Instructor Resource
Neck, Entrepreneurship
© SAGE Publishing, 2018
Case Notes
Chapter 13: Equity Financing for Entrepreneurs
Hyrum W. Smith, Co-Founder of FranklinCovey Company
Summary
Before entrepreneurially launching his own professional time management company in 1983,
Hyrum Smith gained experience as a missionary, soldier, salesman, public speaker, and upper-
level manager. While such endeavors made Smith rich in experience, they did not make him
rich financially. As a result, he was virtually broke at the time he ventured out as an
entrepreneur to launch his own company.
Less than one year later, Smith and his associates had paid back the $90,000, and were on their
way to building one of the most successful time-management training firms the world had ever
seen. In 1992, the original Franklin Institute became Franklin Quest and went public on the New
Analysis
Bereft of any personal fortunes, and with no immediate prospects of acquiring an angel
investor, Hyrum Smith and Dick Winwood initially invested $3,500 of their own, meager, cash
reserves to launch HW Smith & Associates in 1983. Recognizing they would need a lot more
money to print the first shipments of Franklin Day Planners, they began searching for a venture
Instructor Resource
capitalist who would be willing to risk loaning them $200,000 (capital investor) for a 20% stake
(equity investor) in the company in order to get their business off the ground.
After finding an interested investor, the entrepreneurs did their due diligence as part of a
valuation process. Their research determined that an initial loan of $200k was worth a 20
percent stake in the company. Optimistic about their venture’s potential, but unsure of what
Ironically, their venture capitalist got cold feet and tried to renege on his end of the
agreement. This gave Smith and Winwood a chance to turn a dilemma-turned debacle into an
Sample Answers to Case Questions
1. What was the financial cost to Smith and Winwood when their initial investor pulled out
of his original contract? What was the benefit?
2. What non-monetary benefits might Smith and Winwood have obtained because their
original investor got cold feet?
3. How are money benefits vs. non–money benefits related to the “entrepreneur’s
dilemma?”
Instructor Resource
Neck, Entrepreneurship
4. Hyrum Smith emphasizes the importance of following your own personal values. As an
entrepreneur, which do you value more: to be “King” or to be “Rich” (viewed as a ratio
using a scale of 0–100%)?
5. Who do you presently know that you could potentially approach as an “Angel Investor”
for your own entrepreneurial idea(s)? Who could you approach for capital investment?
For equity investment?
6. What due diligence would you need to do to make a compelling case to a potential
angel investor? A capital investor? An equity investor?
