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Below is a summary of Formation of New Ventures, organized by class session, taught in winter 2017 by Scott Brady and George Foster.

Formation of New Ventures (by topic) <-- same notes as below, but organized by topic

Note: In writing quotes / content DO NOT MAKE THE GUEST SPEAKERS LOOK BAD. Assume the content below will be leaked: will the guest speaker be upset? Will the professor(s) be upset?

Contents

Blue River

Scott Brady thoughts:

Team Formation

  • Scott picked people who he admired
    • Smartest people he knew
    • Orthogonal thinkers
    • Not beer buddies
    • And he likes them

Fundraising

  • You need competition amongst investors
  • The key is to lower risk over time, and show it
  • The biggest mistake young entrepreneurs make is picking the firm, not the partner

Entrepreneurship - Getting Started

  • Do it if you can say "I have a vision for the future that's different from the status quo AND I have a passion for it"
  • It's not for everyone, its a rewarding path, it's stressful, you need conviction in your idea, but you also need confidence that you'll be okay regardless

General

  • "Talent is the fabric that makes a great company"

Minimum Viable Product

  • Concept designed to build just what we need to answer questions

Minimum Winning Game

  • What's the smallest unit of work you can do to provide the viability of the business

Guest: CEO / founder Jorge Heraud thoughts:

Investors (Vinod Khosla)

  • He pushed Jorge and he liked that
  • Khosla brand has enabled them to get $$ and meetings they'd normally have no chance getting

Partnering with Strategics (Monsanto)

  • BE CAREFUL
  • They'll learn a lot about your business --> they're less likely to overpay

Skybox

Risk mitigation / consolidation

Fundraising

  • Power of "no" (say no to that first term sheet)
  • It's not about the highest pre-money valuation
  • They influence business decisions (trust, risk, consolidation)

Rule of 3's

  • Capital intensive businesses will cost 3x the time, money and people

Other

  • Unilateral rights are bad --> board instead

TRX

Guest: Randy Hetrick, founder CEO

Markets

  • Most markets are big enough if you execute
  • Pick the best fit, not the largest

Fundraising

  • Don’t get caught up in the highest valuation

Team Formation

(needs to be updated) Randy's co-founder wasn't performing, leading to tensions and an ugly split

  • Have everything in writing
  • “Don’t be blinded by the glimmer of your own hope”

Leadership

  • Think about doing the things only you can do when you’re trying to decide what to do

People

  • More people don't equate to speed

Financial Engines

Guests: Jeff Maggioncalda and Chris Jones (pretty sure all quotes below attributed to Jeff)

Decision Making

  • You need a combination of rationalization and gut

Fundraising

  • Funding changes the course/trajectory of a company
  • VCs are great sources of feedback
  • Questions to ask yourself: What do I need to learn? What needs to grow? Where are the bottlenecks? How much time and money do I need to learn?

Scaling

  • Need to (1) stay alive (cash) and (2) be in the right spot to catch the wave

Market Traction (questions to ask)

  • Is it catching a wave? What happens if the wave collapses?
  • Are you delighting customers? Is this a long-term need or a fad?
  • Is growth due to low price / discounting?
  • Is it due to the lack of competing projects? What happens when competitors enter the picture?

TinyPrints

Guests: Laura Ching and Ed Han

Success

  • You don't have to shoot for the moon, you can build a successful business that's not a unicorn

Bootstrapping

  • Upside: financial, status, freedom (strategy, milestones)

Entrepreneurship - Getting Started

  • You don't need expertise; in this case, stationery is a learnable space

Walker and Company

Guest: Tristan Walker (all quotes his unless otherwise stated)

Entrepreneurship - Getting Started

  • Good ideas —> bad; bad ideas —> good e.g. Airbnb
  • What’s the first thing on your screen? What are you using that someone else isn’t?
  • “Ask yourself: am I the best person in the world to do this job?”
    • He was passionate about trucking, child-obseity, and more. But he was the BEST person for improving lives through shaving
    • “Theres a critical difference between being an expert and being the best person”

Board of Directors

  • General
    • A board has two jobs: (1) act as a sounding board, (2) hiring/firing the CEO
    • “Especially during the party rounds, everyone assumes everyone is paying attention” (Scott Brady)
  • Having a board / not having a board
    • Tristan Walker didn’t have a board pre series A; benefits: avoid politics and still have advisors
    • not having board = risk that the company won’t de-risk, answer fundamental responsibilities (Scott Brady)
  • Formation of board
    • Formation of board → board = trust, motivation, connections, experience, perspectives
    • you are married to your board members
  • Managing a board
    • As the CEO, don’t come to the meeting with half-baked ideas; discuss strategy with conviction; uncertainty happens outside
      • “As the CEO, you don’t say I don’t know what to do...you can ignore the guidance, but you better be right...make the decision, be right, execute...most boards are unanimous”
    • Formal fiduciary responsibility > advisory role
    • If you listen to your board, you will get fired; if you don’t, you might get fired
    • Amazing feedback: every board has to review the CEO
    • Tristan has 2 rules for dealing with a board: (1) please ask questions and (2) call me out on any BS
    • Send out the board package 48 hours in advance of the meeting

Leadership

  • “Being a CEO is tough”

Product-Market Fit

  • “Product-market fit is when your brand is what others tell you it is”

Code2040

Guest: Laura Powers

Code2040 is a non-profit that creates access, awareness, and opportunities for top Black and Latino/a engineering talent to ensure their leadership in tech.

