanding. Criticizing such a thorough compendium for leaving something out may seem churlish, but one subject the authors should consider addressing more fully in a future edition is the challenge, from the investor perspective, of engaging with a start-up that has gone astray. Many investors active in venture capital would say this is among the most complicated and time consuming of their tasks. (The book includes a useful chapter on turnarounds, but these situations are different in that the investor enters at the point of crisis rather than intervening in a crisis at an existing portfolio company.)

That perhaps inevitable omission aside, the editorial breadth of the collection is remarkable. The book’s most natural audience is likely budding entrepreneurs and the aspiring investors who seek to support them. Experienced market participants, however, will also find much value and insight in Entrepreneurial Finance, an ambitious venture in its own right.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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