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The New Venture Team

The New Venture Team. Importance of The Team. There is a strong connection between the growth potential of a venture and the quality of its management team. A quality management team can be the difference between a life style firm and a higher potential venture.

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The New Venture Team

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  1. The New Venture Team

  2. Importance of The Team • There is a strong connection between the growth potential of a venture and the quality of its management team. • A quality management team can be the difference between a life style firm and a higher potential venture. • Venture capitalist have become even more active in shaping management teams.

  3. The Lead Entrepreneur • The capacity of the lead entrepreneur to craft a vision and then to lead, inspire, and persuade key people makes an enormous difference between success and failure. • Instilling a vision, and the passion to win, occurs very early. • Many lead entrepreneurs with outstanding technical skills or education credentials become lone achievers and lack the team mentality.

  4. The Key to Growth • Team traits • Cohesion • Teamwork • Integrity • Commitment to the long haul • Harvest mind-set • Commitment to value creation • Equal inequality • Fairness • Sharing of the harvest

  5. Key Questions for the Lead Entrepreneur/Founder • 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 (‘the chunks’)? • Some teams form by accidents of geography, common interest, or working together. • Others form teams by virtue of past friendships. • Having an established team will yield higher valuation and reduce ownership loss. • What is needed to succeed? When? • Who is needed to complement me?

  6. Practical Issues • Gaps can be filled by accessing outside resources, such as boards of directors, accountants, lawyers, and consultants. • Tax and legal expertise is best used part-time. • If the expertise is a must for the venture and the lead entrepreneur cannot provide it, then one or more people will have to be acquired. • Forming and building a team is unscientific and unpredictable.

  7. Common Pitfalls • The group does not use the “honeymoon” period of start-up advantageously • A team may not deal with sensitive issues. • Can lead to a premature disbanding of promising teams • The success of the venture is the most important goal; other priorities come second • Do not answer the questions of who is in charge, who makes the final decisions, and how real differences of opinion are resolved • Do not address or recognize the deficiencies of the lead entrepreneur or the management team

  8. Common Pitfalls • Do not recognize that creating and building a new venture is a dynamic process • Do not identify and defuse destructive motivations of investors, prospective team members, or the lead entrepreneur • Do not value trust and integrity • A team may stay together but not work through these issues

  9. 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

  10. Distribution Issues • Differentiation • Reward system recognizes differences in contributions among team members – contributions are rarely equal • Performance • Reward is a function of performance (as opposed to effort) • Flexibility • Reward system acknowledges and accounts for changes in contributions of team members (and reward preferences such as salary vs. stock)

  11. Timing Considerations • Events may require change • A team member who has a substantial portion of stock may not perform and need to be replaced. • A key team member may quit or die • Consider: • Returning stock to the treasury at the price at which it was purchased. • A buyback agreement. • Place stock in escrow awaiting an exit event

  12. Stock-Vesting Agreement • Stock-vesting agreement • the venture places the stock purchased by team members in escrow to be released over a three- or more year period. • 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 – you only hold vested shares

  13. Consideration of Value • Idea • Business plan preparation • Level of commitment and risk • Skills, experience, track record, or contacts • Responsibility

  14. Case • NanoGene

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