Intro to Innov Entrep

Introduction to Innovation & Entrepreneurship Course Number 5915 (1.5 credits) Course Number 5913 (3.0 credits) Joe Lassiter, Bill Sahlman Winter Schedule (Tuesdays and Thursdays, Jan 28 – March 12) 3:30 - 5:30 pm, Hawes 101

As a 1.5 credit course in Q3 as a 14 session classroom course at HBS, or

As a 3.0 credit course in Q3 as a 14 session classroom course at HBS followed in Q4 with a field-based course project with periodic meetings utilizing the Harvard Innovation Lab working spaces and Experts-in-Residence.

Overview This course is designed for non-MBA Harvard graduate students (and, with permission of the instructors, postdoctoral fellows and students from eligible programs at other Universities) who intend to start or join a new venture early in their career. Admission to this course is by permission of the instructors only. Applicants should enter the normal cross-registration process at HBS. In addition, prior to January 23, 2013 at 5 pm, the applicant must email Joe Lassiter’s assistant, Theresa Gaignard ([email protected]), attaching a resume, a one half-page essay describing their motivation for taking the course and, for those applying to the 3.0 credit offering, an additional one half-page description of their proposed course project.

Career Focus This course is intended to help students identify areas in which changes in science and technology, consumer and social attitudes, or political and regulatory processes allow the creation of new businesses or the re‐design of established businesses.

Educational Objectives The classroom portion of the course covers some of the basics of entrepreneurial management and entrepreneurial finance needed to launch new ventures. Students will acquire a toolkit for identifying and forming a new venture. This toolkit can be then applied through a course project by students enrolled in the 3.0 credit course offering.

Course Content and Organization The tools of the course are studied in the classroom using HBS cases and include frameworks from HBS’s first-year entrepreneurship course (The Entrepreneurial Manager) and the second-year courses focused on entrepreneurial finance. Students who choose to pursue a course project are expected to identify their own project. Student projects will typically be aimed at the formation of a new venture or as an entry in a University contest such as the Harvard University President’s Challenge or one of the many Business Plan Competitions around the world. The course faculty will schedule meetings with the student to review the project over the semester.

mailto:[email protected]

In addition to the course’s faculty, students MUST engage a “content expert” to help focus the projects and to add real world context and expertise. Usually this will be an outside sponsor from a business, investment firm, not‐for‐profit organization, or academic research entity. It is possible for students in this course to be part of Independent Project teams with MBA students not in the course, with permission of the course head. There are three themes to the course:

1. Applying the concepts and tools of Entrepreneurial Management and Entrepreneurial Finance to new ventures

2. Structure of key venture capital sectors; strategies of primary venture investors 3. Examples of innovations in a range of new industries

Innovation and Entrepreneurship (illustrative cases) - Winter 2013

1. Innovation Foro Energy (A) (812-136)

2. Adoption OfficeTiger (804-109) & Moore’s “Crossing the Chasm,” Inside the Tornado

3. Adoption Dropbox: “It Just Works” (811-065)

4. Adoption Rent the Runway (812-077)

5. Venture Capital Khosla Ventures: Biofuels Gain Liquidity (812-035)

6. Venture Capital The Venture Capital Problem Set (812-039)

7. Venture Capital Term Sheets

8. Value & Valuation RightNow Technologies (805-032)

9. Value & Valuation Airbnb (812-046)

10. Value & Valuation 1366 Technologies: Scaling the Venture (811-076)

11. Value & Valuation Sirtris Pharmaceuticals: Living Healthier, Longer (808-112)

12. Business Models NovoCure Ltd. (810-045)

13. Business Models Khan Academy (812-074)

14. Closing Lecture

Introduction to Innovation & Entrepreneurship 2013 1 Harvard Business School, Hawes 101, Professors Lassiter and Sahlman

* required

Module: Innovation

1/29: Foro Energy

Introduction

Foro Energy developed proprietary and patent-pending fiber-laser technologies that could disrupt existing processes and services for the exploration and production of oil and natural gas (O&G). These breakthrough laser technologies were protected by a strong intellectual property portfolio, which provided Foro with the flexibility to pursue a number of different business models. The market potential for oilfield applications was large, as global spending in the O&G Exploration and Production (E&P) industry was expected to approach $600 billion in 2012.

