Faculty
Professor Aviad A. Pe'er
Objectives
The main objective of the course is to experience the challenges of starting and financing a new company. You will go through the process as an entrepreneur and as an investor.
Course Scope
The class is integrative and experiential in nature, drawing from a broad range of business basics. Its main focus will be in-depth exposure to the process of starting and scaling an enterprise from an idea and business plan into a company. In our class discussions we will examine and explore the entrepreneurial process, and analyze business decisions that entrepreneurs face.
As an entrepreneur you will:
1. develop a startup idea
2. craft a promising execution strategy and validate the market potential
3. develop a credible business proposal
4. build a team of employees, partners, and other stakeholders
5. effectively communicate your ideas to investors and negotiate funding
As an investor you will learn to:
1. recognize and analyze good business opportunities
2. critique and mentor entrepreneurs
3. make choices about which company to finance
4. negotiate terms with entrepreneurs
The class will expose students to what entrepreneurship takes in a startup context, and how integrative, entrepreneurial execution can be successfully utilized in a variety of career and work contexts. Students will formulate a plan to take an idea into execution, present and articulate elements of this plan in multiple sessions, and defend it against challenge and criticism. There will be a special effort to integrate concrete, operational, and execution-related information, to define key areas an entrepreneur should be aware of, to expose students to a variety of successful entrepreneurs, and to provide a framework of "toolkit" resources relevant to startup execution. The class will be structured to accommodate both students with a pre-existing plan and those wishing to develop an idea.
Course Structure
We will work in teams. Teams will have dual roles, both as entrepreneurs and investors. As entrepreneurs they will write a business proposal (a reduced version of a business plan), and try to obtain “fictional” financing at a good valuation from the investors. As investors, teams will evaluate the business proposals of other teams, provide constructive feedback, form syndication with one other investing team, and negotiate a funding deal with one entrepreneurial team. To resolve conflicts of interest and create a competitive market place, a team cannot both invest in another team and also receive funding from the same team.
The course will make use of readings, lectures, case studies, simulations, and invited entrepreneurs/private equity partners in a workshop environment.
Requirements
Business Proposals and Execution
Class activity will be focused around a full-semester project, the development of a start-up business concept and the formulation of an executable business proposal, culminating with a competitive presentation and financing event. The first task of each venture team is to select a venture concept. Your venture concept should require thorough examination and definitions of customer needs, product or service offering, market and financials. Your venture should have the potential to create wealth beyond a “normal” salary for its founders.
Some of you may already have a business plan, or are simultaneously writing one in another class. The course is designed to accommodate a range of project development stages. For those students with projects at more advanced stages of development, please inform me at the start of the course and I will evaluate your efforts to an appropriately higher standard.
Note: Real estate development ventures, restaurants, investment funds, not-for-profit organizations, and management consulting ventures may not be considered.
Teams
All business proposal, execution activity, and investment decisions will be done in groups of 2 to 3 students. Extensive group work outside of class is an essential part of this course. Your selection is irrevocable, so please choose team members with complementary skills and high level of commitment.
Format
The class meets Mondays and Tuesdays from 10:15 -11:45 a.m., Lubrano Classroom, Byrne Hall, Tuck School of Business.
Surveys
For some of the cases we will use brief on-line surveys to be completed prior to the class session. The questions and instructions will be posted to TuckStreams. Please complete the survey questions by 7:00 a.m. on the day the case will be discussed in class.
Course Speakers
The course will bring entrepreneurs, venture capitalists, and other relevant practitioners into the classroom to discuss important topics and share their experiences. The experiential aspects of entrepreneurship cannot be over-emphasized, so students should take full advantage of classroom discussion to interact with visiting speakers, and to proactively develop on-going relationships where opportunities present themselves.
Materials
Required readings and case studies are included in the course packet.
Optional readings are on reserve at Feldberg (some will also be available online via TuckStreams).
Tuck Honor Code and Intellectual Property
The Tuck Honor Code applies to your work in this course. If you have any questions concerning the application of the Honor Code in this course please do not hesitate to ask my advice. During the course, you will receive confidential information and other proprietary materials from guest lecturers, class members, and the instructor. Improperly disclosing such information could cause competitive harm and reputation damage to Tuck. By enrolling in this course, you agree to safeguard the confidentiality of proprietary information and you agree not to disclose such materials outside of the course – including to peers not taking the course. You also agree not to act opportunistically or irresponsibly. If you are concerned about intellectual property issues, you may elect not to have parts of an assignment distributed to other people in the class. If you are uncertain about what to do with any particular issue, you are welcome to ask for clarification anytime.
Laptop Policy
In order to promote class discussion and facilitate participation without distractions, please do not use laptops. Laptops may be used only during your presentations. PDF format slides that I use in class will be available in the course folder on the Tuck network following each class session. To read (download) these slides, you will need to install Acrobat Reader on your PC.
