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The New Venture Team Chapter 8

The New Venture Team Chapter 8. Dowling BA 560 Fall Term 2006. The New Venture Team. The founding team has entirely different characteristics than does the lone wolf. An entrepreneur makes a living … the team-builder creates an organization. The New Venture Team.

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The New Venture Team Chapter 8

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  1. The New Venture TeamChapter 8 Dowling BA 560 Fall Term 2006

  2. The New Venture Team The founding team has entirely different characteristics than does the lone wolf. An entrepreneur makes a living … the team-builder creates an organization.

  3. The New Venture Team Venture capitalists believe teams are important. Team composition is key. VC investors often help shape – and reshape – management teams.

  4. The New Venture Team Shared philosophies anchor teams: • Cohesion • Teamwork • Integrity • Commitment to the long haul • Commitment to value creation • Sharing the harvest

  5. The New Venture Team Team members will contribute high value to a venture if they complement and balance the lead entrepreneur – and each other.

  6. The New Venture Team Questions for the lead entrepreneur/ founder: • Are my strengths in the areas that are critical to success in my business? • Do I have the key contacts I’ll need, or must I look to partners in this area? • Can I attract and effectively manage a “first-team” of all-star partners?

  7. The New Venture Team Additional questions: • 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? • What is needed to succeed? • Who is needed to complement me?

  8. The New Venture Team ‘That’s some catch, that Catch-22.’ Most new ventures hope to ‘boot-strap’ it, and bring on team members only when they think they can afford them. With a team in place, the venture’s valuation is higher and the ownership share that will have to be parted with is smaller.

  9. The New Venture Team Additional considerations: • Values, goals & commitment It’s critical that a team be anchored by shared values and goals. • Definitions of roles Carefully assign roles to team members and maintain a loose, flexible structure with shared responsibility and information. • Peer groups The support of family, friends, and co-workers can be vital.

  10. The New Venture Team Common pitfalls • A team may lack skill dealing with power struggles and other issues common to start-ups. • A team may not seek advice of competent advisors. • A team may believe there are no deficiencies in the lead entrepreneur or the management team.

  11. The New Venture Team More pitfalls • Teams forget that founders leave. Often, teams fail to put in place mechanisms to help facilitate graceful divorces that will provide for the internal adjustments required as the venture grows. • Teams may take trust for granted.

  12. The New Venture Team The Reward System • Rewards from new ventures include both the financial rewards such as stock, salary and benefits plus the chance to realize personal growth and goals, exercise autonomy and develop skills in particular roles.

  13. The New Venture Team Slicing the founder’s pie • Building a great team – and sharing the wealth with widespread ownership – is much more critical than what percentage of the company is owned by the founders.

  14. 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

  15. Distribution Issues • Differentiation • Reward system recognizes differences in contributions among team members • Performance • Reward is a function of performance (as opposed to effort) • Flexibility • Reward system acknowledges and accounts for changes in contributions of team members

  16. Stock-Vesting Agreement • Stock-vesting agreement—agreement between venture and team member used to guard against the event that some portion of the stock has been earned and some portion will remain unearned, as when a team member quits or dies; the venture places the stock purchased by team members in escrow to be released over a two- or three-year period

  17. Stock-Vesting Agreement • 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 • Establishes a period of years, often four or more, where founding stockholders can “earn out” their shares

  18. Considerations of Value • Idea • Business Plan Preparation • Commitment & Risk • Skills, experience,track record, and/or contacts • Responsibility

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