9 August 2008 - Summer Venture Camp - Light, Motion and Magic That’s what it takes to be a woman entrepreneur

The
third and final Summer Venture Camp took place on Thursday morning at
the University of Minnesota. You can read my blog posts about Session 1 and Session 2.

Put on by The Collaborative,
the intent of the Summer Venture Camp panel discussions was to, “… help
fuel and inform the ‘next generation’ of innovators while also
following The Collaborative trademark of providing information and
networking to help entrepreneurs grow their businesses.”

Here is a list of the final four topics and the main points emphasized:

Equity Structure, Termsheets, NDA’s, Capitalization Tables, Employee Agreements and more

• When seeking financing, you have to have a plan on how much you
  need, how you’re going to spend it and when you think you’ll need to go
  back for another round. But flexibility is key: your investors will be
  dictating the terms.


• Once you get to the point of getting a term sheet, it’s a signal
  that your investors are very serious and there’s a doable deal. The
  term sheet will be a road map.


• Using equity to incentivize key employees is perhaps THE most
  important issue in high-growth companies. It’s really difficult to lose
  a key employee when you’re growing.


• Cash is scarce for these companies, but if you want to attract
  talent and have them work above and beyond for your success, you
  usually give ownership as incentive - the earlier the better.


• Keep incentive plans simple. Investor doesn’t want it too
  complicated but does want to see something in place. Requires regular
  review to make sure they’re effective as things change.


• Don’t give up too much, too soon to your management team. Make sure
  they earn it, that you don’t have “dead weight”, and then reward
  generously.


• Stock options, restricted stock or stock appreciation rates are most common; a pool of 7% - 15% of equity for employees.


• Worst thing is to get your valuation wrong - overstating or
  overvaluing. You will pay a real price later on if you don’t get it
  right.

The Role of Intellectual Property Issues in Financing

• Having a strong Intellectual Property (IP) strategy is critical for getting funding.


• Your first questions should be: Can I patent my idea? What is your
  strategy compared to the landscape of your industry? Then you should
  ask: How can I stay on top of it? What is my competition doing? What
  steps can I take to handle the changing environment?


• Pay attention to what Universities have published in your area. Do
  your own due diligence, because professors often forget what they’ve
  done! And don’t forget to take a look at basic public patents.


• Your CEO should be actively engaged in seeing what the competitive
  patent landscape is so he/she understands the context of what you’re
  doing. Will build a better business model because of it.


• You want to spend your scarce funds in an area where you have the
  most leeway and freedom. Patent research can help you find that niche.


• Make your patent application RIGHT AWAY. Make your patent AS BROAD AS YOU CAN. KEEP UPDATING your patent.


• The patent office is getting further and futher behind; patents are taking longer and longer to get.


• Engineering log books are critical. A good, old-fashioned paper
  trail is vital: a bound log book, dated and numbered and counter-signed
  by a non-scientist/inventor.

Trends in Talent, Compensation and Benefit

• Some basic security around health is vital. Pre-tax plans can be
  foundation for small business. As you grow larger you may have to
  compete with plans of larger companies.


• Benefits often begin with long-term planning, like 401K. There’s a
  trade-off between cash bonuses and long-term leverage. Maybe you can
  take the short term bonus and use it in a plan that will provide
  longer-term benefit.


• Be clear about the different components of your benefits package,
  and what outcomes are connected to them. You don’t want your employees
  to be confused about what the long-term components reward as opposed to
  their base pay. Communicate that BENEFITS ARE PAY.


• Some private companies don’t want to dilute ownership/equity, so are turning to 401K-like plans that are performance based.


• If an incentive is dependent on profit, put out the numbers so the employees know how they’re doing.


• Be sure your communication works with your employees. Studies show
  you have to give people a message 9 times for it to stick: give it 9
  different ways.


• Companies are moving to defined CONTRIBUTION plans, rather than
  defined COMPENSATION plans - keeps the company from becoming buried by
  obligations.


• New study showing that younger employees now give companies about 6
  months to prove they are what they say, and that there’s opportunity
  for them. If not, they move on.


• Benefits have different value to different generations:
  flexibility, telecommuting, compressed work week might be more
  attractive to younger workers.


• Think about what intangibles of your company keep your employees. Think about non-equity compensation.

Entrepreneur and Investor Panel

• The more “disruptive” the idea for a company, the more likely it is to be a startup.


• Especially in tech/medical industry, a successful start-up needs 1)
  world-class technology 2) very experienced management 3) capital.


• Investors are looking to see that there’s a large and growing
  market, that there’s a very experienced management team (cross-function
  ability, execution focused, committed to change), that there’s patent
  protection, and a culture that embraces success - can meet milestones
  and communicate it.


• A new company should always focus on basics. Make your business
  profitable: don’t just wait for financing, move the ball forward!


• What comes with financing? Often expertise, strategic strengths, core expertise.


• Replacing management teams is #1 issue - it’s all about management.
  Experienced management knows how to get to making money and liquidity.
  The “idea” can’t be the goal; the idea doesn’t matter. Goals will
  change but experienced management will focus on making money, will meet
  milestones, put money in proper priorities.


• Get valuation right at the beginning. If you get it wrong, as painful as it is, make the correction.


• Venture capitalists are driven by greed. If there are problems in a
  promising venture, they’ll look to see if it can be cleaned up, but
  will probably give youa take-it-or-leave-it proposition.


• The right management team means having the right people at each
  stage. Ex: having a bookkeeper –> having a comptroller –> having
  a CFO. Each time you add the right person you’re adding value, even tho
  the cash hit can be difficult at the time.


• Bad boards can cost a company money, are too often less informed
  than they should be, are unwilling to take the action that they’re
  supposed to take: replacing the CEO.


• At what point is a company ready for financing? When you can see
  that with even just the 1st round of financing, it will make money.

The quality of the panels in this last session was more consistent
than in the other sessions, and very good. Obviously there was an
enormous amount of information, expertise and advice given during
Summer Venture Camp, and in my next post I will summarize what I
learned from attending.