Attendance
Please notify Evy Huppert before class by email or phone if you are unable to attend a session due to illness, emergency, or an unavoidable conflict.
Class Preparation and Participation
The success of this format is directly related to your level of preparation and active participation in each class session. You are expected to come to class having read the required readings for the session, be able to use and critique concepts and models presented in the readings, ready to be “cold-called” and respond to the questions outlined for each case. Quality and quantity of participation are both important. Effective class participation is based on relevant, insightful and progressive comments rather than repeating the case facts. Every student is a co-producer of the class discussion and thus it is important to listen carefully to one another and attempt to build on or constructively critique prior comments.
Grading
Class Participation (individual) 40%
Business Proposal (project team) 60%
The team grades will be determined by the overall quality and cohesiveness of the written business proposal along with the team presentations and term sheet for the investment you made. Description of the exact criteria and their weights, as well as the term sheet, will be distributed in class.
Schedule
Class #1 (Monday 1/8)
Introduction
We will discuss the course objectives, structure, and content.
Required:
Stevenson, “A Perspective on Entrepreneurship” (HBS # 9-384-131).
Optional:
McGrath and MacMillan (2000), “The Entrepreneurial Mind Set,” Harvard Business School Press, Chapters 1 & 2.
Kets de Vries (1985), "The Dark Side of Entrepreneurship,” Harvard Business Review, November-December: 160-166.
Class #2 (Tuesday 1/9)
What Does It Take To Be An Entrepreneur?
A panel of entrepreneurs will present their experiences, venture concepts and discuss how they identified and evaluated the opportunities they are addressing.
Required:
O'Reilly, "What it Takes to Start a Startup," Fortune, June 7, 1999, 139(11): 135-140.
Bhide (1996), "The Questions Every Entrepreneur Must Answer," Harvard Business Review, November-December: 120-130 (reprint #96603).
Class #3 (Tuesday 1/16)
Opportunity Recognition & Evaluation
Required:
Hamermesh, Marshall and Pirmohamed, “Note on Business Model Analysis for the Entrepreneur” (HBS # 9-802-048).
“Good Ideas and How to Generate Them” from Nalebuff and Ayres, Why Not?, Harvard Business School Press, Boston, 2003, pp. 13-42.
Class #4 (Wednesday 1/17)
Elevator Pitch
1. During this session class participants will be asked to share with other students their venture idea in a 2-minute presentation (“elevator pitch”). The objective is to attract other students to join your team. You can submit additional material related to your venture idea. Please post the material online in the course folder. Please email Evy Huppert if you encounter any problems.
2. Submit via email to Professor Pe’er the name of your team and the names of your team members by Monday, January 22nd at 7:00 a.m.
Class #5 (Monday 1/22)
Opportunity Recognition and Evaluation (cont.)
Required:
Sahlman, “Some Thoughts on Business Plans” (HBS # 9-897-101).
Case: Heather Evans - Roberts and Stevenson (HBS # 9-384-079, Revision 1998).
Read only pages 1-23, and 37.
Optional:
“Five Myths about Entrepreneurs: Understanding How Businesses Start and Grow," prepared by the National Commission on Entrepreneurship, 2001.
MacMillan and McGrath (2000), “Assessing Technology Projects Using Real Options Reasoning,” Research Technology Management, July-August, 43(4): 35-49.
The case describes Heather Evans, a second-year MBA student, and her attempts to start her own dress business. It examines the business plan and the process of acquiring control over the financial and human resources necessary to implement the plan.
Case Questions:
1. Evaluate the opportunity for Heather Evans.
2. Evaluate the Business plan.
3. Evaluate each of her financial alternatives. Who should she approach and on what terms?
Poll:
Please follow the link below and answer the questions by 7:00 a.m. the day of class.
Heather Evans
Class #6 (Tuesday 1/23)
Developing Business Models
Required:
Kim and Mauborgne (1999), “Creating New Market Space, “Harvard Business Review, January- February: 83-93 (reprint # 99105).
Case: ProfitLogic – Hamermesh, Roberts and Pirmohamed (HBS # 9-802-110).
Optional:
Lieberman and Montgomery (1988), “First-mover Advantages,” Strategic Management Journal, Summer Special Issue, 9: 41-58.
Brown (2001), “How We Built a Strong Company in a Weak Industry,” Harvard Business Review, 79(2): 51-58 (reprint # R0102B).
Sull (2002), “A Strategy to Meet the Challenges of Entrepreneurship,” Financial Times August 12.
The case describes an "application software" company that has been through several evolutions--from consulting firm to applications service provider (ASP). The firm has received significant venture funding to pursue the ASP model but this has not worked, at least at the time the case ends. The company faces a choice: continuing with its current ASP business model, increasing its burn rate to convert to a licensed software model, or decreasing its burn rate to offer a more custom version of the ASP product.
