Per magne Sviggum








Jan 2015 - Sep 2016

By Per magne Sviggum

Eating IRR in Silicon Valley

With leading industry professionals candidly sharing their insights from their experiences as entrepreneurs and investors in Silicon Valley our Entrepreneurial Finance module effectively became supercharged last week. The EMBA module builds on concepts studied in core Business Finance, and through a great mix of academic and practical knowledge Professor Tim Jenkinson and industry veteran Allan Morgan provided us with a detailed view of how a successful venture is a product of fruitful cooperation between investors and entrepreneurs.

As you would guess, it’s not all about the money – access to networks, experience, talent, partners and lawyers also play an important role – but getting the financial structure right can mean the difference between maintaining or losing control over your venture. The many guises of financing terms can be daunting for a budding entrepreneur, but after this course we are far better equipped to understand and assess the implications of common venture contracting terms.

Silicon Valley is so named for its history as home to numerous silicon chip manufacturers and refers originally to the Santa Clara Valley, which runs along the southern San Francisco bay area. It has witnessed spectacular booms and busts, most notably with the dotcom bubble around the turn of the millennium, but despite that the end of its success has been predicted several times, the later rise of multi-billion dollar enterprises such as Uber, WhatsApp, and Airbnb undeniably testifies to the contrary and rather cements Silicon Valley’s position as a major innovative force in the world. Many attempts have been made to duplicate this ecosystem elsewhere, but it has proved very elusive, and that is why it is so inspiring to study the this particular topic on location.

Each day at 06:30 Prof. Jenkinson headed a voluntary 5-mile morning run which took the form of a self-propelled sightseeing tour of Palo Alto. Sights visited include the Stanford University Campus, the business school, track and field facilities, Lake Lagunita and other points of interest such as the HP-garage, where the multi-national Hewlett-Packard was founded in 1939. If you fly in from Europe, the jet lag will have you awake at 4am anyway, so you might as well bring your trainers and get an interesting and invigorating start to the day. Except Wednesday, which was pancake and syrup-day for the early risers who took the opportunity to breakfast at legendary Buck’s . This restaurant is more or less an institution in the ‘Valley’, in which many million-dollar-deals have been signed and heads of state have had their flapjacks.

Of course, we also visited one of the Silicon Valley staples: Google. Here we were greeted by two Oxford MBA alumns who shared their experience from current projects and challenges and brought their nuggets of wisdom, obviously without revealing too much. Confidentiality is taken seriously when news travel with internet speed. Google knows. All in all, we had a very rich week of learning in Palo Alto. Ultimately, one of the greatest challenges facing venture capitalists and entrepreneurs is putting a value on a business idea and what returns each should be entitled to in the event it becomes a huge success. Preferred stock or participating preferred stock? Should return be measured in terms of internal rate of return or money multiples? As any VC will tell you, the only thing certain is that you can’t eat IRR!

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