Fundraising (for non-profits)

  • Donors have influence
  • The hardest thing to do in fundraising is maintaining the momentum

Survive vs. Thrive

  • In response to Laura saying it's about surviving versus thriving, Scott Brady said he doesn’t want to hear survive from regular companies

Nebula

Guest: Chris Kemp

Nebula is one of few failure cases taught at the GSB. The company initially had a great idea, a team with world-class talent, and an all-star list of investors.

Team Formation

  • A talented group of people doesn’t equal a team
  • You can have a world-class group of talent, but with questionable teamwork they fail

Board of Directors

  • Importance of board —> they may have brought in the wrong CEO

Product-Market Fit

  • “Make sure your market wants it!”
  • Ego got in the way of truly understanding what the customer wanted
  • There's a tension between addressing imminent customer needs and future anticipation

Zola

Guest: Shan-Lyn Ma

Listening to the Customer

  • Interviews with market and potential customers

Team Formation

  • All early members from Gilt Groupe and Stanford GSB
    • Reduced turmoil b/c knew everyone
    • Fast track to speed
  • “I had resistance to new people until it was clear we could learn from them”

Ariat

Guest: Beth Cross

Board of Directors

  • Be smart about initial decisions, otherwise you’ll have to crowbar someone off
    • Vest over two years, two year contract, “no one will bat an eye”

Equity / Compensation

  • Treat your equity base at the beginning as precious
    • Vesting is good hygiene
    • As low as 0.25% and as high as 0.75% depending on impact/status (WHAT WAS THIS ABOUT??)

Fundraising

  • Not all funding is created equal
  • Before founding Lariat, Beth Cross wanted to know if she could self-finance

Listening to the Customer

  • Questions about customer behavior
    • Ask yourself: do customers actually want this?
    • Unmet needs → how do customers know if they have them?
      • Lariat had conversations
    • Pricing/elasticity → will they buy?
      • Tested → yes!

Hiring

  • Importance of testing (intellectual horsepower —> simple math test under time)
  • Job description, socialize with team, separate skills from situation (Scott Brady)

AngelList

Guest: Kevin Laws

AngelList is a platform connecting startups and investors via syndicate leads

Disruption

  • Radically disrupting the space
  • But we'll need years to tell if syndicate quality is worth it

Insights from AngelList Data

  • Takeaway #1: Firms that get the most $$ tend to be more successful (lightning rod)
    • Example (GetAround vs. Uber): GetAround had a better team and idea, but Uber had more $. Uber wasn't the first, but they executed better
  • Takeaway #2: 2-3 founders are better than 1
  • Takeaway #3: The more experienced the investor, the more they look at the team

(How to give a sales pitch)

Guest: Jeff Crowe (Norwest Venture Partners) and Chris Mansi (CEO/Founder Viz.ai)

General

  • A warm lead is a strong lead
  • VC's care deeply about who your other investors are
  • Cultivate relationships: You don't want to go through speed dating before you get married
  • The most fundamental decision you make is who you partner with
  • Software development: 1 world-class engineer is better than 10 average
  • Series A, what he looks for:
    • (1) CEO, founders - passion, domain knowledge, selling ability, business judgement
    • (2) Idea

Personality of the Entrepreneur

  • Some are enigmatic (importance of the team to round out)

Pitch

  • Frame the situation
    • Entrepreneurs are so focused on the problem
  • Match the plan to the story
  • Be visual
    • If you have a dense deck, they'll read, not listen to you

Fundraising

  • $$ to reach milestones, sequentially de-risking business

OpenTable (IPO's)

Guest: Jeff Jordan

This case was about IPOs. When Scott Brady took a class poll at the end, a much higher percentage versus the beginning said they would take their company public.

Reasons for IPO

  • Can the company handle the public / Wall Street?
    • Size (100mm)
    • Financial infrastructure for quarterly reporting
    • Growth story that satisfies investors ("storytelling is the same thing as sales")
    • Strong unit economics
    • Predictability - "what happens to the rocket when we strap cash to it?"
    • Sequential growth - "everything depends on up and to the right"
      • Gravity - all growth rates drop
  • When VC's want money / contract liquidity
    • 2 doors: (1) go public or (2) sell
  • "Take your business to the next level"

General

  • Anti-IPO sentiment is over sold
  • You don't need to provide guidance to investors
    • Do NOT throw out into the open market
    • Choose your investors!
    • Rules Jeff set for himself: No more than 5 hours/week to being a public CEO; 1 day/quarter to investors
  • Hiring - IPO changes the type of person
  • How do you price - talk to people!