Case Questions:
1. Assess ProfitLogic and its success to date.
2. What other factors does Friend need to consider in determining which business model to pursue?
3. Which strategy would you recommend ProfitLogic follow? What is required to successfully implement this recommendation?
4. How should Friend respond to Smithfield’s request?
Poll:
Please follow the link below and answer the questions by 7:00 a.m. the day of class.
ProfitLogic
Class #7 (Monday 1/29)
Assembling Strategic Resources
Required:
The Entrepreneur’s Guide to Business Law, Bagley & Dauchy, West Educational Publishing Co.:
1. “Leaving your Employer,” pp. 8-28.
2. “Splitting the Pie,” pp. 80-83.
3. “Benefits of Having an Independent Board,” pp. 238-239.
Class #8 (Tuesday 1/30)
Assembling Strategic Resources (cont.)
Required:
Case: Ockham Technologies: Living on the Razor’s Edge – Wasserman (HBS # 9-804-129).
Optional:
Timmons (1999), “The New Venture Team,” New Venture Creation, Chapter 8 (pp. 277-287), Irwin McGraw-Hill.
The case describes the issues facing a founder-CEO regarding building a board of directors, assembling an executive team, managing tension between co-founders, and outsourcing system development work.
Case Questions:
1. What is your assessment of the job Jim Triandifou has done getting and assembling key human resources?
2. How will the current fundraising efforts affect the formation of Ockham’s board of directors? What board-related factors should Triandiflou consider when deciding which financing offer to accept?
3. If you were Jim Triandifloum how would you handle the increasing tension between you and Mike Meisenheimer?
Poll:
Please follow the link below and answer the questions by 7:00 a.m. the day of class.
Ockham Technologies
Class #9 (Monday 2/5)
Assembling Strategic Resources (cont.)
Required:
Bhide (1994),“How Entrepreneurs Craft Strategies That Work,” Harvard Business Review, March-April: 150-161.
Class #10 (Tuesday 2/6)
Interim Class presentations
Required:
Sahlman (1997), “How to Write a Great Business Plan,” Harvard Business Review, July-August: 98-108 (reprint # 97409).
Present in class (about 10 min per team) and submit a preliminary document (about 4-6 pages), which should include:
1) Draft of the executive summary (Note: at this stage (defendable) assumptions are expected);
2) Identify other two or three factors (sections of the business proposal) crucial for the viability of your venture and suggest how you plan to research and resolve them.
3) Submit slides of your presentation to Professor Pe’er by Tuesday, 2/6 at 7:00 a.m.
4) In order to receive constructive comments please submit the preliminary memo to your assigned reacting team and to Professor Pe’er. Due by Tuesday, 2/6 at 7:00 a.m.
Class #11 (Monday 2/12)
Team Meetings With The Instructor
Team meetings with the instructor will take place this week. Please email Evy Huppert to schedule a meeting. There is no formal class session on Monday but the class time is available for appointments. Please email to Professor Pe’er any material that you would like him to read 24 hours before the meeting.
Required:
Rich and Gumpert (1985), “How to Write a Winning Business Plan,” Harvard Business Review, May - June.
Due Sunday, 2/11 by 10:00 a.m. Provide critical and constructive comments to the two preliminary plans that you were assigned to review. For each feedback, send one copy to the team and one copy to Professor Pe’er.
Class #12 (Tuesday 2/13)
Assembling Financing Resources
Required:
Bhide (1992), "Bootstrap Finance: The Art of Start-ups," Harvard Business Review, Nov-Dec 70(6): 109-117.
Benjamin and Sandles (1998), “Angel Investors: Culling the Water for Private Equity,” The Journal of Private Equity, Spring.
Case: Walnut Venture Associates (A): RBS Group Investment Memorandum – Roberts (HBS # 9-899-062).
Optional
(will be distributed after class):
Walnut Venture Associates (B): RBS Due Diligence--Customers (9-899-063)
Walnut Venture Associates (C): RBS Due Diligence--Market Size (9-899-064)
Walnut Venture Associates (D): RBS Deal Terms (9-899-097)
The case discusses assembling financial resources and focuses on angel investors. The angel investors in this case like the entrepreneur and the business, and want to invest. What do they need to do before they can feel comfortable actually writing a check? The case includes lengthy excerpts from the company’s business plan. Please read pages 1-11 especially carefully and then focus your attention on those portions of the business plan that your analysis suggests are particularly important. Think about any issues you would want to dig into more deeply, and how you would accomplish this.
Case questions:
1. Who are angel investors? Why are they investing in start-ups? Why would an entrepreneur seek financing from an Angel?
2. Evaluate the potential investment in RBS from Walnut’s point of view.
3. As a Walnut investor, what critical issues do you see as requiring more investigation / due diligence on your part prior to investing in RBS, and how would you accomplish that? What level of comfort / certainty would you need to have prior to investing?
