The Entrepreneurship Game 1 So many questions haunting us... Dangerous thoughts of what could go wrong Against the odds, we must carry on We must be strong and fearless Neville Brothers Starting a company seems like a daunting task. Entrepreneurs need to deal with a great variety of issues. I believe that there are a few basic skills that can be learned before engaging in an entrepreneurial venture. In our class discussions we will sharpen our understanding of the entrepreneurial process by discussing and analyzing business problems that entrepreneurs face. This I believe is a fundamental preparation for anyone interested in entrepreneurship. But entrepreneurship is also about action. How can one gain some experience? One suggestion is to start a company, make lots of mistakes, lose lots of money and have all your friends and relatives coincidentally arrange to be out of town for your birthday party. A hopefully less painful alternative is to play the Entrepreneurship Game. The Entrepreneurship Game has one simple objective: To experience the challenges of starting and financing a new company The fundamental idea of the game is to simulate the process of starting and financing a new company. You will go through this process as an entrepreneur and as an investor. As an entrepreneur you will have to find your own business opportunity, communicate your idea to other people and negotiate funding with investors. Some of you will be successful in obtaining (fictional) funds to start your company, while others will get to ponder why nobody financed their business idea. As an investor you will learn to recognize good business opportunities, to mentor and critique entrepreneurs, to make hard choices about which companies to finance, and to negotiate terms with entrepreneurs. Entrepreneurs rely on the resources and cooperation of other people and businesses. Throughout the Entrepreneurship Game you will focus on how to communicate your business ideas and even your personality. This is fundamental to the entrepreneurial process. It will give you an opportunity to learn from your peers, and hopefully to see how they are learning from you. 1 Copyright Thomas Hellmann, 2005. This document contains teaching related materials. All rights reserved.
Maybe the most important aspect of the game is to play it with a positive and entrepreneurial spirit. The game is meant to be an opportunity to explore new dimensions, to be creative, and also to have fun. Overview of the Game We will work in teams. Teams will have dual roles, both as entrepreneurs and investors. As entrepreneurs, teams will develop a business opportunity. They will write a business proposal, which can be thought of as a reduced version of a business plan. The focus of the game will be less on the writing of a picture-perfect business proposal and more on communicating the content of the business proposal to various parties. As investors, teams will evaluate the business plans of other teams, and provide constructive feedback. Entrepreneurs will try to obtain fictional financing from the investors. Naturally, not everyone will get financed. To create a competitive market place, we will use the following simple rules. To be funded as entrepreneurs, a team needs to find a syndicate of exactly two other teams that wants to provide funding. As entrepreneurs, each team either obtains funding from a syndicate of two, or no funding at all. As investors, each team either funds one entrepreneurial team (as part of a syndicate with another investor), or no team at all. The former is preferred, i.e., it is encouraged that each investor becomes part of a syndicate that finances an entrepreneurial team. There are two obvious rules about conflicts of interest. First, no team can finance itself. Second, a team cannot both invest in another team and also receive funding from that same team. The objective for the entrepreneurs is to obtain financing at a good valuation. As you can see, in this game it is not good enough to have a good idea. You really need to convince investors that your idea is the best. The process of starting a company often takes several years, but we will have about three months. The experience will be intense and it will be important to stay on schedule. There will probably be a few moments where you wished you had more time for some things, and in reality you might want to spend more time on identifying the best opportunity or writing a full-fledged business plan. But time pressure is not unrealistic. Name me one successful start-up company where things have not been hectic! The art of entrepreneurship is not to do things perfectly, but to do the best given the circumstances. The same principle will apply to the Entrepreneurship Game. There will be two consecutive sections of this undergraduate elective. There will not be two separate games, but one integrated game. It will be possible to form teams across the two sections. I will ask you to work with me through any scheduling difficulties that this might involve.
Grading of the Game You will probably find that the main motivation for playing this game comes from being evaluated by your peers and by outside panelists. But since you will spend a lot of time and energy on the game, I will grade your participation in the game. 60% percent of your total grade will come from the game. 10% comes from the class presentation (discussed below). 25% comes from what I call the unweighted team performance. This is simply the grade that a team achieves. Another 25% comes from the weighted team performance. This part of the grade takes into account that within a team there may be differences in terms of how much each team member contributes. The weighted team performance grade is meant to discourage free-riding within teams. It only applies for team of more than two people. At the end of the class, you will be asked to fill out a peer evaluation form. This form asks you to rate the contribution of all your team members by assigning a percentage score to each member. These scores will be used to calculate the weight that will be applied to the individual s teamwork as illustrated by the example below. Note that the weights for all team members have to add up to 100%. Percent given to A to B To C % by A NA 50 50 given by B 75 NA 25 by C 60 40 NA Total 135 90 75 Suppose the team mark was 50 points then: A would get 1.35 x 50 = 67.50 B would get 0.90 x 50 = 45 C would get 0.75 x 50 = 37.5 To determine these weights, you will be given the following team member evaluation form
TEAM MEMBER EVALUATION FORM (to be submitted by XXX) Team Name: Your Name: DO NOT RATE YOURSELF. And make sure that the weights for all other team members add up to 100%. Team Member's Name % Effort (scale 1-100%) If you fail to return or fill out the feedback form by end of the last day of class, I will simply assign equal weights to all of your team members. I will not assign grades on individual assignments. Instead I will use all of the information that I can observe in the game to come up with an overall evaluation of your performance. To give you an idea of what I am looking for, let me explain the broad criteria that I use to evaluate game performance. The over-arching objective is how well you reason through and communicate your own business ideas. Clearly it matters that you come up with a reasonable business proposition, but what I care most about is not the quality of that idea itself but instead how you justify and explain your opportunity. I look at the thoroughness of your analysis, at the logic of your ideas, and at the clarity with which you communicate them. Finally I look at how you respond to the various suggestions and challenges in the game. All assignments are due in class on the days indicated. Any missed assignment will impact your grade. Any late assignment is considered a missed assignment. Class presentations As mentioned above, communication is very important in the game. In order for all of us to learn from each other, and in order to learn to present, each team will have the opportunity to present to the class. I will set aside several classes for class presentations. I also expect a high standard for these presentations.
