Thursday, June 19, 2008

Board Planning Exercise—Finding Your Company’s Competency

At the recent Angel Capital Association Summit in San Diego, I had the opportunity to hear Dave Berkus of the Tech Coast Angels talk about the work of the Board of Directors in a startup. Aside from governance most startups need help in setting strategy. Dave Berkus outlined an exercise he uses with startups to help them find their core competency.

It goes something like this-- make a chart with the following column headings:

Candidate Company
What they want
What you want
Ranking 10-1

Now go through and for each candidate company that may one day want to purchase the startup, list out what they would want from your startup. Likewise, write down what the startup would want from the candidate company. After you list out five or ten of these, go back through and rank them based on the value a proposed buyout would bring.

This exercise brings into focus what the startups’ core competency is and helps the entrepreneur set a strategy to develop that competency. As a secondary benefit the exercise highlights who may want to buyout the startup and why. Along the way the startup can start building a relationship with the candidate company.

In the early days of a startup strategy is equally important as governance. The planning strategy outlined above can help set the agenda for the board in working with the startup.

Best regards,
Hall T.

Monday, June 16, 2008

Negotiating the Terms Sheet – Principles Unite, Numbers Divide

During the ACA Summit, Robert Robinson of the Hawaii Angels offered the following advice.

There are three elements to understand in any negotiation:

Commitment – what have the parties agreed to?

Verification – how will we know that everyone fulfill their commitment?

Enforcement – what happens if a party does not fulfill his commitment?

Areas to negotiate include:

--Terms Sheet
--Portfolio governance
--Follow-on financing

During the presentation he brought up a key point of negotiation when he stated,
“Principles unite, numbers divide.” As soon as someone starts using numbers conflicts start to arise. At some point in the negotiation numbers must be used, but building a common base first goes a long ways in helping navigating through the possible numbers later.

The negotiation process itself is important. In this blog post a first-time CEO gives his experience in negotiating with a VC but also applies to angels as well.

Knowing the terms and what they mean is critical to the negotiation process. I’ve sat across the negotiation table with entrepreneurs who from time to time lean over to their attorney and ask, “What does that term mean?”

To that end, we’ve taken steps to provide more training to entrepreneurs in the form of special events like the Central Texas Entrepreneur Funding Symposium and Mock Terms Sheet practices sponsored by Andrews Kurth. For a tutorial review of Terms Sheet terms, check out this site.

Best regards,
Hall T.