The Startup Company Bible: For Entrepreneurs: The Complete Guide For Building Successful Companies And Raising Venture Capital

by Stathis, Michael George

• ISBN13: 9780975577615
• ISBN10: 0975577611
• Format: Paperback
• Copyright: 2004-10-31
• Publisher: Lightning Source Inc

Table of Contents

Introduction	xxiiv
Part I: Preparing For Financing
Entrepreneurship 101: Establishing Your Company
People	3	(9)
Know Thyself	3	(2)
Forming Your Management Team	5	(4)
Forming Your Boards	9	(2)
Realizing When You Need Help	11	(1)
Purpose	12	(8)
Vision and Mission Statement	12	(5)
The Business Model	17	(2)
The Business Plan	19	(1)
Technology	20	(1)
Money	20	(6)
Equity	21	(1)
Common Stock	21	(1)
Preferred Stock	21	(2)
Stock Dilution	23	(1)
Debt	24	(1)
Mezzanine Financing	24	(1)
Derivatives	25	(1)
Strategy	26	(14)
Establishing Your Core Competency	26	(1)
Market Profiling and Forecasting	26	(2)
Market Segmentation Analysis	28	(1)
Marketing Strategy	29	(1)
Financial Strategy	29	(2)
Asset Management	31	(1)
Net Cash Flow versus Net Profits	31	(1)
Cash Management	32	(1)
The Working Capital Cycle	33	(4)
Growth Considerations	37	(3)
Legal Contracts	40	(2)
Founder's Agreements	41	(1)
Nondisclosure Agreements	41	(1)
Noncompete Agreements	41	(1)
The Boring Details	42	(11)
Selecting a Business Structure	42	(1)
Corporate Charter and Bylaws	43	(1)
Shareholder's Agreement	44	(1)
Stock Record Book	44	(1)
Business and Liability Insurance	45	(1)
Selecting and Starting a Business	46	(7)
Venture Capital & Private Equity Basics
The Importance to Venture Capital to Our Future Economy	53	(7)
Historical Background	54	(2)
The Venture Capital Investment Framework	56	(1)
Venture Capital as an Investment	56	(4)
Understanding Venture Capital	60	(11)
Venture Capital versus Private Equity	60	(2)
Venture Capital Structure	62	(2)
Valuation	64	(1)
Compensation	64	(2)
The VC Process	66	(2)
Venture Financing	68	(3)
Exit	71	(1)
Modern Portfolio Theory	71	(8)
Portfolio Risk	73	(1)
Risk and Reward	74	(3)
The J-Curve Phenomenon	77	(2)
Venture Capital Risk Management	79	(4)
Venture Capital Due Diligence	79	(1)
Term Sheets	80	(1)
Syndicates	81	(1)
Staging of Investments: Tranches	82	(1)
Liquidation	82	(1)
What Entrepreneurs Can Expect	82	(1)
Difficulties Faced By Venture Capitalists	83	(6)
Management Fees and Carried Interest	84	(1)
Transparency and Disclosure Controversies	85	(4)
Fundamentals of Raising Capital
Financing Decisions	89	(3)
Getting the Money	92	(12)
Focus on the Smart Money	93	(2)
Prospecting Rules to Remember	95	(9)
Prospecting Angels and VCs	104	(2)
Sources of Capital	106	(11)
Startup (Seed) Capital	106	(5)
Early Stage Capital	111	(2)
Expansion Capital	113	(4)
Private Placement Memorandum	117	(4)
Overview	117	(1)
Registration Requirements and Exemptions	118	(3)
Investor Presentations	121	(4)
Investor Profiles: VCs, Angels, and Incubators
Introduction	125	(3)
Deal Flow	128	(4)
Angel Networks	131	(1)
Venture Capital Networks	131	(1)
Angels	132	(4)
Historical Background	132	(1)
The Angel Profile	133	(3)
Private Venture Capitalists	136	(8)
Think Like a VC	137	(3)
Profiling Guidelines	140	(2)
New versus Established VCs	142	(2)
Corporate Venture Groups	144	(2)
Incubators and Accelerators	146	(11)
Historical Background	146	(2)
Incubators	148	(2)
Accelerators	150	(1)
Due Diligence	151	(6)
Part II: Building the Company
Intangible Assets & Intellectual Property
Intangible Assets	157	(3)
Intellectual Capital	160	(3)
Codified versus Tacit Knowledge	162	(1)
Intellectual Property	163	(27)
Copyrights	163	(1)
Patents	163	(1)
Historical Background	164	(1)
Types of Patents	165	(1)
Provisional Patents	166	(1)
Conducting a Patent Search and Analysis	167	(2)
Filing For a Patent	169	(3)
The Patenting Process	172	(1)
Patent Portfolios	172	(1)
Patent Valuation	173	(7)
