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

MG 298 Entrepreneurship Shivram V.

MG 298Entrepreneurship

August 17

Shivram Venkatasubramaniam


Today

• Recap

• Business Models for accelerating entrepreneurship

• Class discussion

• Business law – basics

• Business planning – basics

• Readings for next class


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


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?


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


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


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


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


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


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


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


The Traditional VC Canonical

Venture 1

Projected Life 5 years

Revenue $5 million

Headcount 25

Profitability 50%

Average Salary $50,000

Income Group Upper Middle

Location Urban

Education Level Graduate

Industry Software


Developmental VC Canonical

Venture 2


Revenue $5 million

Headcount 65

Profitability 20%


Income Group Lower Middle

Location Rural

Education Level Undergraduate

Industry Wireless


Venture Philanthropic Canonical

Venture 3


Revenue $5 million

Headcount 200

Profitability 2%


Income Group Poverty

Location Rural

Education Level Illiterate

Industry Agriculture


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?


Class Discussion

• Company reviews


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


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


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



• Structuring Ownership– “Splitting the pie”– Equity, Consideration, Vesting– Transfer of shares– Shareholder voting agreements– Proprietary Information and Inventions,

Employment and non-compete agreements



• 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



• 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



• 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



• 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



• 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



• Going Public– IPO process– Restrictions– Prospectus– Misstatements and Liability– Insider trading– Post-IPO disclosures, Communications with

Analysts, Regulation


Business Plan Basics


Q & A

Documents

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