11

New Venture Team

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New Venture TeamNew Venture Team

New Venture TeamNew Venture Team– Is the group of founders, key employees, and advisers that Is the group of founders, key employees, and advisers that

move a new venture from an idea to a fully functioning move a new venture from an idea to a fully functioning firm.firm.

– Usually, the team doesn’t come together all at once. Usually, the team doesn’t come together all at once. Instead, it is built as the new firm can afford to hire Instead, it is built as the new firm can afford to hire additional personnel.additional personnel.

– The team also involves more than paid employees.The team also involves more than paid employees. Many firms have boards of directors, boards of advisers, and Many firms have boards of directors, boards of advisers, and

professionals on whom they rely for direction and advice.professionals on whom they rely for direction and advice.

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Overcoming Liabilities of NewnessOvercoming Liabilities of Newness

Liabilities of NewnessLiabilities of Newness– New ventures have a high propensity to fail.New ventures have a high propensity to fail.

– The high failure rate is due in part to what researchers call The high failure rate is due in part to what researchers call the liability of newness, which refers to the fact that the liability of newness, which refers to the fact that companies often falter because the people who start the companies often falter because the people who start the firms can’t adjust quickly enough to their new roles and firms can’t adjust quickly enough to their new roles and because the firm lacks a “track record” with outside buyers because the firm lacks a “track record” with outside buyers and sellers.and sellers.

– Assembling a talented and experienced new venture team Assembling a talented and experienced new venture team is one path that firms can take to overcome these is one path that firms can take to overcome these limitations.limitations.

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Separate Elements of a New Venture TeamSeparate Elements of a New Venture Team

Elements of a New Venture Team

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The Founder or FoundersThe Founder or Founders(1 of 4)(1 of 4)

Founder or FoundersFounder or Founders– The characteristics of the founder or founders of a firm and The characteristics of the founder or founders of a firm and

their early decisions have a significant impact on the their early decisions have a significant impact on the manner in which the new venture team takes shape.manner in which the new venture team takes shape.

Size of the Founding TeamSize of the Founding Team– Studies have shown that 50% to 70% of all new ventures Studies have shown that 50% to 70% of all new ventures

are started by more than one individual.are started by more than one individual.

– It is believed that new ventures that are started by a team It is believed that new ventures that are started by a team rather than a single individual have an advantage.rather than a single individual have an advantage.

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Alexander The GreatAlexander The Great

““The adhesive that held the Macedonian army together The adhesive that held the Macedonian army together through the years of conquest was Alexander’s through the years of conquest was Alexander’s personalitypersonality. . After battles, Alexander customarily visited the wounded, After battles, Alexander customarily visited the wounded, examined their injuries, examined their injuries, praisedpraised soldiers for their valiant deeds, soldiers for their valiant deeds, and honored them by and honored them by a donation in keeping with their a donation in keeping with their accomplishmentsaccomplishments. As for those who fell in battle, Alexander . As for those who fell in battle, Alexander arranged a splendid burial for them. The parents and children arranged a splendid burial for them. The parents and children of the fallen men were exempted from all taxes and forms of of the fallen men were exempted from all taxes and forms of service. For service. For diversiondiversion after battles, Alexander held games and after battles, Alexander held games and contests. On one occasion, he even arranged a furlough for contests. On one occasion, he even arranged a furlough for recently married men, enabling them to spend the winter with recently married men, enabling them to spend the winter with their wives, in Macedonia. their wives, in Macedonia. Such actions won him the affection Such actions won him the affection and admiration of his menand admiration of his men”.”.

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The Founder or FoundersThe Founder or Founders(2 of 4)(2 of 4)

Qualities of FoundersQualities of Founders– Several factors are thought to be significant to a founder’s Several factors are thought to be significant to a founder’s

success.success. Higher education.Higher education. Prior entrepreneurial experience.Prior entrepreneurial experience. Relevant industry experience.Relevant industry experience. The ability to “network” effectively.The ability to “network” effectively.

– The importance of these attributes are described on the next The importance of these attributes are described on the next two slides.two slides.