The Startup Company Holy Grail: Serial Innovators	180	(2)
Trade Secrets	182	(2)
Keeping a Secret	184	(1)
When to Use Trade Secret Protection	185	(1)
Enforcement of Trade Secrets	186	(2)
Trademarks and Service Marks	188	(2)
Software: A Unique Intangible Asset	190	(1)
Conclusion	190	(5)
Forming Competitive Strategies
From Business Model to Strategy	195	(7)
Positional Strategy versus Operational Effectiveness	196	(3)
Strategic Approaches for Network Industries	199	(1)
Strategies for Network Effects	200	(2)
The Competitive Environment	202	(17)
Price Competition	202	(1)
Factors Affecting Price Competition	203	(1)
Competitive Pricing Relationships	204	(1)
The Five Forces Framework	205	(4)
Barriers to Market Entry	209	(3)
Competitive Response to New Entrants	212	(2)
Scaling the Barriers	214	(2)
Porter's Generic Strategies	216	(3)
Achieving Market Growth	219	(7)
Understanding Product Life Cycles	219	(4)
Methods to Achieve Market Growth	223	(1)
Organizational Integration	224	(2)
Preemptive Strategies	226	(3)
The Preemptive Planning Process	227	(2)
Analyzing Competitive Strategies	229	(4)
Market Trend Line Analysis	231	(2)
Other Techniques	233	(1)
Strategic Planning	233	(4)
SWOT Analysis	235	(2)
Competitive Intelligence	237	(10)
Resources for Market Profiling	237	(10)
Alternative Growth Strategies: Licensing Agreements, Joint Ventures & Strategic Alliances
Strategic Convergence	247	(1)
Technology Conversion	248	(4)
Core Competencies	248	(1)
Methods of Technology Conversion	249	(3)
Licensing Agreements	252	(6)
Out-Licensing	253	(1)
In-Licensing	254	(1)
Cross-Licensing	254	(1)
When to License	255	(2)
How to License	257	(1)
Valuation of Intangible Assets	258	(12)
Prenegotiation Valuation	259	(2)
Litigation Valuation	261	(1)
Determining Royalty Rates	261	(2)
Licensing Valuation Methods	263	(2)
License Valuation Using Real Options	265	(5)
Joint Ventures and Strategic Alliances	270	(6)
Joint Ventures	270	(2)
Strategic Alliances	272	(2)
Alliance and Joint Ventures Management	274	(2)
Franchising	276	(3)
Managing Growth
Introduction	279	(2)
Capital Budgeting	281	(7)
Forming a Project Budget	282	(2)
Net Present Value Approach	284	(2)
Certainty Equivalent Approach	286	(1)
Budget Forecasting	287	(1)
Financial Planning	288	(10)
Percent-of-Sales Method	288	(3)
Cash Turnover Method	291	(1)
Cash Budget Method	292	(1)
Accounting For Project Uncertainties	292	(1)
Real Options	292	(2)
Decision Trees	294	(1)
Scenario Analysis	294	(3)
Game Theory	297	(1)
Financial Statement Analysis	298	(11)
Income Statement	298	(1)
Balance Sheet	298	(1)
Cash Flow Statement	299	(1)
Using Financial Ratios to Monitor Performance	300	(1)
Liquidity Ratios	300	(1)
Cash Flow Ratios	301	(2)
Activity Ratios	303	(2)
Debt and Interest Ratios	305	(1)
Profitability Ratios	306	(1)
Equity Ratios	307	(1)
Market Ratios	308	(1)
Corporate Asset Management	309	(14)
Balancing Long and Short-term Financing	309	(1)
Interest Rates and Inflation	310	(1)
Yield Curves	311	(3)
Managing Current Assets	314	(1)
Managing Accounts Receivable	315	(1)
Managing Accounts Payable	316	(1)
Inventory Management	317	(1)
Cash Management	318	(2)
Intellectual Capital Management	320	(2)
Emotional Management	322	(1)
Forecasting Performance	323	(8)
Self-Assessment	323	(1)
Customer Lists	324	(1)
Using the Product Life Cycle to Reshape Strategy	324	(7)
Part III: Getting the Money
Exit Strategies
Introduction	331	(1)
Venture Capitalists	332	(3)
Investment and Merchant Bankers	335	(4)
Investment Bankers	335	(1)
Merchant Bankers	336	(3)
Initial Public Offerings	339	(14)
The IPO Process	343	(1)
Financial Expense of Going Public	344	(3)
Pre-IPO Valuation Process	347	(4)
Premature IPOs	351	(1)
Venture Capital-backed IPO Timing and Performance	351	(1)
Post-IPO Distributions	352	(1)
Mergers & Acquisitions	353	(7)
