Discussion: View Thread

The solution is to award equity based on the contribution people make to the development of the business--the true value add--and not the business plan and not just because they were present when the idea was hatched. And all founders should have their stock vest over time. This is a must-do.

I don't have any firsthand experience with this method, but it purports to address exactly the situation you described. The author teaches at the Kellogg School of Management and at the University of Chicago. See:  http://slicingpie.com/

And here's an article I wrote on this topic a few years ago:  http://tech.co/prenups-startups-structure-founding-teams-2013-09

Neil Kane
Director of Undergraduate Entrepreneurship
Michigan State University
nkane@msu.edu
Cell: 312-404-3507


-----Original Message-----
From: Entrepreneurship Division Listserv [mailto:ENTREP@AOMLISTS.PACE.EDU] On Behalf Of BOYD DEREK COHEN
Sent: Friday, July 15, 2016 4:40 PM
To: ENTREP@AOMLISTS.PACE.EDU
Subject: [ENTREP] Disputes with MBA Startup Teams-Equity, etc

Hello all,
Curious if any of you are aware of best practices related to addressing equity distribution amongst startup teams in MBA programs.

I have seen this unfold so many times and I always advise teams to think about this from the very beginning but they never paper anything even when they do get around to debating it.

My wife is now getting her executive MBA and she has an idea with significant potential. Due to obligations of the MBA program, they have to do a business plan in teams (I know we already discussed the relevance of business planning for MBAs). In her case the project she is leading was her idea and she is seriously thinking about trying to launch it when she graduates.  In fact there are angels already showing interest in the project.

But her team is not the right one to bring this to market and we are exploring ways to ensure the team is only together for the academic portion. I guess the good thing about not implementing a lean startup approach at the moment is all they will likely have is a business plan at the end, not executed MVPs, or incorporation, etc.

But do any of your universities have formal ways of dealing with this? It appears some of the students who were not that excited about the project in the beginning are now intrigued because it is getting investor interest.

My suggestion to her was to implement a vesting model from the beginning and suggest no-one, herself included would be entitled to any equity in the startup if they were not actively (near 100%) participating in the venture for the 12 months following the completion of the EMBA (with full vesting up to 3 years).  That alone would knock out most of her team who would likely to be free riders and not interested in a full time commitment since most have jobs they probably don´t want to leave anyway.

There still could be a few other teammates who would want to stay on but may not be strong enough teammates for her.  In her case it would be nice if she could arrange that she had some kind of authorization to determine who (if any) would be invited for executive roles following graduation.

Anyway, love to hear your recommendations or examples of how your universities manage this situation.

Cheers,

Boyd
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Ventures HO!

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Ventures HO!

--

In addition the the additional comments below, my quick take on this is that the MBA program is decreasing the chances the venture will be successful with how the assignment is structured. This is how I address this issue:

For people who are seriously building a company, they can select their own teammates, including selecting people who are not in the class/program. This makes additional work for me, but it shifts the conversation from "how can the entrepreneur find a way to work within a set of rules" to "what are the the ways the University can help the entrepreneur learn as much as possible from the exercise and how can the University be a catalyst in building the company?"

Respectfully, 

Jon

Sent from my iPad

On Jul 16, 2016, at 7:56 AM, Xin Wang <jenniferw@UST.HK> wrote:

With some limited experiences with venturing team, I might suggest her also consider the exit rules of current classmates if current partners are not strong enough. The details of the exit could be open up for equity adjustment as well as reduce or give up of decision-making power.

 

Indeed the exit rules not only apply to current weak partners but also valid along the process the venture grow and develop even current partners are strong: different stage of venturing demands different capability sets so even strong partners might become obsolete if not learning fast enough.

 

All these are rational logics. But venturing is a process of dealing with people  so more important is how to make the participants of the venturing feel fair and motivated.

So they together can make a great business.

 

Best luck!

 

Jen

 

From: Entrepreneurship Division Listserv [mailto:ENTREP@AOMLISTS.PACE.EDU] On Behalf Of Alex DeNoble
Sent: 2016年7月16日 12:07
To: ENTREP@AOMLISTS.PACE.EDU
Subject: Re: [ENTREP] Disputes with MBA Startup Teams-Equity, etc

 

I was going to recommend that she read very carefully the book Slicing Pie. It is a way to divide up equity based on vesting.  

 

On Fri, Jul 15, 2016 at 3:27 PM, Kane, Neil <nkane@broad.msu.edu> wrote:

The solution is to award equity based on the contribution people make to the development of the business--the true value add--and not the business plan and not just because they were present when the idea was hatched. And all founders should have their stock vest over time. This is a must-do.

