Session 19 - Ockham Technologies.ppt

Report
John Burr
OCKHAM TECHNOLOGIES,
EQUITY, BOARDS, AND
RELATED ISSUES
Ockham Technology – what happened?
• Board of Directors
– Raised first round from VCs (Noro-Moseley &
Monarch), with each getting one seat on the board
– Added a 5th, very experienced industry person
• Development/outsourcing –
– Outsourced to ThoughtMill
– Also hired Gus as internal development team leader
• Founder tensions
– Tensions continued to grow, and worsened after
Ockham hired a COO
– Mike left
• Company sold in 2002 to competitor
Lesson #1
SPLITTING FOUNDER’S EQUITY
Considerations in Allocating Initial
Ownership
• Potential Problem – Ockham founders split only
based on amount of initial equity
• Other criteria to use:
–
–
–
–
What cash, ideas, & property contributed?
If property, what is value?
What contributions are founders expected to make in the future?
What opportunity costs will each founder incur?
• Career risk taken by each founder
• Financial demands faced by each founder
– May have to reserve ownership for future founders.
 Potential problem - split equity very early
Dynamic equity-splitting
Person
Initial
share of
equity
Share if FULLTIME
involvement on
4/19/2000
Share if only
PARTIAL
involvement on
4/19/2000
Share if NO
involvement on
4/19/2000
Ken
20%
20%
10% - as per
2.1(b)
0% - as per
2.1(a)
Jim
50%
50%
50% - as per
2.1(a)
0% - as per
2.1(a)
Mike
30%
30%
30% - as per
2.1(a)
0% - as per
2.1(a)
Lesson #2
BUILDING A BOARD
Boards and new ventures
•Texas angel – $10 mm, 50% stake (“Dumb” money)
•VC - $2 mm, 33% stake (“Smart” money)
•Does VC create $48 mm in value? ($8mm / 16.7%)
Control &
Ownership
Advice &
Resources
to build pie
The Benefits of Having an Independent Board
• Brings perspective and experience, and a
set of complementary skills for the CEO
• Recognize the need for long-term planning
and assist in long-range strategies
• Can provide a framework for control and
discipline and give CEO someone to answer
to
• Can be challenging and objective critics,
serving as an internal check for CEO
• Can be mentor or coach
• Can lend credibility
Source: Bagley, CE & Dauch, CE. The Entrepreneur’s Guide to Business Law, West Publishing.
The Size of the Board
• 5-9 people
– Small enough to be accountable
and to act as a deliberate body,
but large enough to carry out the
necessary responsibilities.
• Outsiders should outnumber
the insiders
• Usually, no more than 2
insiders on the board.
Source: Bagley, CE & Dauch, CE. The Entrepreneur’s Guide to Business Law, West Publishing.
Type of Representation Needed
on Board
• Need functional skills needed to keep the business
running smoothly and to bring business to next level of
growth
• Need right mix of personalities
• Should inventory the resource needs of the company
before you begin recruiting the board:
– What is the competitive advantage of the company?
– What will be the demands on the company and the likely
changes in the next few years?
– How much technical expertise is needed to understand the
company’s practices?
– What role does marketing play? R&D? Customer service?
– What is the company’s access to financing?
Source: Bagley, CE & Dauch, CE. The Entrepreneur’s Guide to Business Law, West Publishing.
Type of Representation Needed – The
needed skills
• Assess management team’s strengths and weaknesses
with regard to industry experience, financial expertise,
marketing experience, start-up experience, and technical
know-how, maybe international experience.
• Age, gender and cultural background
• Be wary of filling board with:
– People whose interests may not be aligned with the company’s,
or to whom the company already has access.
– Attorney
– Subordinates to CEO
– Consultants
Source: Bagley, CE & Dauch, CE. The Entrepreneur’s Guide to Business Law, West Publishing.
Lesson #3
OUTSOURCING & NEW
VENTURES
Reasons new ventures outsource
• At early stages, founders are
stretched too far
• Founding team may lack relevant
capabilities
• Working on tight deadlines
• Adds flexibility when when a
company is still experimenting
with its business model
• Negative: May lack a level of
control for critical function
Lesson # 4
SOCIAL CAPITAL &
ENTREPRENEURSHIP
Entrepreneurship exists
precisely because people do
not have equal information or
beliefs
- Kirzner (1973)
If a resource owner held the same beliefs and information as an
entrepreneur, she would adjust the price to the point where the
entrepreneurial profit would be eliminated.
Problem Domain:
seeking capital or other resources
Dilemma 1:
Entrepreneurs are
reluctant to fully
disclose idea
Dilemma 2:
Entrepreneur can
engage in
opportunistic
behavior
A MARKET FOR LEMONS
What did Ockham do to signal qualilty?
Sample of over 64,000 Swedish males followed between 1994-2001.
Folta, T.B.; Delmar, F.; Wennberg, K. 2010. Hybrid Entrepreneurship. Management Science.
Folta, T.B.; Delmar, F.; Wennberg, K. 2010. Hybrid Entrepreneurship. Management Science.
SOLUTIONS TO THE LEMON’S PROBLEM
Incentives
Staging of
capital
Due Diligence
Social Capital
SOLUTIONS TO A SECOND PROBLEM
– EX POST MONITORING
Board of
Directors
Keys to
subsequent
capital
Social Capital
Social ties “interject expectations of trust and reciprocity
into the economic exchange that, in turn, activate a
cooperative logic of exchange. This logic promotes the
transfer of private information and resources …
and motivates [both parties] to search for integrative
rather than zero-sum outcomes.”
Uzzi and Gillespie (1999: 33)
Reputation
Information Networks
What is Social Capital?
Referrals
Personal Ties

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