Reasons to Merge	354	(2)
Mergers as a Strategic Alternative	356	(3)
Merger Performance	359	(1)
The Acquisition Process	360	(1)
Licensing Agreements	360	(2)
Corporate Restructurings	362	(5)
Terms of Endearment: Term Sheets & Tactics
Introduction	367	(1)
Term Sheet Basics	368	(5)
Term Sheet Valuation	370	(2)
Terms during a Down Round	372	(1)
Terms during an Up Round	373	(1)
Assessing the Terms	373	(16)
Opening Statement	373	(1)
Confidentiality Statement	373	(1)
Amount Raised, Securities Offered, Shares Issued, Price Per Share, and Closing Date	373	(1)
Post-Financing Capitalization	374	(2)
Dividend Provisions	376	(1)
Liquidation Preference	376	(1)
Redemption	377	(1)
Conversion	377	(1)
Antidilution Provisions	378	(1)
Full-Ratchet Antidilution	379	(1)
Weighted Average Antidilution	380	(1)
Narrow-Based Weighted Average Antidilution	381	(1)
Pay-to-Play	381	(1)
Voting Rights	381	(1)
Protective Provisions	382	(1)
Information Rights	382	(2)
Board Composition	384	(1)
Approval Rights	384	(1)
Special Board Approval Rights	384	(1)
Right of First Refusal	384	(1)
Registration Rights	385	(2)
Conditions Precedent	387	(1)
Purchase Agreement	387	(1)
Employee Matters	387	(1)
Legal Counsel	387	(1)
Expenses and Finder's Fees	387	(2)
Tactics	389	(6)
Dealing with Exclusivity	390	(1)
Closing the Deal	391	(4)
Setting Valuation: Supply and Demand, Risk and Reward, Leverage and Control
Understanding Valuation	395	(2)
Valuation Methods	397	(6)
Discounted Cash Flow Approach	398	(2)
Relative Valuation (Market) Approach	400	(1)
Contingent Claims Approach	401	(1)
Asset-Based Valuation	402	(1)
Venture Capital Valuation	403	(4)
Scrutinizing Venture Capital Valuations	407	(16)
Supply & Demand	408	(1)
Risk, Reward, Leverage & Control	409	(14)
Case Studies	423	(8)
Conclusions	431	(4)
Compensation and Employment
Employment Law & Contracts	435	(3)
Contractors & Consultants	436	(1)
Employee Departure	437	(1)
Compensation and Benefits	438	(17)
Cash Compensation	438	(1)
Employee Stock Options and Warrants	439	(2)
Vesting and Valuation of Options	441	(1)
Warrants	441	(1)
Antidilution Protection	442	(1)
NSOs and ISOs	442	(1)
Compensating With Stock Options	443	(2)
ESOPs	445	(1)
Golden Parachutes	446	(1)
Silver Parachutes	446	(1)
Split Dollar Life Insurance	446	(2)
Restricted Stock Plans	448	(1)
Worker's Compensation Insurance	448	(1)
Employee Benefits	448	(1)
Key Employee Life Insurance	449	(6)
Appendices
Appendix A: Legal Agreements
Mutual Confidentiality and Non-Disclosure Agreement	455	(2)
Consulting Agreement	457	(6)
Non-Compete Provision	463	(2)
Confidential Information and Invention Assignment Agreement	465	(6)
Scientific Advisory Board Member Confidentiality, Non-Disclosure and Proprietary Agreement	471	(4)
Investor Questionnaire	475	(6)
Subscription Agreement	481	(6)
Incentive Stock Option Agreement	487	(8)
Stock Option Plan	495	(12)
Repurchase of Common Stock	507	(9)
Appendix B: Business Plan Guidelines
Market and Competitive Analysis	516	(1)
Sales and Marketing Plan	517	(1)
Guidelines for Writing the Business Plan	517	(2)
Executive Summary	519	(2)
Business Plan Outline	521	(4)
Appendix C: Detailed Explanations
Accredited Investors Defined	525	(1)
Effects of Portfolio Diversification on Total Risk Reduction	526	(9)
Venture Capital Due Diligence	535	(7)
Bond Yields and Yield-to-Maturity	542	(2)
Calculating the Alternative Minimum Tax	544	(3)
Appendix D: Competitive Analysis
Market Segmentation Analysis	547	(1)
Competitive Analysis Chart	548	(1)
Business Attractiveness Matrix	549	(1)
The State Department's Contact Numbers	550	(1)
Comparability of Two Licensing Agreements	551	(4)
Appendix E: Investor Groups
State Incubation Associations	555	(5)
Selected Incubators By State	560	(2)
Angel Clubs & Networks	562	(3)
Fund Raising & Venture Networks	565
References