Venture Capital Investment Competition: Not Just about Financial Valuation

November 17th, 2010 by under Entrepreneurship, Finance, Leadership and Managing Human Capital. No Comments.

Team Drunken Tiger (Left to Right): Stephen Huie '12, Eric Walthall '12, Femi Oluboyede '12, Ja Eun "Jessica" Kim '12, and Cara Weikel '12. Source: Stephen Huie

This is another tough week:

Last week, I participated in the screening round of the Venture Capital Investment Competition*……and my teammates and I passed!  We had to learn a lot of new things to succeed (e.g. liquidity preference, term sheets, return multiples, pre and post-value, comparables valuation…).

Yet, I don’t think we could have done it without some of the team management and leadership skills we developed in our Leadership and Human Capital Management class.  While I was acquainted to my four other team members, I hadn’t spent too much time with them prior to the competition; I don’t share any classes with them, but I felt that we each, like all Smith students, had a lot of analytical intelligence and emotional intelligence to bring to bear to the task.

However, how well we would function as a team might be a different story.

Writing more than 30 years apart from each other, Patrick Lencioni and Bruce Tuckman both state that developing trust  is the most important part of collaborating.  Although it sounds corny, it was actually extremely effective for us to get together prior to the competition proper to share different parts of our personal background, weaknesses, strengths, and fears.  I was very surprised (my apologies to Profs. Chen and Kudisch) that it actually did put us in the right place to begin having constructive issue based conflict.  I believe the most important factor was that we all approached the process with a great deal of sincerity and honesty…..and the leftover beers we took from after the Consulting Forum may have helped as well….

Besides the regular roles of a project manager, scribe, and facilitator, we also assigned roles and responsibilites to encourage a culture of inquiry and constructive criticism:

  • Someone to encourage debate, challenge assumptions, and call upon those who haven’t voiced their perspective
  • Someone to observe group dynamics
  • Someone to play a Devil’s Advocate

These roles helped us to avoid groupthink and to ask critical questions……..or so we thought……….the problem was that with only two days (less class, less sleep….well, what sleep we did get, at least) to analyze the case and come up with a valuation and present our analysis, we probably rushed through a lot of the ground rules and responsibilities we established in the name of expediency.  This second time around, we’ll have to do our best to keep it together.  But I’m hopeful and I think we do have a chance to win the competition and represent the Smith School at the regional level.

I’m looking forward to the next stage in the competition – we should receive our new business plans in the next…..5 min……..

See how we did!

*The way the competition works is that teams evaluate real business plans and then sit down with the real entrepreneurs behind those plans.  After asking questions about the business plan, the team negotiates a deal with the entrepreneur to get a stake in the company.  Real venture capitalists judge the teams based on their valuations, their interactions with the entrepreneur, and how they field questions.  Teams are given 40 hours to evaluate the business plans.

During the screening round, we were only given business plans and a presentation; there were no interactions with entrepreneurs.