Materials

CASE | Foro Energy (A) (812-136)*

NOTE | Some Thoughts on Business Plans (897-101) *

VIDEO | High Power Lasers - Long Distance (optional, available after class)

Assignment Questions

1. What has made Foro successful to date? 2. How would you describe the innovation process in the O&G E&P ecosystem? What will be the pattern of

adoption for Foro new products in this ecosystem? 3. In the next three years, what are the top three things that could “Go Right” and the top three thing

that “Go Wrong” that could dramatically affect Foro’s likelihood of success? What can be done about these opportunities and threats at the time of the case?

4. Should Foro become an oil-field service provider themselves, or should they license their technology out to others?

Module: Adoption

1/31: OfficeTiger

Introduction

Randy Altschuler and Joe Sigelman, the co-CEOs of OfficeTiger, made the final changes on their presentation for their first quarter 2004 board meeting the next day and sat back to discuss the meeting. At the top of the presentation would be a discussion of new investors who had the potential to finance acquisitions for Office Tiger. Altschuler and Sigelman knew that the whole outsourcing bubble would burst someday…..but hopefully not anytime soon.

Materials

CASE | OfficeTiger (804-109) *

BOOK | “Crossing the Chasm—And Beyond,” Chapter 2, Inside the Tornado, by Geoffrey A. Moore*

NOTE | Entrepreneurial Marketing: Learning from High-Potential Ventures (803-036) (optional)

VIDEO | BBC World Asia Business Report (optional, available after class)


1. What has made OfficeTiger successful to date? 2. Who were OfficeTiger's first "big" customers? Why did they buy from OfficeTiger? 3. How and why did useage of OfficeTiger services expand so rapidly? 4. What has OfficeTiger done to make itself highly valued by its customers?


* required

2/5: Dropbox

Introduction

Accel/Sequoia-backed Dropbox offers a cloud-based service that allows users to synchronize and share files across PCs and smart phones. We’ll use this case to introduce several course concepts, including product-market fit, user-centered product development, customer conversion funnel optimization in a ‘freemium’ SaaS context, and business development challenges for early-stage ventures negotiating with large corporations.

Materials

CASE | Dropbox: “It Just Works” (811-065)*

NOTE | Hypothesis-Driven Entrepreneurship: The Lean Startup (812-095) *

ARTICLE |“Is the Tipping Point Toast?,” by Clive Thompson, Fast Company (February 2008) (optional)


1. Dropbox is a late mover in a crowded space. Do you consider the firm successful as of June 2010? Why or why not?

2. When he applied to Y Combinator (see Ex. 1), what hypotheses did Houston hold about key elements of Dropbox's business model? As of June 2010, which of these hypotheses have been confirmed, and which have been discarded? What is your assessment of the approach Houston used to validate hypotheses? Did Houston waste time/resources or make other notable mistakes? Can you imagine other/better ways to test each hypothesis?

3. What should Houston do about the decision posed at the end of the case, i.e., creating a professional version for business customers? What process should he use to make this decision?

2/7: Rent the Runway

Introduction

In January 2010, Jennifer (Jenn) Hyman and Jennifer (Jenny) Fleiss, co-founders of Manhattan-based Rent the Runway (RTR), were debating their next moves. RTR was a website that rented designer dresses, charging 10% to 15% of a dress’s retail purchase price. Just two months after its launch, RTR had demonstrated strong demand for this value proposition by attracting more than 150,000 members. With their November launch and the holiday crunch behind them, the co-founders faced a big decision: Should RTR raise another funding round, well ahead of schedule?

Materials

CASE | Rent the Runway (812-077)*

NOTE | Business Model Analysis for Entrepreneurs (812-096)*

NOTE | Customer Discovery and Validation for Entrepreneurs (812-097) (optional)

NOTE | Customer Visits for Entrepreneurs (812-098) (optional)


1. Create a timeline of actions undertaken by Rent the Runway's cofounders. Do you agree with the decision to pursue each action? Which actions were important in validating business model hypotheses and refining the concept? Can you suggest different actions that the cofounders should have taken?

2. As the case ends in January 2010, the cofounders are considering whether to: a) stick with their original plan, i.e., pursue operational improvements in 2010, and then raise more capital in early 2011; or b) accelerate fundraising in order to expand inventory and product range, enabling RTR to serve a broader set of customer segments and usage occasions. What would you do about this decision?

