This is an MIT Sloan Management Review article. Most start-up companies today consider overseas expansion from their inception. Yet, says the author, entrepreneurs and their managers often underestimate the cost of expansion and lack a clear conceptual framework for it. On the basis of studying 50 entrepreneurial ventures in more than 20 countries, the author concludes that such ventures follow a variety of different expansion paths. The most successful are those that best manage the constant tensions between resources and opportunities, each of which run the gamut from purely local to worldwide. Offers a framework that defines the choices a venture has at its inception and throughout its life and shows how to use the framework to assess and direct a venture and mitigate developing tensions by anticipating a variety of strategic, financial, organizational, and regulatory factors. Uses case examples of a software company that took a balanced or "diagonal" path (the most common), an air-freight delivery service that progressed from pursuing local opportunities with local resources to pursuing cross-border opportunities with local resources, and a consumer-loan provider that began by pursuing a local opportunity with local resources, then added cross-border resources.
Antidilution provisions are an important element of most financings offered to entrepreneurs by venture capitalists and business angels. Yet few entrepreneurs are familiar with the different types of antidilution provisions and their mechanics. Compares the three most common scenarios for a financing round: no antidilution protection, weighted-average antidilution protection, and full-ratchet antidilution protection. Discusses the nature of antidilution provisions and provides a numerical example.
Introduces Khalid Awan, co-founder of TCS, an entrepreneurial air-express company in Pakistan. Awan has succeeded in building a sizeable company despite serious obstacles, including pressure from the public postal system, an environment prone to corruption, and a nonexistent market for venture capital. The firm largely followed an organic financing strategy and made extensive use of leasing contracts. However, in the aftermath of September 11, 2001, Awan is now faced with a number of questions regarding further expansion of the firm. The tragic events of September 11 will most likely put pressure on the firm's revenues and create considerable uncertainty. Awan is also starting to think about diversification of his personal wealth, which is concentrated almost entirely in TCS. Decisions on all these issues will impact the firm's future financing policies and growth.
Describes T.P. Lee, the founder and CEO of Jinwoong, a 19-year-old entrepreneurial company in Korea that has grown to become the world's largest manufacturer of camping tents. Labeled by Fortune as one of the most promising entrepreneurs in Asia in 1993, Lee faces some serious management challenges by October 1998. Largely due to the Korean financial crisis of 1997-98, Lee must rethink the financing and expansion plans for his firm. To deal with these challenges, he could seek outside funding from two different groups of private equity investors or from a corporate restructuring fund set up by the Korean government. All of these decisions reflect Jinwoong's long-term strategy and Lee's assessment of the different offers.
Addresses the question of how to value cash flows in an international context. Focuses on entrepreneurial ventures, but its content applies to finance issues that arise in established multinational enterprises. Addresses cash flows, discount rates, country risk premium, projecting future exchange rates, and other issues. Also contains an extensive example of a software company that exports services to other countries.
Provides an introduction to depositary receipts. Recently, these instruments have been used with increasing frequency by firms seeking to list their shares on stock exchanges in other countries, especially in the United States. Describes different types of depositary receipts and comments on their prevalence over time. Also discusses issues that managers need to consider when contemplating the issuance of American Depositary Receipts (ADRs).
Just a few years ago, becoming an entrepreneur was pretty simple. All you needed was some idea--any idea--a little experience, and venture capital funds to get you going. Many young people started to believe that entrepreneurship was a viable, even safe, career choice. Older folks, too, underestimated the risks of financing start-ups, and, as a result, they ended up throwing millions of dollars into doomed ventures. The economic downturn has laid waste to those illusions. So now is a good time to ask potential entrepreneurs and their financial backers the hard questions unheeded in the days of the Internet boom: What makes an entrepreneur? What characteristics set successful entrepreneurs apart, enabling them to keep their companies alive even when the going gets tough? This article addresses those questions, reminding us that becoming a successful entrepreneur is decidedly not a squeaky-clean affair; you may end up making powerful enemies, risking your own financial security, or even, in extreme cases, looking at jail time. Specifically, the article explores the key qualities that make someone a successful entrepreneur. Walter Kuemmerle has distilled these characteristics into a kind of litmus test of the following five straight-forward, albeit disquieting, questions you should ask yourself if you are considering starting your own venture: Are you comfortable stretching the rules? Are you prepared to make powerful enemies? Do you have the patience to start small? Are you willing to shift strategies quickly? Are you a closer? Answering these questions honestly will help you decide whether you have what it takes to become an entrepreneur.
