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Follows three graduating HBS students as they build a business-to-business Internet venture and highlights the challenges they confront in structuring financing terms with venture capitalists. Requires students to carefully read a six-page term sheet to identify which provisions should and should not be accepted.

Highlights how multiple rounds of financing work in practice and illustrates how terms agreed to in early-stage financing deals have an impact in later financing rounds. Also illustrates ethical issues that entrepreneurs confront as they build "dot-com" ventures.

Spin Master Toys was a Canadian manufacturer of toys ready to produce its latest product, E-Charger, an electrically powered model airplane. The operations manager had to decide which supplier should design and manufacture this new product. The timeframe from design to delivery was very short, requiring an accelerated development schedule. The company had a short list of two potential companies, both located in the major toy manufacturing district of southern China, near Hong Kong. The operations manager had to develop the appropriate criteria for this decision and evaluate the two suppliers. With relatively little information and already behind schedule, the company must make its decision in the face of considerable uncertainty. The supplemental cases Spin Master Toys (B): A New E-Chargers Supplier? (product 901D02) and Spin Master (C): Keeping the E-Chargers' Wings On (product 901D03) follow the progress and the challenges of the production of the E-Charger.

A manufacturer had been selected to produce Spin Master Toys' new product, E-Charger. Two weeks into the product design process, the operations manager was concerned because the manufacturer's progress was unsatisfactory and that, as a result, Spin Master Toys would likely miss its shipping date for the product launch. His options were to push ahead with the current supplier, try to negotiate with the other company that quoted on the contract, or look for yet another supplier. He had to evaluate the options and the impact each would have on meeting the shipping date. This is the second in a three case series that follows the selection of a manufacturer and the progress of the production of a new product. The accompanying cases are Spin Master Toys (A):Finding a Manufacturer (product 901D01) and Spin Master Toys (C): Keeping the E-Chargers' Wings On (product 901D03).

A few weeks after production started on Spin Master Toys latest product, E-Chargers, an electrically powered model airplane, the operations manager had to deal with a persistent and serious quality problem; up to 30 per cent of the current production of the wings were substandard. He knew he had to do something fast. The company could not afford any more supply problems. This is the third case in a three case series that follows the selection of a manufacturer and the progress of the production of a new product. The accompanying cases are Spin Master Toys (A):Finding a Manufacturer (product 901D01) and Spin Master Toys (B): A New E-Chargers Supplier? (product 901D02).

The purpose of this case is to present a series of strategic issues faced by a $1 billion company. The situation called for a major restructuring immediately followed by a hostile takeover bid. The company won a Delaware State Court decision in the case of the hostile offer.

Supplements The World Trade Organization: After the Seattle Protests.

In establishing joint ventures and nonequity alliances, key clauses are to be negotiated that set out the scope of the agreement and the partners' obligations to each other. Major issues include initial discussions, setting up the joint venture, the parties and framework of contract, performance clauses, restrictions on the partners, and liability. Though not always effective in practice, a confidentiality agreement or nondisclosure agreement (NDA) may be desirable for protecting both companies. This could be combined with lockout provisions that prevent one of the companies from conducting parallel negotiations with a competitor. Especially important is the need to ensure that a legally binding contract is not accidentally entered into at too early a stage. Post-establishment issues include making changes to the contract, dispute resolution, share disposal, and termination. Although lawyers play an important role, no clear dividing line separates so-called legal and business issues, and the commercial managers will often need to be involved. An argument can be made for involving the managers who will actually be running the joint venture. Managers designing strategic alliances can become more effective by raising their awareness of some of the basic legal and negotiating aspects of collaborative agreements.

Owners of small firms are not likely to give much thought to an accounting system during the planning or implementation phases of their business. The business plan forces them to use pro forma financial statements, and soon afterwards they will need certified accounting methods for meeting the needs of investors, lenders, and taxing authorities. But systems designed solely for those needs often fail to provide the managerial accounting information necessary to operate the venture--to make sound operating, strategic, and tactical decisions. The traditional accounting system relied on to do this is "absorption costing." Absorption costing, however, does not include costs of marketing and distribution. This article demonstrates how activity-based costing (ABC) provides a better framework for gauging the profitability of product lines and avoids some of the distortions caused by absorption costing. ABC is particularly useful in service firms by identifying activities, specifying cost drivers for each activity, calculating charging rates for each activity, and allocating costs to each product/service. In particular, ABC enables the firm to isolate the costs of unused capacity. Simple examples are provided and worked through one step at a time to illustrate the differences in logic and conclusions yielded by ABC as opposed to absorption costing.

This case explains the importance of closing sales quickly and provides a framework for managing the marketing and sales efforts to achieve success. It covers strategic sales management tools; related pricing, finance, product line and service portfolio issues; and selling tactics to provide a comprehensive and complete approach.