Team meetings During the game I want to stay in touch with you and be aware of the progress you make and the challenges you face. I also want to have the opportunity to provide you with some feedback or to ask you more questions about your business idea. In addition to our informal contacts I will meet with each group in my office to discuss their business opportunities. Protection of intellectual property Some of you may consider pursuing your opportunity for real after the game. Each person is responsible for protecting his or her intellectual property. I suggest that you avoid disclosing any information that you consider confidential. Some of the assignments are meant to be distributed to other people in the class. If you are worried about intellectual property issues, you may elect not to have parts or all of an assignment distributed to other people in the class. Please let me know if you are choosing this option. If you are uncertain about what to do with any particular assignment, you are welcome to ask for clarification anytime. Pre-existing and concurrent business plans Some of you may already have a business plan, or be simultaneously writing a business plan in another class. I have nothing against you using this, but you must let me know about this as soon as possible, as I will evaluate your efforts in the game to an appropriately higher standard. I am greatly looking forward to working with you in the entrepreneurship game. Thomas Hellmann
Main steps for the Entrepreneurship Game (Based on 10 weeks of teaching, timing modified as needed) Assignment 1: (First week) This is an individual assignment, not a team assignment! Please submit via Email two entrepreneurial ideas of yours. Briefly describe each idea in one paragraph. The assignment should fit on a single page. Assignment 2: (Second week) Please submit via Email the name of your team, and the people who are part of your team. Assignment 3: (Fourth week) You are asked to write up a preliminary document about your opportunity and strategy. The document is typically between 4-6 pages long, and typically contains the following sections: 1.) Executive summary 2.) Customer / target market analysis 3.) Strategy: including business model and competitive advantages You will need to distribute three electronic copies of this document. The first two copies are for your two mentors. The third copy is for me. Please make sure to hand in your documents in time, otherwise you will derail everybody else s time schedule.
Assignment 4: (Fifth week) You are asked to review two business plans from other teams. The mentoring feedback should focus on making critical and constructive comments. For each team you should provide some written feedback, typically about two pages per plan. For each feedback, you should send one copy to the team and one copy to me. Between assignment 4 and 5, I usually have class presentations. In addition I meet with every team in my office for 30-45 minutes. Assignment 5: (Seventh week) You are asked to write up a draft business plan, including financial projections. The document typically contains the following sections: 1. Executive summary 2. Customer / target market analysis 3. Strategy: including business model and competitive advantages 4. Marketing and Operations 5. Risks 6. Management Team (incl. résumés) 7. Financial Projections You will need to distribute three electronic copies of this document. It is recommended that you include the spreadsheet with the financial projections. The first two copies are for your two critics. The third copy is for me. Please make sure to hand in your documents in time, otherwise you will derail everybody else s time schedule.
Assignment 6: (Eight week) You are asked to critique two business plans from other teams. The feedback should focus on making critical and constructive comments, including on the financial projections. For each team you should provide some written feedback, typically about two pages per plan. For each feedback, you should send one copy to the team and one copy to me. Between assignment 6 and 7, I usually have class where students have time to make their deals. I might also have a final short presentation for each team. Assignment 7: (Tenth week) Each team should submit two items. 1.) You are asked to submit your final business plan. There is nor preset format, except that the main body (excluding CVs, financials and appendices) should not exceed 20 pages. For many business plans, it is useful to include sections on 1. Executive summary 2. Customer / target market analysis 3. Strategy: including business model and competitive advantages 4. Marketing and Operations 5. Risks 6. Management Team (incl. résumés) 7. Financial Projections It is recommended that you include the spreadsheet along with your financial projections. Any late submissions will affect your grade 2.) Every team is responsible for submitting a class term sheet for the investment that they made in the entrepreneurship game. If no investment was made, a brief explanation will be required for this. All term sheets are to be handed in class. Team sheets need to be signed by both the investor team and the entrepreneurial team that is receiving the (fictional) funding.
Class Term Sheet 2 Investor Team (Names and Team Number) Identify of investor team (VC, angle, FFF, other) Entrepreneurial Team (Names and Team Number) Syndicate Investor Team (A separate sheet is needed for each investor) Total amount of fictional funding provided by the syndicate Price per share Number of shares held by entrepreneurial team Number of shares received by the two investor teams Number of shares allocated to an option pool Pre-money valuation (incl. option pool) Post-money valuation Types of investor shares (e.g. common, simple convertible preferred, participating preferred, type of multiple liquidation preferences, etc.) Composition of the board of directors Other clauses (e.g. vesting, milestones, etc.) Investor Signatures Entrepreneur Signatures 2 This class term sheet is part of the entrepreneurship game, and does not have any real legal validity of any kind.