Describes the execution of a new economy merger. Officenet, a bricks-and-clicks retailer of office supplies, is sold to an Internet pure-play, Submarino.com. Officenet's founders are in Brazil, where the company recently expanded its operations, and must consider several questions about the company's growth plans and financial position.
Only a few weeks ago, Greg McNally, the CEO of software start-up DataClear, had called an off-site in Montana to celebrate his company's success in racking up $5 million in sales from its first product, ClearCloud--a powerful data analysis package. But that was before his talented and successful head of sales, Susan Moskowski, gave him the news about VisiDat, a British start-up that was testing a data analysis package of its own that was only weeks away from launch. "We need to agree on a strategy for dealing with this kind of competition," Susan had told Greg. "If they start out as a global player, and we stay hunkered down in the U.S., they'll kill us." Because of that news, Greg had changed the agenda of the off-site, instead having Susan present the options for taking DataClear global. The meeting had taken place two weeks ago, at which point the consensus had been to establish a European presence and probably one in Japan. The only question seemed to be whether to do it from scratch or to form partnerships with local players. Did DataClear really need to go global? Should it instead expand into different domestic markets? Should it do both at once? Could the company afford to? In R0106A and R0106Z, four commentators offer their advice in this fictional case study.
Only a few weeks ago, Greg McNally, the CEO of software start-up DataClear, had called an off-site in Montana to celebrate his company's success in racking up $5 million in sales from its first product, ClearCloud--a powerful data analysis package. But that was before his talented and successful head of sales, Susan Moskowski, gave him the news about VisiDat, a British start-up that was testing a data analysis package of its own that was only weeks away from launch. "We need to agree on a strategy for dealing with this kind of competition," Susan had told Greg. "If they start out as a global player, and we stay hunkered down in the U.S., they'll kill us." Because of that news, Greg had changed the agenda of the off-site, instead having Susan present the options for taking DataClear global. The meeting had taken place two weeks ago, at which point the consensus had been to establish a European presence and probably one in Japan. The only question seemed to be whether to do it from scratch or to form partnerships with local players. Did DataClear really need to go global? Should it instead expand into different domestic markets? Should it do both at once? Could the company afford to? In R0106A and R0106Z, four commentators offer their advice on this fictional case study.
Only a few weeks ago, Greg McNally, the CEO of software start-up DataClear, had called an off-site in Montana to celebrate his company's success in racking up $5 million in sales from its first product, ClearCloud--a powerful data analysis package. But that was before his talented and successful head of sales, Susan Moskowski, gave him the news about VisiDat, a British start-up that was testing a data analysis package of its own that was only weeks away from launch. "We need to agree on a strategy for dealing with this kind of competition," Susan had told Greg. "If they start out as a global player, and we stay hunkered down in the U.S., they'll kill us." Because of that news, Greg had changed the agenda of the off-site, instead having Susan present the options for taking DataClear global. The meeting had taken place two weeks ago, at which point the consensus had been to establish a European presence and probably one in Japan. The only question seemed to be whether to do it from scratch or to form partnerships with local players. Did DataClear really need to go global? Should it instead expand into different domestic markets? Should it do both at once? Could the company afford to? In R0106A and R0106Z, four commentators offer their advice on this fictional case study.