3. What inventory turn rate is necessary to recover dress costs, and how does early performance compare to this target? In your calculations, assume that shipping and insurance fees cover all variable costs other than dress costs, and that an average order cycle (from picking through restocking) lasts eight days. What other metrics should the founders of RTR monitor closely at this stage of their venture, and why?


* required

Venture Capital

2/12: Khosla Ventures

Introduction

Samir Kaul, a partner at Khosla Ventures, looked out his office window. It was late June, 2011, and like almost every day in Menlo Park, the sun was shining. Kaul was reflecting on what had been a very positive 10 months in the venture capital business. Over that span, he had helped three of his portfolio companies through IPOs and helped Khosla Ventures raise its third fund, bringing the total outside capital raised by the group to more than $2.1B. Having made significant investments and having achieved mixed results in biofuels to date, Kaul wondered if there was continued opportunity in biofuel, or was it time for a change to a new sector within the cleantech area?

Materials

CASE | Khosla Ventures: Biofuels Gain Liquidity (812-035)*

NOTE | Risk and Reward in Venture Capital (811-036) (optional)

VIDEO | Vinod Khosla Discusses Biofuels `Surprise'; Oil Market: Video (optional, available after class)


1. Think about the biofuel industry’s experience as outlined in Exhibit 9. Have Khosla Ventures Biofuels investments been smart? Why and Why not?

2. Think about Exhibits 7a,b and 8. How does the “capital-supply-chain” for biofuels operate? What causes Khosla Ventures to make and to lose money on its investments?

3. What has Khosla Ventures done to be successful date? 4. What will make Khosla Ventures successful in the future?

2/14: VC Problem Set

Introduction

This exercise covers the mechanics of venture financing and the terminology that is used by venture capitalists.

Materials

CASE | The Venture Capital Problem Set (812-039)*

NOTE | A Method For Valuing High-Risk, Long-Term Investments (288-006)*

VC Problem Set Guidance

VC Problem Set Solutions (available after class)


Please refer to VC Problem Set Guidance Spreadsheet for help in answering questions in the VC Problem Set. Please note that the are two levels of guidance:

1. Green for beginners and black for advanced knowledge. 2. Please use the most appropriate level for you.


* required

2/19: Term Sheets

Introduction

These are term sheets used in venture financings as well as other common agreements. This package is intended as a reference document.

Materials

Term Sheet handout


Refer to the first page of the Term Sheet handout for your assignment.

Value & Valuation

2/21: RightNow Technologies

Introduction

Greg Gianforte, founder and CEO of RightNow Technologies, is confronted with a decision about whether to sell his company or remain independent. This case was used as an exam in prior years.

Materials

CASE | RightNow Technologies (805-032)*

RightNow Exhibits

NOTE | Note on Free Cash Flow Valuation Models (288-023)*

FCF Valuation model Revised


Among the issues you might consider are the following:

1. What value would you assign to RightNow at the time of the case? You should determine this valuation using the FCF Valuation Model together with the appropriate assumptions drawn from the data in the case.

2. How should the company respond to the acquisition offer? What would acceptable terms be? 3. If RightNow is not acquired at this time, what financial strategy should it pursue?

2/26: Airbnb

Introduction

Brian Chesky, Joe Gebbia, and Nathan Blecharczyk, the three founders of Airbnb, an online private accommodation rental market, stared at each other across the kitchen table in their San Francisco apartment. It was March of 2009. A single sheet of paper sat on the table in front of them. The question they’d been discussing was whether or not the company should take Sequoia’s money. The three founders didn’t have much time to make a decision. The next day was Demo Day, the culmination of their time at YC, when each of the companies from their class would present to a room full of VCs and Angels. Sequoia expected an answer before Airbnb took the stage.

Materials

CASE | Airbnb (812-046)*

NOTE | The Changing Face of Angel Investing (811-046) (optional)

ARTICLE | Another Airbnb Victim Tells His Story: “There Were Meth Pipes Everywhere” (optional)

VIDEO | “How to Airbnb,” Airbnb advertisement (optional, available after class)


* required


1. What benefits did Airbnb receive from the YCombinator program? What did they have to give up? 2. Why have entities like Techstars and YC emerged in the funding ecosystem? What type of entrepreneurs

would be drawn to these incubators? What role do they play compared to that played by traditional venture capital firms in the 1990s and today?