Process

  • (1) Set bar (3 weeks)
    • Org meeting - detailed process where bankers "suck information out of your brain" to write a story
  • (2) File registration statement (week 6)
  • (3) Receive initial SEC comments (week 9)
  • (4) Respond to SEC (week 10)
  • (5) SEC clearance (week 14)
  • (6) Begin roadshow (week 15)
  • (7) Price offering (week 17.5)

Waypoint Homes

(notes needed)

Tough Mudder

Guest: Will Dean (founder, CEO)

Original Idea

  • He had conviction in the original idea b/c his friends would do it
  • He didn't necessarily believe it would work
    • (In my notes): "I genuinely believed I could succeed" and "didn't have faith" --> "petrifying"

Initial Concerns

  • Defensibility
  • Scalability
    • "Growth may be the fatal flaw" ("VC's, remember they're diversified")
  • Volunteer management
  • Brand building
    • In this market, one or two groups will rise to the top (e.g. Iron Man)
  • Customer attraction/retention
    • Start with other events like this (e.g. marathons)

Structure

  • Logic, systems, processes for decisions and strategy

Luck

  • "Being honest, I got lucky with the initial marketing"
  • "All entrepreneurs who succeed get their lucky break"

Listening to the Customer

  • There's a balance between listening to the customer (given biases) and trusting your intuition

Culture

  • It's what you do when your boss isn't looking
  • 8-week induction period so people can drop out if they're not a good fit

Other

  • "Only the paranoid survive"
  • Will consulted anthropologic literature to deliberately craft a cult-like following
    • When asked over email, he mentioned two books: "Tribes" by Sebastian Junger and "The Social Animal" by David Brooks
  • He's been humbled (Scott Brady remarked how he's changed significantly over the years he's been coming in)

Gordon Biersch

(more notes needed)

  • Understand landscape
  • Study brand strategy
  • Leadership - need someone to head the ship
    • Reference check
    • Do they have experience
  • Determine survey to assess demand
  • Details - evaluation plan
  • Regulation
    • Sample of target cities about beer/licensing process
  • Financials
    • compare to financials of proxies
  • Fixed assets
    • Ask key suppliers about pricing terms
  • Real estate
    • contact sample commercial landlords
  • Employees
    • Compare to proxy restaurants
  • Marketing
    • Prospective A/B test

Final Session - SCOTT BRADY SPEWING WISDOM

This session was one of my most memorable at GSB. For 90 minutes Scott Brady had us on the edge of our seats

Entrepreneurship - Getting Started

Search process modalities:

  • (1) Teams that wanted to do something on their own
  • (2) Domain driven expertise model
  • (3) Regulatory change (Skybox, Gordon Biersch)
  • (4) Market disruption (contrarian view)
    • "If you're following someone else, you're too late"
  • (5) Or join an existing company

"There are few struck by lightning moments"

  • Don't let the lack of an idea deter you
  • It's a process, no one has a perfect idea
  • Trust your intuition and hypotheses

Commonalities in Successful Companies

  • Passion
    • ...for working together
    • ...for solving problems
    • Figure out what your passions are
  • Great teams hire well
    • Don't end up with that moment where you're in an organization that's not yours
    • Brady experience: it's like a game of telephone, people were an echo of who we sent out to attract
  • Culture - every successful company focuses on environment
    • "Culture eats strategy for breakfast"
  • Strong execution when it counts
    • You can't always field the team you want; do what you count
  • Product-market fit
    • You can't overcome bad product-market fit

Commonalities in Successful Entrepreneurs

  • They believe the rules don't apply to them
  • Focus - Brady sees so many teams get off track
  • Luck
  • They leverage their advisors when it counts
    • "Pick partners carefully"
  • Great entrepreneurs are great storytellers
    • Fundraising, hiring, getting customers
    • PRACTICE

General Lessons

  • Intuition - to be an entrepreneur, you have to anticipate what a market will look like
  • Innovator's dilemma - don't be fazed by the fear of the unknown
  • Prepared mind, be open
  • Starting a company is not easy - it's very difficult
  • Imposter syndrome never stops
  • Bad days happen to good people, great teams don't panic
  • Failure is not okay
    • Execution failure - "unrecoverable sin" (Nebula)
    • Acceptable failures:
      • Technical failure - you have an intuition about something and it fails
      • PM fit
  • Tenacious is necessary but not sufficient
  • (when asked what matters most to you and why): family; set bounds