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The Founder or FoundersThe Founder or Founders(3 of 4)(3 of 4)

Preferred Attributes of the Founder or Founders of a Firm

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The Founder or FoundersThe Founder or Founders(4 of 4)(4 of 4)

Preferred Attributes of the Founder or Founders of a Firm

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Recruiting and Selecting Key EmployeesRecruiting and Selecting Key Employees

Recruiting Key EmployeesRecruiting Key Employees– Start-ups vary in terms of how quickly they need to add Start-ups vary in terms of how quickly they need to add

personnel.personnel.

– In some instances, the founders will work alone for a In some instances, the founders will work alone for a period of time. In other instances, employees are hired period of time. In other instances, employees are hired immediately.immediately.

– Some founders draw upon their network of contacts to Some founders draw upon their network of contacts to identify candidates for key positions (or go through identify candidates for key positions (or go through placement offices like those at your college or university), placement offices like those at your college or university), and some rely on executive search firms.and some rely on executive search firms.

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The Roles of the Board of DirectorsThe Roles of the Board of Directors(1 of 3)(1 of 3)

Board of DirectorsBoard of Directors– If a new venture organizes as a corporation, it is legally If a new venture organizes as a corporation, it is legally

required to have a board of directors.required to have a board of directors.

– A board of directors is a panel of individuals who are A board of directors is a panel of individuals who are elected by a corporation’s shareholders to oversee the elected by a corporation’s shareholders to oversee the management of the firm.management of the firm.

– A board is typically made up of both inside directors and A board is typically made up of both inside directors and outside directors.outside directors.

An inside director is a person who is also an officer of the firm.An inside director is a person who is also an officer of the firm. An outside director is someone who is not employed by the firm.An outside director is someone who is not employed by the firm.

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The Roles of the Board of DirectorsThe Roles of the Board of Directors(2 of 3)(2 of 3)

Formal Responsibility of the BoardFormal Responsibility of the Board– A board of directors has three formal responsibilities.A board of directors has three formal responsibilities.

Appoint the officers of the firm.Appoint the officers of the firm. Declare dividends.Declare dividends. Oversee the affairs of the corporation.Oversee the affairs of the corporation.

Frequency of Meetings and CompensationFrequency of Meetings and Compensation– Most boards of directors meet three to four times a year.Most boards of directors meet three to four times a year.

– New ventures are more likely to pay their boards in New ventures are more likely to pay their boards in company stock or ask them to serve on a voluntary basis company stock or ask them to serve on a voluntary basis rather than pay a cash honorarium. rather than pay a cash honorarium.

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The Roles of the Board of DirectorsThe Roles of the Board of Directors(3 of 3)(3 of 3)

Function Importance of Function

Provide Guidance

Lend Legitimacy

Ways a Board of Directors Can Help a New Venture Get Off to a Good Start

Although a board of directors has formal governance responsibilities, its most useful role is to provide guidance and support to the firm’s managers. Many founders and CEOs interact with their board members frequently and

obtain important input and advice.

Another important function of a board of directors is to lend legitimacy to a firm. Well-known and respected board

members bring instant credibility to a firm.

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Rounding Out the Team: Rounding Out the Team: The Role of Professional AdvisorsThe Role of Professional Advisors

Board of Advisers

Lenders and Investors Other Professionals

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Board of AdvisersBoard of Advisers(1 of 4)(1 of 4)

Board of AdvisersBoard of Advisers– A board of advisers is a panel of experts who are asked by A board of advisers is a panel of experts who are asked by

a firm’s managers to provide counsel and advice on an a firm’s managers to provide counsel and advice on an ongoing basis.ongoing basis.

– Unlike a board of directors, an advisory board possesses no Unlike a board of directors, an advisory board possesses no legal responsibility for the firm and gives nonbinding legal responsibility for the firm and gives nonbinding advice.advice.

– An advisory board can be established for general purposes An advisory board can be established for general purposes or can be set up to address a specific issue or need.or can be set up to address a specific issue or need.

Some firms have special advisory boards, like a “customer Some firms have special advisory boards, like a “customer advisory board” to advise the firm on customer-related issues. advisory board” to advise the firm on customer-related issues.

