Week 26: Debt, Seed Money, Private Equity and Firing Founders

Stanford GSB Sloan Study Notes, Week 6 (26), Winter quarter

Tahoe Vista

 

The picture reflects the exact view I have from where I’m sitting posting this. When you live in Northern Europe, “good snowy ski weather” usually means you have to give in on other things (such as clear skies and light). Not in Tahoe – and that’s why a mission of Sloans have landed here again for a long Presidents’ Day weekend.

But no play without hard work, right. There were quite a bit of extra-curricular activities on campus (I made it to several BBLs even!), some long-planned and inspiring 1:1 coffees with MBA colleagues, a few guests I would bucket in “personal heroes” category. And a fun roleplay of 8am termsheet negotiations, with lawyers at each table and all.

Covered in this issue:

  • Differences in financing with debt vs equity – and some irrationalities caused by taxation
  • Seed financing – how to survive until Series A
  • Intricacies of convertible note structuring
  • European startups: plasma drilling in Slovakia and why you should move to Berlin
  • When and why founder CEOs get fired
  • Introduction to Private Equity
  • BBLs on Crowdfunding and Big Data
  • More guests from: Geothermal Anywhere, Soundcloud, Intellicap, Twitter, Benchmark Capital, Hellman & Friedman, PubVest, LinkedIn

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Week 24: Medical Devices, Space Tourism and Russian E-Commerce

Stanford GSB Sloan Study Notes, Week 4 (24), Winter quarter

Steve Jurvetson

The relative (& temporary, I’m sure) breather on reading volume this week left some much awaited time to deal with things out of the classroom: we’ve gotten over the home stretch in our core marketing course with some brand audits and presentations, on Tesla Model S. And it was even more fun to work with my MBA-mixed study groups for venture financing and business planning.

My highlight of the week was doubling the Estonian population on campus when Steve came to join our Sloan class for an evening lecture and smaller breakfast to discuss the most inspiring trends he sees as an investor (no separate notes – but see notes from the Science panel at the Intersection Event for a hint on his direction).

And I even got out of campus for a bit: to a fun chat between Eric Ries and Marc Andreessen at A16Z office on the Lean Startup movement and diversity issues in the valley. Highland Capital Partners threw a GSB mixer at the legendary Old Pro. I was also lucky to have two different insightful conversations with a physicist (one turned VC, the other a space entrepreneur, as it is customary here) in one week, on maximising impact. I am grateful for weeks like this.

Covered in this issue:

  • State of Space Tourism in 2013
  • Risk & Return – was it sensible for Airbus to build the A380?
  • Structuring financing deals and more terms sheets
  • Building an eCommerce firm in Russia
  • Writing a business plan and pitching to VC partner meeting
  • Advanced body language tips to presenters
  • More guests & speakers from Virgin Galactic, XCOR Aerospace, Mohr Davidov Ventures, Wikimart, DeRemate, Wealthfront, Exploramed, Bare Escentuals…

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The Intersection Event 2013

Entrepreneurship panel @ The Intersection

Spent an inspiring day at The Intersection Event at Googleplex. Full agenda is here and my notes from the sessions below.

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Week 22: IRR, Fishbones, Term Sheets & Angels

Stanford GSB Sloan Study Notes, Week 2 (22), Winter quarter

Fishbone

I think we’re getting back in the rhythm here. Continuous flow of external guest speakers and occasional valuation models to be built are bringing more variety to just swallowing hundreds of pages of cases. I did drop my across-the-street strategy class to get back to 19 units and thanks to that even made it to a few BBLs and a GSB High Tech Club company visit to Box. There is a long weekend coming up. Life is good.

Covered in this issue:

  • Finance: NPV and IRR, including pitfalls
  • Entrepreneurial finance: unit economics in business models and real options
  • Angel & VC finance (and a E-Club BBL): life of an angel investor
  • Negotiating Term Sheets, especially on valuation
  • Marketing and Mastery of Communications: more stories, including analysing viral videos & TED talks
  • Guests: Sand Hill Angels, Tory Burch, Pattie Sellers, James Buckhouse, Gil Penchina, Jeff Erickson

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Week 21: Finance, Ventures, Stories and Space

Stanford GSB Sloan Study Notes, Week 1 (21), Winter quarter

The pace of the new year has been just mindblowing, and not just compared to the Christmas break down time but to almost any of the school weeks from previous quarters. I guess this is what happens when you can almost fully customize your class schedule. And you want to get out of GSB to “across the street” schools for a bit. And you get accepted to this year’s LOWKeynotes speaker series, with dozens of hours scheduled for prep-work and coaching before the big stage. And…

I’m saying “almost in control,” because I have had close to no time to spend with family, sleep over 6 hours or socialize these last five days. And I do intend to do those things this quarter too. Exhausted, happy, but realizing this kickoff pace will not be quite sustainable as is. Let’s see what next week brings with its reading volume and booting up several project groups.