3. Should Chesky, Gebbia, and Blecharczyk accept the Sequoia offer? Why? If they do, how should they spend the money?

2/28: 1366 — Scaling

Introduction

It was January 2011. Van Mierlo and Sachs were again revisiting the issue of what the company should be. Sachs had developed a revolutionary scheme for manufacturing crystalline silicon wafers that offered the promise of dramatically lowering the cost of solar cells by effectively halving the amount of silicon used in the manufacturing process. Excitement about this invention had literally put 1366 Technologies on the White House website, had secured a visit to 1366 by Department of Energy Secretary Steve Chu, and had led to a sudden $25M Series B financing from a new group of venture capital and strategic partner heavyweights. Now for van Mierlo and Sachs, the questions, “How should we finance a major production plant? How should we located it, and how fast should we scale it?” were on the table.

Materials

CASE | 1366 Technologies: Scaling the Venture (811-076)*

VIDEO | Profiling 1366 Technologies: One Year Later (optional, available after class)


1. Spend time thinking about Exhibits 5a and 5b as well as Exhibits 6a and 6d. What are the likely trends in these data over time, which forces will drive these trends, and how should the likely trends influence 1366's thinking about the need for scaling slowly or rapidly?

2. What are the range of possible outcomes associated with each approach for scaling Sach's Direct Wafer? What are the odds of each different scenario occurring?

3. Thinking about Exhibit 8, what are the different financing options management should consider for Series C and beyond? How will 1366's current backers react to the different choices?

4. What should van Mierlo and Sachs do now?

3/5: Sirtris Pharmaceuticals

Introduction

Sinclair and Westphal were riding a wave of interest generated, in part, by their company’s promising research into age-related diseases, such as diabetes, cancer, and Alzheimer’s. The company’s research into disease, however, only partly explained its appearance on the covers of Scientific American, Fortune, and the Wall Street Journal. Sirtris was hoping to develop drugs that could treat diseases of aging, and in so doing had the potential to extend the lifespan of human beings.

Materials

CASE | Sirtris Pharmaceuticals: Living Healthier, Longer (808-112)*

Case Exhibits

VIDEO | Sirtris segment on Barbara Walters' "Live to Be 150" Special (4/1/08)


1. At the time Westphal joined Sirtris, what is your assessment of the odds that the company will ever generate substantial revenues? If you were Westphal, would you have left Polaris for Sirtris?


* required

2. Should Sirtris do the deal with the pharmaceutical company? Why or why not? If you do recommend a deal, which equity stake (20% or 51%) would you prefer?

3. Should Sirtris launch a SRT501 nutraceuticals business? Why or why not? 4. Please propose a launch plan for a nutraceuticals business.

Business Models

3/7: NovoCure Ltd.

Introduction

NovoCure has developed a novel treatment for certain cancerous tumors. Preliminary results from clinical trials for treatment of recurrent and newly-diagnosed brain tumors have been encouraging. The company needs to raise additional capital to fund pivotal (Phase III) clinical trials. The context for raising capital in late 2008 is challenging.

Materials

CASE | NovoCure Ltd. (810-045)*

VIDEO | Novocure Electromedical Device Brain Cancer Treatment (optional, available after class)


Among the issues you might consider are the following: 1. What is the nature of the opportunity confronting NovoCure? 2. How much money should the company raise? From whom? For what purpose? On what terms? 3. What should Bill Doyle do?

3/12: Khan Academy

Introduction

By the summer of 2011, Khan Academy had more than two million unique viewers per month, and had raised approximately $10 million from Google, the Bill & Melinda Gates Foundation, and several high profile Silicon Valley philanthropists. After a successful pilot program, the Los Altos School District in California decided to use Khan Academy district-wide for all of its fifth and sixth grade classes and some of its seventh and eighth grade classes during the 2011-2012 school year. While Khan and his staff were excited by their accomplishments and the vast array of opportunities available to them, they wondered how to define their priorities while scaling quickly.

Materials

CASE | Khan Academy (812-074)*

VIDEO | May 29th, 2011 CNN Piece (optional, available after class)


1. How does the Khan Academy model compare to more conventional teaching approaches in K-12 education? What are the key benefits of this model? Key concerns?

2. How should Khan grow the business? 3. What business/organizational model should Khan Academy use to finance that growth?

3/14: Closing Lecture

Documents

Intro to Innov Entrep