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Board of AdvisersBoard of Advisers(2 of 4)(2 of 4)

Board of Advisers (Board of Advisers (continuedcontinued))– Many people are more willing to serve on a company’s Many people are more willing to serve on a company’s

board of advisers than its board of directors because it board of advisers than its board of directors because it requires less time and there is no potential legal liability requires less time and there is no potential legal liability involved.involved.

– Like the members of a board of directors, the members of a Like the members of a board of directors, the members of a company’s board of advisers provide guidance and lend company’s board of advisers provide guidance and lend credibility to the firm.credibility to the firm.

– An example of a board of advisers is shown on the next An example of a board of advisers is shown on the next slide.slide.

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Board of AdvisersBoard of Advisers(3 of 4)(3 of 4)

Board of Advisers of Ugobe

Name Profession Role on Advisory Board

Steven Mayer

Curtis Sasaki

Phil Schlein

Abraham Wei

Bill Hillard

Adviser to corporations such as Intel and Nintendo

Managing Partner, Hillard Equities/Sonn-Hill

Consulting

Vice President, Sun Microsystems

Senior Managing Director, Chinavest Merchant Bank

Partner, U.S. Venture Partners

Adds legitimacy and provides the firm advice on management issues

Adds legitimacy and provides the firm advice product/market issues

Adds legitimacy and provides the firm advice on financial-related issues

Adds legitimacy and provides the firm advice on financial-related issues

Adds legitimacy and provides the firm advice on financial- and management-

related issues

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Board of AdvisersBoard of Advisers(4 of 4)(4 of 4)

Guidelines to Organizing a Board of AdvisersGuidelines to Organizing a Board of Advisers– Advisers will become disillusioned if they don’t play a Advisers will become disillusioned if they don’t play a

meaningful role in the firm’s development and growth.meaningful role in the firm’s development and growth.

– A firm should look for board members who are compatible A firm should look for board members who are compatible and complement one another in terms of experience and and complement one another in terms of experience and expertise.expertise.

– When inviting people to serve on its board of advisors, a When inviting people to serve on its board of advisors, a company should carefully spell out to the individuals company should carefully spell out to the individuals involved the rules in terms of access to confidential involved the rules in terms of access to confidential information.information.

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Lenders and InvestorsLenders and Investors(1 of 2)(1 of 2)

Lenders and InvestorsLenders and Investors– Lenders and investors have a vested interest in the Lenders and investors have a vested interest in the

companies they finance, often causing them to become companies they finance, often causing them to become very involved in helping the firms they fund.very involved in helping the firms they fund.

– Like the other non-employee members of a firm’s new Like the other non-employee members of a firm’s new venture team, lenders and investors help new firms by venture team, lenders and investors help new firms by providing guidance and lending advice.providing guidance and lending advice.

– In addition, a firm’s lenders and investors assume the In addition, a firm’s lenders and investors assume the natural role of providing financial oversight.natural role of providing financial oversight.

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Lenders and InvestorsLenders and Investors(2 of 2)(2 of 2)

Beyond Financing and Funding: Ways Lenders and Investors Add Value to an Entrepreneurial Venture

Help identify and recruit key management personnel

Provide insight into the industry and markets in which the venture

intends to participate

Help the venture fine-tune its business model

Serve as a sounding board for new ideas

Provide introductions to additional sources of capital

Serve on the new venture’s board of directors or board of advisors

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Other ProfessionalsOther Professionals

Other ProfessionalsOther Professionals– The other professionals that make up a firm’s new venture The other professionals that make up a firm’s new venture

team, which vary by firm, include attorneys, accountants, team, which vary by firm, include attorneys, accountants, and business consultants. and business consultants.

Business ConsultantsBusiness Consultants– A business consultant is an individual who gives A business consultant is an individual who gives

professional or expert advice.professional or expert advice.

– Business consultants fall into two categories: paid Business consultants fall into two categories: paid consultants and consultants who are available for free or at consultants and consultants who are available for free or at a reduced rate through a nonprofit of governmental agency.a reduced rate through a nonprofit of governmental agency.