Covered in this issue:

  • Finance basics: free cash flow, annuities, perpetuities & NPV calculations
  • Business planning: financial business modelling, life time value of customers, Dropbox freemium example
  • Venture Capital: industry history and sizing, how VCs think, how they move money and get paid
  • Marketing: stories, stories, stories – creating and delivering them (videos)
  • Strategy: Grabber-Holder model explaining disruptive tech innovation via ultimate nothingness from Taosim and Yin-Yang cycle
  • Space entrepreneurship: an inspiring event on synthetic life with the Student Space Flight club
  • Guest speakers throughout the week: Vinod KhoslaNancy DuarteCraig Hanson and John Cumbers

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Toolkit for Evaluating a New Venture

Several entrepreneurship-related classes at Stanford refer to a simple conceptual framework developed by Professor William A. Sahlman of Harvard for planning and evaluating new ventures. In short he proposed looking at People, Opportunity, Context and Deal of a venture and analysing how they Fit with each other in this particular combination at hand. You can read all about the model from his article, Thoughts on Business Plans (on Google Books) which in turn comes from an essay collection Sahlman edited in the 90s.

What inspired me in this material was a systematic use of simple, but carefully targeted questions. I decided to extract a condensed reference of them below – still mostly Sahlman with minor revisions, but I’ve added a few more, and would be happy to keep the list living if anyone proposes more useful questions from their arsenal in comments.

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Winter Quarter Courses

As the Sloan year has passed the equator, I’ve signed up for the following classes kicking off next week. It is going to be quite intense, 22 units in total and Mondays going from 8am to 9pm…

Core classes:

Yes, just two this time, leaving more precious time for electives.

Electives: Read the rest of this entry »


Founders’ Dilemmas, Quantified

I picked up The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup by Noam Wasserman after he spoke about it in the ETL speaker series at Stanford back in November (see my study notes of that week here). With all the regular school reading in parallel it took me 2 months and 2 vacation trips to dig through the material, but coming out on the other side it is a highly recommended read for anyone in the tech startup scene. Doesn’t matter if you’re just contemplating bootstrapping your first company or want to take a step-back look at the impact your term sheet demands as an investor can have on entrepreneurs on the receiving end.

Basically, what Noam has done is to take a whole sequence of inevitable dilemmas every founder has no way of escaping while building their startup, gone back to about 3k companies and 10k people and surveyed the hell out of them to quantify both the triggers as well as the indirect results down the road after they have made their choices on these issues so often just considered a “gut feeling thing”. Should I found a company now? Should I do it alone, with friends or strangers? What happens to my likely CEO tenure time if I take external money? What kind of side effects can different outcomes of horse trading over boards seats practically have? What are the hidden costs (and benefits) of hiring youth over experience, and vice versa?

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Weeks 15-16: Conglomerates, Lemmings, Founders’ Dilemmas and Tax Lotteries

Stanford GSB Sloan Study Notes, Week 5-6 (15-16), Autumn quarter

This post consolidates my notes from two weeks instead of a normal one, yet will be a bit more concise than usual too, for a few reasons: I was down with flu for several days and had to miss a few classes and then the midterm exams in Financial Accounting and Organizational Behaviour changed the normal scheduling.

Also, the first session of the latest addition in our core timetable, STRAMGT 259: Generative Leadership by Dan Klein yesterday was too… experiential to take any notes, really. Basically, we did three hours of improv theatre. It was a lot of fun, but instead of getting into the theory here – get the book: Improv Wisdom: Don’t Prepare, Just Show Up by Patricia Madson. And say “yes” more to whatever life throws at you, go with the flow and see what happens.

For additional entertainment, here is an experiment shared by my classmate Marc who is lucky to take a Behavioral & Experimental Economics class by freshly Nobel-prized Al Roth: primatologist Frans de Waal showing how even monkeys reject unequal pay (see especially from 2nd minute).

And now on to the regular programming. Covered in this issue:

  • Why people suck at predicting when they finish a task
  • How overdiversification, and especially uncontrolled aquisitions lead to dysfunctional conglomerates
  • Lemmings following lemmings, but not sheep
  • Predicting future divorces
  • Research from surveying 10,000 founders that quantifies the impact of common “gut decisions” like picking investors or sharing stock between co-founders
  • Guest speakers explaining how they’ve used creative incentive schemes to get more out of porn site classification crowdsourcing and VAT payments in China
  • The impact of investment lags on IP value creation in startups and established companies
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Autumn Quarter Courses

To celebrate the kickoff of Autumn Quarter this week, this is a little overview of what lays ahead in my calendar:

Core classes:

Electives:

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