MG 298 Entrepreneurship Shivram V. MG 298 Entrepreneurship August 17 Shivram Venkatasubramaniam

MG 298 Entrepreneurship Shivram V. Today Recap Business Models for accelerating entrepreneurship Class discussion Business law – basics Business planning – basics Readings for next class

MG 298 Entrepreneurship Shivram V. Recap- The Entrepreneurial Process Idea generation –Creating the idea/vision for the future Organization creation and capitalization –Preliminary funding of the company –Creation of a skeletal team Organization Development –Define agenda; create team, culture; execute strategy; reach meaningful milestone

MG 298 Entrepreneurship Shivram V. Triggers for Entrepreneurship Ventures always have origins in individuals or groups of individuals Regardless of extent of institutional support, ultimate “spark” has to be provided by an individual Examples of triggers –Survival, job dissatisfaction, curiosity, windfall, fresh start, opportunity, adversity, boredom India – necessity or opportunity?

MG 298 Entrepreneurship Shivram V. Business Models Different business models exist to accelerate entrepreneurship –Venture Philanthropist –Traditional Venture Capitalist –Developmental Venture Capitalist –Change Agents Each has its place on the same spectrum of new venture development

MG 298 Entrepreneurship Shivram V. Venture Philanthropy Charitable(philanthropic) application of investment principles Emphasis on capacity building Financial assistance is accompanied by active interest in use of funds Dominant yardstick is social return (SROI) Typically tend to be Foundations, targeted Philanthropic funds, multi-lateral institutions, private donors or combination

MG 298 Entrepreneurship Shivram V. Traditional Venture Capitalist Invest their (shareholders’) money in risky but potentially very profitable ventures Variations include Angel Investors, Venture Funds, Private Equity firms, Incubators, private Investors Fundamental them is the same – deploy human and financial capital for most attractive combination of risk and financial return

MG 298 Entrepreneurship Shivram V. Traditional Venture Capitalist Inevitably, successful ventures generate economic returns (more jobs, output for economy) and sometimes even social return (development of a community) However, only financial return is measured. VCs typically work to a certain time horizon reflected in their investment preferences and terms

MG 298 Entrepreneurship Shivram V. Developmental Venture Capitalist Financial return has to be accompanied by social and/or economic return Target disadvantaged communities Use metrics such as improvement in standard of living, health, sanitation, human rights, employment Recent enabler – low cost technology But Financial ROI is still a dominant theme

MG 298 Entrepreneurship Shivram V. Change Agent Entities with one-point agenda – Accelerate new venture creation with the overarching objective of triggering economic development by catalyzing the entrepreneurship process –Accelerate overall process –Improve success rate (reduce dropout rate) –Increase throughput through the process

MG 298 Entrepreneurship Shivram V. Change Agents Identify entrepreneurs and opportunities of potential and provide vigorous assistance Provide mentoring that would mitigate risk May be for-profit or non-profit Only model wherein entrepreneurs and opportunities may be concurrently and independently pursued

MG 298 Entrepreneurship Shivram V. The Traditional VC Canonical Venture 1 Projected Life5 years Revenue$5 million Headcount25 Profitability50% Average Salary$50,000 Income GroupUpper Middle LocationUrban Education LevelGraduate IndustrySoftware

MG 298 Entrepreneurship Shivram V. Developmental VC Canonical Venture 2 Projected Life5 years Revenue$5 million Headcount65 Profitability20% Average Salary$30,000 Income GroupLower Middle LocationRural Education LevelUndergraduate IndustryWireless

MG 298 Entrepreneurship Shivram V. Venture Philanthropic Canonical Venture 3 Projected Life3 years Revenue$5 million Headcount200 Profitability2% Average Salary$5,000 Income GroupPoverty LocationRural Education LevelIlliterate IndustryAgriculture

MG 298 Entrepreneurship Shivram V. Conclusion Entrepreneurship means different things to different people with respect to objectives, definition of success, metrics Inherent subjectivity in determining which forms of entrepreneurship provide a fillip to economic development Are there any opportunity costs?

MG 298 Entrepreneurship Shivram V. Class Discussion Company reviews

MG 298 Entrepreneurship Shivram V. Business Law Wide range of decisions and issues for the entrepreneur to consider Typically underrated and underestimated by entrepreneurs None of them can be glossed over Issues increase in importance and complexity as a new venture grows

MG 298 Entrepreneurship Shivram V. Basic Legal Issues to Consider Identifying and engaging good legal help –Cost-effectiveness –Attorney-client confidentiality Employment and Employee agreements –Employment restrictions –Post-employment restrictions –Trade secrets, invention assignments, copyrights, etc –Leaving on good terms

MG 298 Entrepreneurship Shivram V. Basic Legal Issues to consider Incorporation and Legal Form –Forms of Business Entity –Corporations(companies), Partnerships, Limited Liability companies, others –Conducting business in other states, countries –Licenses, Insurance,etc. –Selecting and protecting a name

MG 298 Entrepreneurship Shivram V. Basic Legal Issues to consider Structuring Ownership –“Splitting the pie” –Equity, Consideration, Vesting –Transfer of shares –Shareholder voting agreements –Proprietary Information and Inventions, Employment and non-compete agreements

MG 298 Entrepreneurship Shivram V. Basic Legal Issues to consider Forming and working with the board –Having an independent board –Representation in the board –Resonsibilities of the board Contracts and Leases –Elements of a contract –Oral Agreements –General contract terms –Remedies

MG 298 Entrepreneurship Shivram V. Basic Legal Issues to consider Sale of goods and services Human Resources –Employees Vs Independent Contractors –Employee Privacy –Employment Agreement and Disputes –Employment Disputes –Liability for Employee Acts –Putting it all in practice

MG 298 Entrepreneurship Shivram V. Basic Legal Issues to consider Operational Liabilities and Insurance Creditors Rights and Bankruptcy Venture Capital Intellectual Property and Cyberlaw –Trade Secrets, Copyrights, Patents, Trademarks, Domain Names –Licensing Agreements and other transfers of intellectual property

MG 298 Entrepreneurship Shivram V. Basic Legal Issues to consider Going Global –Tax Planning –Selecting from Representative Office, Branch and Subsidiary –Establishing a Legal Presence –Hiring and Employment Overseas –Distributors, Value-added Resellers, and Sales Agents –Intellectual Property, Funding, Operations

MG 298 Entrepreneurship Shivram V. Basic Legal Issues to consider Buying and selling a business –M&A –IPO –Forms of Business Combinations –Stock Purchase and Sale –Pricing Issue and forms of consideration –Tax treatment –Shareholder Approval, Due Diligence, Board Approval, Fiduciary Duties

MG 298 Entrepreneurship Shivram V. Basic Legal Issues to consider Going Public –IPO process –Restrictions –Prospectus –Misstatements and Liability –Insider trading –Post-IPO disclosures, Communications with Analysts, Regulation

MG 298 Entrepreneurship Shivram V. Business Plan Basics

MG 298 Entrepreneurship Shivram V. Q & A