#18 Equity Splt, Sweat Eqty, Nano Gene PDF

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For Tuesday, Mar 27th … With today’s assignment we study the early and very important decisions regarding equity splits and compensation for founders and early employees. 1. Read “Reward Dilemmas: Equity Splits and Cash Compensation,” posted in the Assigned Readings folder in Canvas Files, which is taken from Noam Wasserman’s book, The Founder’s Dilemmas (Princeton University Press 2012: Chapter 6). This excellent book confronts the choices that entrepreneurs uniquely face when starting a company, choices that can affect whether the venture 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. 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 formal agreements 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 and what does it require? g. What is meant by “the founder’s discount” and how does it relate to Agency Theory and Stewardship 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 recent Harvard 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 Noam Wasserman, reinforces some key take-aways of the above chapter. 3. Read the brief “How Much Is Sweat Equity Worth” case accessible at: https://cb.hbsp.harvard.edu/cbmp/pl/72850847/72850920/467dcdb3a36409d755d8ff373db40c52. Though identities have been fictionalized in this recent case, it is based upon events related to the founding of VeeV Spirits LLC (http://veevlife.com/). Note the divergent opinions expressed in the commentary and epilog at the end of the case. Think about how you would answer the following study questions during your analysis of this case: a. What are the respective contributions and commitments of Brooks and his cousin, Tyler, to their startup company, Erbe? b. To what extent do you believe their respective contributions and commitments should factor into 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. With which, if any, would you agree? Why? d. What percentage of the company’s equity should Brooks and Tyler each receive? Why? 4. Read the “NanoGene Technologies, Inc.” case found at: https://cb.hbsp.harvard.edu/cbmp/pl/72850847/72850922/b19e12c8aeedadf9ea1bed7161730d78. As you 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 a potential venture investor in the company, would these decisions concern you? b. Evaluate the size and composition of the founding team. What is the difference between being 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 of the case: the hiring process; a compensation policy; the company’s culture. Specifically, in each of these areas, what should the company do? Continued…

Be prepared to discuss these and other important elements of the case in class. Then, following the guidelines in the Case Method Overview (found in Canvas Files), write a concise 2-page essay addressing 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’s Code of Academic Integrity....