Preview text For Tuesday, Mar 27th With today’s assignment we study the early and very important decisions regarding equity splits andcompensation for founders and early employees.1. Read “Reward Dilemmas: Equity Splits and Cash Compensation,” posted in the AssignedReadings folder in Canvas Files, which is taken from Noam Wasserman’s book, The Founder’sDilemmas (Princeton University Press 2012: Chapter 6). This excellent book confronts the choicesthat entrepreneurs uniquely face when starting a company, choices that can affect whether theventure sinks or swims. As you read this chapter, think about the following study questions:a. When is the right time to deal with equity splits among co-founders?b. What criteria should be considered when deciding equity splits?c.
“NanoGene Technologies Inc.” Case study Market. NanoGene, life sciences. Share -$10,000,000 for 60% equity (assumption). Commercial Market Place Issues. Company culture and hiring practices. Paige Miller hiring. Series A funding. Management team Funding. First Round (angel round) o $600,000 at a $2.25 million post-money evaluation o 20% immediately, 20% at the end.
What are the advantages and disadvantages of “quick-equal,” “slow-equal” and “unequal”equity splits?d. What should be considered when deciding whether to enter into informal or formalagreements on equity splits?e. What should be considered when deciding between static or dynamic equity splits?f.
“Vesting” is the most common type of dynamic equity agreement. How does it work andwhat does it require?g. What is meant by “the founder’s discount” and how does it relate to Agency Theory andStewardship Theory? How should a founder deal with it?2. Read the brief summary of the equity elements from the above chapter as provided in the recentHarvard Business Review article, “The Very First Mistake Most Startup Founders Make,”posted in the Assigned Readings folder in Canvas Files. This article, co-authored by NoamWasserman, reinforces some key take-aways of the above chapter.3. Read the brief “How Much Is Sweat Equity Worth” case accessible at:identities have been fictionalized in this recent case, it is based upon events related to thefounding of VeeV Spirits LLC (Note the divergent opinions expressed in thecommentary and epilog at the end of the case.
Think about how you would answer the followingstudy questions during your analysis of this case:a. What are the respective contributions and commitments of Brooks and his cousin, Tyler, totheir startup company, Erbe?b. To what extent do you believe their respective contributions and commitments should factorinto the decision about how the company’s equity should be allocated between them?c. The opinions of five “experts” are provided at the end of the case.
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With which, if any, wouldyou agree? What percentage of the company’s equity should Brooks and Tyler each receive? Read the “NanoGene Technologies, Inc.” case found at:Asyou read the case, think about how you would answer the following questions:a. Evaluate the founders’ decisions regarding the split of equity and compensation level. As apotential venture investor in the company, would these decisions concern you?b. Evaluate the size and composition of the founding team.
What is the difference betweenbeing a “founder” and an early employee?c. Evaluate Paige Miller as an addition to the team, and assess her compensation demands.Would you hire her? Would you hire her on the terms she seeks?d. Assess the company’s progress on each of the specific issues discussed in the last section ofthe case: the hiring process; a compensation policy; the company’s culture.
Specifically, ineach of these areas, what should the company do?ContinuedBe prepared to discuss these and other important elements of the case in class. Then, following theguidelines in the Case Method Overview (found in Canvas Files), write a concise 2-page essayaddressing the following question:Evaluate Paige Miller as an addition to the team and assess her compensation demands.Would you hire her? Would you hire her on the terms she seeks? Explain your decision.Submit your essay on Canvas before class. All work must be your own, subject to the University’sCode of Academic Integrity.
Date: Wednesday, February 19, 2020Summary Entrepreneurship is a team sport. What arethe critical human resource issues for new ventures? The NanoGene caseexamines the big three: assembling a team, developing a compensationpolicy, and creating an innovativeculture.Quote of the Day:'Never, never, never, never give up.' WinstonChurchillStudyQuestions (on StudyQuestions).
In start-ups, whatare the key actions that a founder or CEO must take regarding humanresources?. Evaluate the founding team at NanoGene andthe resources they bring to the venture.
Independent of the equityownership issue, what are some risks associated with this founding team?How might these risks be reduced if Paige Miller joined theteam? Should Paige be hired now as a full-time employee or not?. Although Susan Stone (the venturecapitalist) likes NanoGene's technology and business prospects, sheseems very concerned by the equity split among the founders. It's exactly thesame for all. What consequences for NanoGene might she fear from this even equity split? Please take a moment to carefully review the capitalization table in Exhibit 2 and the backgrounds and expected contributions of all 5 members of the founding team at NanoGene.