I don't have any firsthand experience with this method, but it purports to address exactly the situation you described. The author teaches at the Kellogg School of Management and at the University of Chicago. See:  http://slicingpie.com/

And here's an article I wrote on this topic a few years ago:  http://tech.co/prenups-startups-structure-founding-teams-2013-09

Neil Kane
Director of Undergraduate Entrepreneurship
Michigan State University
nkane@msu.edu
Cell: 312-404-3507


-----Original Message-----
From: Entrepreneurship Division Listserv [mailto:ENTREP@AOMLISTS.PACE.EDU] On Behalf Of BOYD DEREK COHEN
Sent: Friday, July 15, 2016 4:40 PM
To: ENTREP@AOMLISTS.PACE.EDU
Subject: [ENTREP] Disputes with MBA Startup Teams-Equity, etc

Hello all,
Curious if any of you are aware of best practices related to addressing equity distribution amongst startup teams in MBA programs.

I have seen this unfold so many times and I always advise teams to think about this from the very beginning but they never paper anything even when they do get around to debating it.

My wife is now getting her executive MBA and she has an idea with significant potential. Due to obligations of the MBA program, they have to do a business plan in teams (I know we already discussed the relevance of business planning for MBAs). In her case the project she is leading was her idea and she is seriously thinking about trying to launch it when she graduates.  In fact there are angels already showing interest in the project.

But her team is not the right one to bring this to market and we are exploring ways to ensure the team is only together for the academic portion. I guess the good thing about not implementing a lean startup approach at the moment is all they will likely have is a business plan at the end, not executed MVPs, or incorporation, etc.

But do any of your universities have formal ways of dealing with this? It appears some of the students who were not that excited about the project in the beginning are now intrigued because it is getting investor interest.

My suggestion to her was to implement a vesting model from the beginning and suggest no-one, herself included would be entitled to any equity in the startup if they were not actively (near 100%) participating in the venture for the 12 months following the completion of the EMBA (with full vesting up to 3 years).  That alone would knock out most of her team who would likely to be free riders and not interested in a full time commitment since most have jobs they probably don´t want to leave anyway.

There still could be a few other teammates who would want to stay on but may not be strong enough teammates for her.  In her case it would be nice if she could arrange that she had some kind of authorization to determine who (if any) would be invited for executive roles following graduation.

Anyway, love to hear your recommendations or examples of how your universities manage this situation.

Cheers,

Boyd
**************************************
This message is from ENTREP which is sponsored by the Entrepreneurship Division of the Academy of Management.

Please do not post messages with attached files. Commercial messages or spammed messages are not allowed on the list.  The use of auto-responder "out-of-office" messages may also lead to your removal from the list.

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If you have questions or need help, please contact Jeff Pollack (jeff_pollack@ncsu.edu) or Kevin Cox (kcox24@my.fau.edu).

Ventures HO!

**************************************
This message is from ENTREP which is sponsored by the Entrepreneurship Division of the Academy of Management.

Please do not post messages with attached files. Commercial messages or spammed messages are not allowed on the list.  The use of auto-responder "out-of-office" messages may also lead to your removal from the list.

You can manage your subscription options, including joining or leaving the list here:
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If you have questions or need help, please contact Jeff Pollack (jeff_pollack@ncsu.edu) or Kevin Cox (kcox24@my.fau.edu).

Ventures HO!

 

--

Alex F. DeNoble

Professor & Executive Director

SDSU Lavin Entrepreneurship Center

Immediate Past President

United States Association for Small Business & Entrepreneurship (USASBE)

************************************** This message is from ENTREP which is sponsored by the Entrepreneurship Division of the Academy of Management. Please do not post messages with attached files. Commercial messages or spammed messages are not allowed on the list. The use of auto-responder "out-of-office" messages may also lead to your removal from the list. You can manage your subscription options, including joining or leaving the list here: http://aomlists.pace.edu/scripts/wa.exe?SUBED1=entrep&A=1 If you have questions or need help, please contact Jeff Pollack (jeff_pollack@ncsu.edu) or Kevin Cox (kcox24@my.fau.edu). Ventures HO!

************************************** This message is from ENTREP which is sponsored by the Entrepreneurship Division of the Academy of Management. Please do not post messages with attached files. Commercial messages or spammed messages are not allowed on the list. The use of auto-responder "out-of-office" messages may also lead to your removal from the list. You can manage your subscription options, including joining or leaving the list here: http://aomlists.pace.edu/scripts/wa.exe?SUBED1=entrep&A=1 If you have questions or need help, please contact Jeff Pollack (jeff_pollack@ncsu.edu) or Kevin Cox (kcox24@my.fau.edu). Ventures HO!

************************************** This message is from ENTREP which is sponsored by the Entrepreneurship Division of the Academy of Management. Please do not post messages with attached files. Commercial messages or spammed messages are not allowed on the list. The use of auto-responder "out-of-office" messages may also lead to your removal from the list. You can manage your subscription options, including joining or leaving the list here: http://aomlists.pace.edu/scripts/wa.exe?SUBED1=entrep&A=1 If you have questions or need help, please contact Jeff Pollack (jeff_pollack@ncsu.edu) or Kevin Cox (kcox24@my.fau.edu). Ventures HO!