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MG 298 Entrepreneurship Shivram V.
MG 298Entrepreneurship
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 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
MG 298 Entrepreneurship Shivram V.
Developmental VC Canonical
Venture 2
Projected Life 5 years
Revenue $5 million
Headcount 65
Profitability 20%
Average Salary $30,000
Income Group Lower Middle
Location Rural
Education Level Undergraduate
Industry Wireless
MG 298 Entrepreneurship Shivram V.
Venture Philanthropic Canonical
Venture 3
Projected Life 3 years
Revenue $5 million
Headcount 200
Profitability 2%
Average Salary $5,000
Income Group Poverty
Location Rural
Education Level Illiterate
Industry Agriculture
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