Poll:
Please follow the link below and answer the questions by 7:00 a.m. the day of class.
Walnut Venture Associates
Class # 13 (Monday 2/19)
Assembling Financing Resources (cont.)
Required:
Case: Edocs, Inc. – Gompers (HBS # A 9-200-015; B1 9-200-020; B2 9-200-021).
The case describes the development of edocs, an Internet company aimed at revolutionizing the on-line bill presentment market. Kevin Laracey must negotiate a venture capital investment with Jonathon Guerster, an associate at Charles River Ventures.
Poll:
Please follow the link below and answer the questions by 7:00 am the day of class.
Edocs, Inc.
Class # 14 (Tuesday 2/20)
Dual Perspectives
Optional:
Sahlman (1992), “The Financial Perspective: What Should Entrepreneurs Know?” (HBS # 9-293-045).
A Note on Private Equity Securities (HBS # 9-200-027).
The Entrepreneur’s Guide to Business Law, Bagley & Dauchy, West Educational Publishing Co.
1. “Issues related to investment securities” (pp. 115-123)
2. “Rights of preferred stock” (pp. 202-225)
Startup Simulation
A simulation CD is available for each pair to borrow for the term. Please see Evy Huppert at 110 Woodbury to sign out your pair’s CD.
You will be asked to complete a simulation in which you are in charge of a high-tech startup and have to make key decisions that will determine the success of the new enterprise. Your decisions regarding choosing the initial founders, doing market research, hiring a top management team, arranging partnerships, getting funding, etc. will determine if your venture reaches a successful exit, or if it goes bankrupt.
To facilitate arguments and debates during the simulation you will play it in groups of two colleagues.
Please play the simulation until successful exit. In case you go bankrupt, you should reflect on the reasons for failure, adjust your strategy, and play again. You may stop after six failures.
Simulation Preparation:
Come to class prepared to discuss the key insights and lessons learned from the simulation, the value of the company upon exit, your percentage equity retained, and average hours worked per week. In class we will discuss the following questions:
1. What are the key consequences and trade-offs of hiring decisions?
2. How can one use different funding sources given their advantages and disadvantages?
3. What are the key insights that you take away from this experience?
Class #15 (Monday 2/26)
Managing Uncertainty
Required:
Case: Webvan – McAfee and Ashiya, (HBS # 9-602-037, revision 2003).
Prospectus: Webvan (located in the course folder) – Skim read through the Risk Analysis section
The case examines Webvan's operations and the processes by which it delivers groceries that were ordered from the Internet to customers' homes. The case examines Webvan's business model which relied heavily on properly designed and executed operations, and how it was formulated.
Case Questions:
1. Describe Web van’s business model and entry strategy.
2. How did Webvan plan to eventually become profitable?
3. Why did it fail so badly? Which elements of its plan did not work?
Class #16 (Tuesday 2/27)
Presentations of Team Business Proposals
Class will meet for two hours today
Present your business proposal.
1. Submit your PowerPoint presentations by email to Professor Pe’er by 7:00 a.m. 2/27.
2. Submit the Executive Summaries by email to Evy Huppert by 7:00 a.m. 2/27.
Class # 17 (Friday 3/2)
Deal Making Event
The deal making event will be held in the Whittemore study rooms 210 - 215. The event will start at 3:00 pm sharp. Following the formal session, at approximately 5:15 pm, there will be a mixer in Cohen Great Hall. Please plan on participating for the entire time.
During the session you will, as investors, evaluate offers of other teams, form a syndication with one other investing team, and negotiate a funding deal with one entrepreneurial team.
Due 3/14 4:00 p.m.: Submit the Final Business Proposal (physical and electronic copies) to Evy Huppert.
Class #18 (Tuesday 3/6)
Managing Uncertainty (cont.) and Course Wrap Up
Required:
Alimansky (2000), “Eight Ways to Ruin Your Chances of Raising Venture Capital,” The Journal of Private Equity.
Brown (2003), “DVD-Rental Firm May Be Victim of Its Success,” Wall Street Journal, Nov. 20, page C.1.
Recommended:
Komisar (2001), "The Monk and the Riddle: The Art of Creating a Life While Making a Living," HBS Press Book, (ISBN 1578516447).
DVD Case: Startup.com (Several copies to be shared will be distributed 1 week prior to class.)
By all indications, GovWorks.com's venture looked like a can't-miss idea. Set up a portal online for the payment of government-related bills, charge a fee and smile all the way to the bank. KKR and Silicon Valley venture firm Mayfield Partners invested some $40 million into GovWorks. What went wrong?
Discussion questions:
1. What caused the failure of GovWorks.com?
2. Could the failure been avoided?
3. What general lessons can be learned from the experience?
