8 - 1 The New Venture Team

8 - 2 Importance of The Team There is a strong connection between the growth potential of a venture and the quality of its management team. A quality management team can be the difference between a life style firm and a higher potential venture. Venture capitalist have become even more active in shaping management teams.

8 - 3 The Lead Entrepreneur The capacity of the lead entrepreneur to craft a vision and then to lead, inspire, and persuade key people makes an enormous difference between success and failure. Instilling a vision, and the passion to win, occurs very early. Many lead entrepreneurs with outstanding technical skills or education credentials become lone achievers and lack the team mentality.

8 - 4 The Key to Growth Team traits Cohesion Teamwork Integrity Commitment to the long haul Harvest mind-set Commitment to value creation Equal inequality Fairness Sharing of the harvest

8 - 5 Key Questions for the Lead Entrepreneur/Founder Is formation of a team desirable or necessary? Do I want to grow a higher potential company? What talents, know-how, skills, track record, contacts, and resources are currently available (‘the chunks’)? Some teams form by accidents of geography, common interest, or working together. Others form teams by virtue of past friendships. Having an established team will yield higher valuation and reduce ownership loss. What is needed to succeed? When? Who is needed to complement me?

8 - 6 Practical Issues Gaps can be filled by accessing outside resources, such as boards of directors, accountants, lawyers, and consultants. Tax and legal expertise is best used part-time. If the expertise is a must for the venture and the lead entrepreneur cannot provide it, then one or more people will have to be acquired. Forming and building a team is unscientific and unpredictable.

8 - 7 Common Pitfalls The group does not use the “honeymoon” period of start-up advantageously A team may not deal with sensitive issues. Can lead to a premature disbanding of promising teams The success of the venture is the most important goal; other priorities come second Do not answer the questions of who is in charge, who makes the final decisions, and how real differences of opinion are resolved Do not address or recognize the deficiencies of the lead entrepreneur or the management team

8 - 8 Common Pitfalls Do not recognize that creating and building a new venture is a dynamic process Do not identify and defuse destructive motivations of investors, prospective team members, or the lead entrepreneur Do not value trust and integrity A team may stay together but not work through these issues

8 - 9 Slicing the Founder’s Pie How much stock ownership should go to whom? Share the wealth with those who help to create the value and thus the wealth Realize a harvest of at least 5 to 10 times the original investment Make sure the company prospers and grows thus creating a huge, shared pie

Distribution Issues Differentiation Reward system recognizes differences in contributions among team members – contributions are rarely equal Performance Reward is a function of performance (as opposed to effort) Flexibility Reward system acknowledges and accounts for changes in contributions of team members (and reward preferences such as salary vs. stock)

Timing Considerations Events may require change A team member who has a substantial portion of stock may not perform and need to be replaced. A key team member may quit or die Consider: Returning stock to the treasury at the price at which it was purchased. A buyback agreement. Place stock in escrow awaiting an exit event

Stock-Vesting Agreement Stock-vesting agreement the venture places the stock purchased by team members in escrow to be released over a three- or more year period. Fosters longer-term commitment to the success of the venture Provides a method for a civilized, no-fault corporate divorce if things do not work out – you only hold vested shares

Consideration of Value Idea Business plan preparation Level of commitment and risk Skills, experience, track record, or contacts Responsibility

Case NanoGene