Harvest
What
For many entrepreneurs and their investors, a sale of the business or IPO represents the ultimate milestone to achieve in entrepreneurship. In this process you will, once again, need to determine the value of your business and to whom you will sell your business. This module addresses the topics of "going public," selling to company insiders or outsiders, or endings that involve failure of the business.
Learning Objectives
Upon completion of this module you should be able to :
Explain the costs and benefits associated with taking a company public.
Recite and elaborate on the different ways founders can say "farewell" to their ventures.
Relate the most common reasons why ventures fail.
Instructions
Watch the assigned videos and presentations;
Read the assigned readings;
Complete the practice quiz or other assigned practice activity
Complete the assessment;
Complete the "Mark as Complete" checklist.
Read
Jason D. Rowley. 2017. What Happens When You Sell Your Startup? https://news.crunchbase.com/news/happens-sell-startup/, October 17, 2017, accessed September 5, 2020. Make sure you carefully read the section on Liquidations Preferences and understand the "triggers" that would motivate a holder of preferred shares in your startup (and a holder with some leverage over your startup) to want to liquidate their shares. In some scenarios the founders and their early employees end up with nothing...
RubiconLaw.com, 2020. What is the legal process for selling a business? http://www.rubiconlaw.com/legal-process-selling-business/, accessed July 31, 2020.
Charles Yu. 2020. COVID-19 Could Be The Catalyst For This Decade’s Biggest Companies, https://news.crunchbase.com/news/covid-19-could-be-the-catalyst-for-this-decades-biggest-companies/, September 14, 2020, accessed September 17, 2020.
The Term Sheet – Preliminary Negotiation for a Sale (DelawareInc.com, 2020). Note that the author(s) uses the expression "term sheet" for sale of a business (as opposed to the equity investments we've seen so far). Term sheet is a pretty generic construct.
Tajnikar, M., Dosenovic Bonca, P., & Zajec, L. 2006. Harvesting in High Growth Firms. In S. Parker (Ed.), The Lifecycle of Entrepreneurial Ventures. Springer Science+Business Media, pp. 535-582.
View
Armstrong Harvest Lecture, November 10, 2020
Armstrong Lecture on 11/12 - Harvesting Beatbox Beverages
In this video lecture I explain how to start and complete the assessment activity for this module. You'll take a hypothetical future cap table for Beatbox Beverages and a hypothetical exit (acquisition by Constellation Brands) and determine harvest outcomes using a participating preferred scenario and a non-participating preferred scenario. The differences in absolute cash returns and ROIs are borne out by the differences in how the acquisition amount is divided. Non-participating looks just about as good for the investors as participating, and substantially better for Aimy, Justin, and Brad. But what if the company were acquired for $80M or lower? Or much higher? Approach these cap table setups as scenarios that you can plan for and use to negotiate terms with your investors.
Practice
This practice quiz draws ALL of its questions from the above slide deck under "View" for this module.
Assessment
References
Rowley, J.D. 2017. What Happens When You Sell Your Startup? https://news.crunchbase.com/news/happens-sell-startup/, October 17, 2017, accessed September 5, 2020
Mark as Complete
After you have completed the Videos, readings, practice quiz, and assessment, please return to your course homepage for the next module
New Venture Finance, MGT 481, Fall 2020
New Venture Development, MGT X82, Fall 2020