The entrepSim Entrepreneurship Simulation involves six decisions.
This is the begining of the company’s first year.
At this stage the founder is trying to gather two important resources: money and talent. Since the former is non-existent at that stage, he will try to induce some people (from our pool of virtual talent) to commit to the venture by offering them a compensation package (salary + percentage of the firm). The decisions emulate a negotiation between the parties. No money is spent at this stage.
Only at the end of the round will be known what team has been gathered. This team’s first job is to convince a group of interested business angels to make offers to invest on the new venture.
At this stage players receive their first output, which includes the result from the previous negotiation, the actual offers made by the business angels and financing options for the R&D equipment.
In this round founders face the cash vs dilution dilemma when approaching the business angels. They have to select between different R&D equipment alternatives and also have to make a difficult lease vs buy decision.
At this stage the company is likely to have ran out of money or not having invested enough on R&D or both.
With a better understanding of the funding requirements to create a working prototype for his revolutionary technology the founder decides to negotiate with venture capitalists.
At this round the typical important decisions concern the level of Intellectual Property protection (and corresponding costs), improving the team by hiring more qualified talent and select among several term sheets presented by very different venture capital firms. Several trade-offs have to be faced.
When we reach this round several companies have developed a working prototype. Others are close to it. Either way it becomes clear that the developed product is far away from clients’ expectations. From this round on, improving the product’s value proposition (through a better combination of its characteristics) become the critical issue for the firms. There is available (at a cost) sufficient data that allows participants to segment the market and develop a product that suits a particular segment. However, some segments are more attractive for someone with such a disruptive technology than others.
For companies with a working prototype a new important challenge is posed: manufacturing and selling a product. Many options and trade-offs are posed. The main goal is to highlight the fact that developing a complex technology is not enough. participants frequently get frustrated with their difficulty in accessing the three big buyers who represent roughly 50% of this market. These may provide feedback. And from this round on, being able to reach them via the right contacts, right financial support (VC or strategic investors) and especially the right product become the critical issues for these firms.
The technological, manufacturing and commercialization challenges require the ability to retain and attract key talent for the firm. Player will have to make important decisions on this issue.
Another venture capital round takes place. Another difficult decision. Many trade-offs at stake.
For some companies the initial technology is on track. The critical issue becomes improving the value proposition and start getting accepted by the key clients. For these, the possibility to develop a new even more revolutionary product. Their challenge is also to quickly grow their sales, get out of the “valley of death” and become cash-flow positive.
Other firms may be struggling to develop a decent product.
Others will start struggling for survival.
All teams will be on a commercialization phase, but with very different results.
Regardless of how well they are doing, all will have to face difficult recruitment / retention challenges and a very difficult financing decision. Some will face the difficult choice between doing another venture capital round or take funding from a corporate strategic partner (strings attached).
Venture capitalists want to exit their investment and decide to prepare the company for sale.
For the founders, while developing their product(s), improving its manufacturing, boost its sales, manage its talent pool the challenge of preparing the company for a sale is just something new they have to deal with.
Others will simply try to rescue whatever possible.
The company will be valued based on its actual sales and profitability performance but also on the state (including its acceptance by prospective buyers trying it) of its latest technology. Thus, it won’t pay to shut down R&D in order to get better numbers at exit.