Substantially rewritten to establish the relevance of countries in the global context. It does so in terms of their differing economic performance in recent decades, and also by contrasting those that have "converged" toward the rich country norm (as theory would predict) from those that have not. It then develops the country analysis framework, with a scheme to identify context, strategy, and performance. Adds a political dimension, following Sam Huntington's emphasis on the strength of a state/government rather than its form; Hernando de Soto's notion that property rights are more important for most Third World countries than FDI receipts; and Joe Stiglitz's thesis that the notion of differing positions on a common production function is simply not plausible. Thus, advantages remain to be created, and substandard returns should be expected in order to catch up. In addition, provides an economic strategy matrix for the classification of strategies, or for the analysis of their evolution through time. A short bibliography is included. A rewritten version of an earlier note.

Supplements the case.

The case describes how five telecommunications equipment companies developed their innovative capabilities in order to address technological opportunities and competitive threats in the ""new economy"". Questions are raised as to how the growing importance of the stock market for firms in this industry has impacted on organizational learning and the development of innovative capabilities, in particular in relation to stock-based acquisitions and the use of stock options.

Profiles Rajath Chaundry, an aspiring entrepreneur, as he attempts to secure office space for his growing team, select a lawyer, and continue to build his fledgling enterprise, eLearning.com. Designed to be used in an entrepreneurial management or small business course to illustrate the importance of early negotiations in the life of a business venture.

Abgenix has a unique method for generating antibodies useful in treating a number of diseases, including cancer. In early 2000, the company's cancer has performed very well in animal testing and is moving to early stage human testing. Abgenix must decide whether to sell the product development program to a large pharmaceutical company or to enter into a joint venture to push the product ahead.

Following the BP/Amoco merger in December 1998, CFO David Watson asked Bill Young to recommend when and under what circumstances the firm should use external project finance instead of internal corporate funds to finance new capital investments. As part of this assignment, Young and his team must review each firm's current policy regarding project finance and evaluate the various rationales used to justify its use. Following this review, his team created a new policy statement recommending that BP Amoco finance capital expenditures using corporate funds except in three special circumstances: mega projects, projects in politically volatile areas, and joint ventures with heterogeneous partners. Whether the general rule of using corporate funds and whether the specific exceptions to the rule are appropriate for the merged entity are subjects for class discussion.

Pharmacyclics (NASDAQ: PCYC), a pharmaceutical company that manufactures products that will improve existing therapeutic treatments for cancer, arteriosclerosis, and retinal disease, was considering a $60 million private placement in February 2000. The company had more cash than ever before, but projections of R&D and marketing expenses were also unprecedented. PCYC's most promising oncology drug, a radiation enhancer called Xcytrin, was in Phase III clinical trials--the rigorous final phase before FDA approval for commercialization. Analysts gave the drug a slightly better than 50% chance of success. This case focuses on stage financing and a simple decision-tree evaluation. Students have the opportunity to consider the impact of past staged financing decisions on the ownership structure of the firm and to evaluate the current stock market price in light of analyst forecasts of the cash flow and the probability of success for each drug. These two analyses help inform the private placement decision.

British Petroleum and Amoco were the two largest members of the Azerbaijan International Oil Consortium (AIOC), an 11-firm consortium that was spending $10 billion to develop oil fields in the Caspian Sea. As of March 1999, AIOC had completed a $1.9 billion development project known as Early Oil. The two companies, however, had financed their shares of this project in different ways: BP used internal funds (traditional, on-balance sheet corporate finance), whereas Amoco was one of five AIOC partners that raised $400 million of project finance. Following the BP/Amoco merger in December 1998, managers in the combined firm's finance group had to reassess the Early Oil financing strategy and determine the best way to finance its share of the $8 billion Full Field Development Project. Should it use internal funds, project finance, or a mixture of the two?

Project Achieve is a start-up providing information management solutions for schools. Its founders see a need for software both to manage the volumes of information necessary to administer a school and to connect parents, teachers, and students in a more effective way. Originally funded by angel investors, Project Achieve is raising its first formal round of financing and needs to establish a firm valuation. This case outlines the economics of the business and provides the necessary background figures to build the business model and arrive at a valuation. Explores quantitative considerations of venture financing: 1) value neutrality of equity issuance is illustrated; 2) cost of capital is computed from raw return series, and the appropriate discount rate is selected based on comparables; 3) decision trees are used to highlight the importance of probabilistic thinking; and (4) subscriber models are compared with annual free cash flow models both for determining financial value and as decision-making tools for business choices. In addition, provides a setting to discuss the more qualitative issues involved in choosing investors. In particular, the founders are comparing two options: an infusion of additional capital from current and new investors or an investment from a potential strategic partner. Each option has very different implications for the direction of the business going forward.