Describes the attempt of Texas Pacific Group (TPG), a buyout firm, to purchase a controlling stake in Ducati Motor, the world's leading high-performance motorcycle company, based in Bologna, Italy. Ducati is part of Cagiva Group, a family-controlled industrial group. Cagiva has fallen on hard times and Ducati is the crown jewel in the group. Yet even Ducati is under great financial pressure and short on working capital. Abel Halpern, a partner at TPG, is frustrated because a deal with the owners seems to be an ever-moving target. Although TPG has negotiated with the seller for almost a year. In spite of costly due diligence efforts by TPG, Abel Halpern is now ready to walk away from the deal. In his decision he needs to consider not only valuation and the feasibility of hiring new management to turn the company around but also the feasibility of an eventual exit via the public markets in Italy.
Describes two aspiring entrepreneurs who have just received offering documents for venture funding (known as term sheets) from two venture capital firms. Neither of the entrepreneurs have experience in raising capital and they are wondering how to compare the two proposals and which one to choose. They need to make a decision fast. The documents contain two complete term sheets which are similar in structure but different in important ways. Both term sheets have advantages and disadvantages for the entrepreneurs. Choosing one over the other requires a careful analysis as well as a certain set of assumptions about the growth of Trendsetter, Inc.
Describes Promise, the third-largest consumer finance company in Japan. Promise was created in 1963 by an entrepreneur and has grown rapidly, especially in the 1990s when commercial banks struggled. Promise's core business consists of providing unsecured loans of up to about $10,000 to individuals. The company has maintained an entrepreneurial culture despite its growth. At the time of the case (July 2000), Promise has around 2.2 million customers and is faced with increasing competition and several regulatory changes. Management must make a number of decisions going forward, including new sources of growth and financing, as well as a potential listing on a foreign stock exchange.
Describes TixToGo, a Silicon Valley start-up company that offers online solutions to individuals and organizations that want to offer activities and/or collect registration fees for events over the Internet. A serial entrepreneur and his partner started the company in San Francisco in 1997. While the business model seems quite attractive, TixToGo has had difficulty gaining momentum. The founders have therefore decided to hire Lu Cordova, a manager and entrepreneur with considerable start-up experience as CEO. Her first day on the job is May 18, 1999. TixToGo is also her first job as CEO of a company she did not start. The company has $12,000 in the bank. The monthly burn rate is $30,000. Lu needs to act quickly.
Describes the financing and growth of Infosys, an Indian software start-up. Infosys defies a number of stereotypes about barriers to entrepreneurship in India. The company was founded by a small group of entrepreneurs with little equity and without backing from a large family conglomerate. While Infosys has been very successful recently, there was also a highly uncertain period in the company's history. At the time of the case, Mr. Murthy, Infosys' CEO, and his team once again face important challenges regarding future growth and financing. Infosys' shares trade on the Bombay Stock Exchange. The company must decide whether it should seek to also list its shares on a U.S. stock exchange and, if yes, whether to list on NASDAQ or NYSE.
Describes a potential trans-Atlantic merger between two young companies in the Internet space. VacationSpot.com, based in Seattle, and Rent-A-Holiday, based in Brussels, both offer online listings and reservations for independent leisure lodging (i.e., villas, apartments, and bed and breakfast places) around the world. Both companies were started in 1997. At the time of the case (April 1999), the two companies are world-market co-leaders and discussing a merger. While the lodging inventory of both companies is very similar, their most recent post-money valuations have a ratio of approximately 9:1. Merger negotiations have come to a standstill over the valuation issue. Both sides need to decide whether to restart negotiations and what terms to propose.
Signature Security, an entrepreneurial company, was created to roll up the electronic security industry in Australia and New Zealand. Signature was created by a team of experienced U.S. managers. Original financing was provided by Clairvest, a Canadian merchant bank. Twenty-six months after the original investment, some of the parties in the deal are reassessing their position. Clairvest and other investors are wondering when and how they should exit. Jim Covert, the CEO, is wondering whether and when he should move back to the United States. Both questions are closely related to the future strategy of the firm.