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Chapter Nineteen

The Harvest and Beyond

Results Expected

Upon completion of this chapter you will have:

1. Examined the importance of first building a great company and thereby creating harvest options.

2. Examined why harvesting is an essential element of the entrepreneurial process and does not necessarily mean abandoning the company.

3. Identified the principal harvest options, including going public.

Teaching Pedagogies

There are four pedagogical options the chapter that you can consider when conducting class sessions. These notes are organized to enable you to create whatever format and blend of these teaching plans that you’d like. The four pedagogies are:

1. a lecture or mini-lecture

2. the traditional case study

3. the use of exercises or role plays

4. a combination of the above.

The syllabi earlier in this Instructor’s Manual (pages 28-53) also illustrate how some in-structors have blended the pedagogies.

Lecture Outline

I. A Journey, Not a Destination.A. Among successful entrepreneurs, the challenge and exhilaration

is primary.

1. They also talk of the venture’s insatiable appetite for cash, time, attention, and energy.

2. Most plan to retire, and most would do it again.

B. For the vast majority of entrepreneurs, it takes 10, 15, or 20

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years to build a significant net worth.

1. In 2002 there were as many as 3.5 million millionaires in the U.S.

2. However, the real value of $1 million has declined due to inflation.

II. The Journey Can Be Addictive.A. For the entrepreneur, the huge workload, many sacrifices, and

possible burnout are real.

B. Maintaining the energy, enthusiasm, and drive to achieve a har-vest may be difficult.

C. Some entrepreneurs wonder if the price of victory is too high.

D. If the entrepreneur doesn’t enjoy the journey, the price may be too high.

III. First Build a Great CompanyA. Wealth and liquidity are results—not causes—of building a

great company.

B. Most successful entrepreneurs get their kicks from growing the company, knowing the payoff will come if they concentrate on the money-making part of the process.

Results Expected #1Examined the importance of first building a great company and thereby creating harvest options.

IV. Create Harvest Options.A. A paradox: Build a great company but do not forget to harvest.

1. The advice: Keep harvest options open and think of har-vesting as a vehicle for reducing risk and creating future entrepreneurial choices.

2. The text uses the example of Brian and Nigel and of Nigel’s unethical approach to harvesting.

3. In a different case, a 100-year-old family business re-fused an attractive buyout offer and, two years later, was forced into bankruptcy.

B. By refusing to explore harvest options, owners may actually in-crease their overall risk and deprive themselves of future options.

C. The text identifies numerous entrepreneurs who sold their com-pany then pursued other dreams.

1. After selling Parenting magazine to Time-Life, Robin Wolaner became head of Time’s Sunset Publishing Cor-poration.

2. Craig Benson founded Cabletron, brought in new leader-ship, then taught at Babson College; he has been elected governor of New Hampshire.

3. After building Marion Laboratories, Ewing Marion

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Kauffman became a philanthropist and sportsman.

D. Entrepreneurs go on to pursue philanthropy, public service, and community leadership; some do so after harvest, some while continuing to build their companies.

V. A Harvest Goal.A. Entrepreneurs who have a harvest goal and craft a strategy to

achieve it are able to go beyond a satisfying job to create value that can result in a capital gain.

B. Setting a harvest goal can:

1. Help an entrepreneur get after-tax cash out of an enter-prise and enhance net worth.

2. Provide a strategic focus that does not sacrifice cus-tomers, employees, and products and services just to maximize quarterly earnings.

3. Create a less stressful environment.

4. Open options with other entrepreneurs, bankers, and the marketplace.

C. “Success breeds success.”

D. Society also benefits.

1. Harvest-worthy ventures provide impact and value added in a variety of ways.

2. These companies contribute most disproportionately to technological innovations, to new jobs, to returns for in-vestors, and to economic vitality.

E. The harvest process results in a recycling of entrepreneurial tal-ent and capital.

F. A harvest goal is a long-term goal of creating real value added in a business.

Results Expected #2Examined the importance of first building a great company and thereby creating harvest options.

VI. Crafting a Harvest Strategy: Timing is Vital.A. A recent survey found as many as 80% of companies only had

an informal plan for harvesting.

1. Only 15% had a formal strategy for harvest in their busi-ness plans.

2. The remaining 5% had a formal harvest plan written after the business plan.

3. Selling is often viewed by the founder as the equivalent to complete abandonment of his or her very own “baby.”

B. Many founders consider selling only when faced with the possi-bility of losing the whole company.

1. In a crisis the company is suddenly for sale—at the wrong time, for the wrong reasons, and for the wrong price.

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2. Most entrepreneurs find that securing customers and gen-erating continuing sales revenue are much harder than they imagined.

C. The Harvest Window.

1. It is better to be selling as the strategic window is open-ing than as it is closing, when valuations are high.

2. If the window is missed, changes in the environment or in the market can collapse the venture’s value.

a. The text uses the example of an entrepreneur whose real-estate business suffered after the stock market crash of 1987.

b. After the dot.com bubble burst, technology and In-ternet entrepreneurs saw their share prices plummet while incurring a huge capital gain tax.

D. Crafting such a strategy cannot begin too early.

1. In 1989-91 banking policies that curtailed credit and lend-ing collapsed the value of companies such as “Cable TV.”

2. In 2001 and 2002 major companies were forced to de-clare bankruptcy in the wake of the dot.com and stock market crash.

3. Failure to preserve the harvest option, and utilize it when it is available, can be deadly.

E. Some guidelines in shaping a harvest strategy:

1. Patience.

a. A sensible time table for a harvest strategy is 3 to 5 years, and can be as long as 7 to 10.

b. Don’t panic as a result of precipitate events.

2. Realistic valuation.

a. Greed can be deadly.

b. Companies that hold out for a “better offer” may find that buyers disappear.

3. Outside advice.

a. Although difficult, it is still desirable to find an ad-visor who can help craft a harvest strategy and yet maintain objectivity about its value.

b. People who sell businesses, such as investment bankers, have as an incentive commissions during a quite short time frame.

c. It can take an advisor years to implement a harvest strategy.

VII. Harvest Options.A. The seven harvest options below seem to occur in the order pre- Results Expected #3

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sented.

B. Capital Cow.

1. The high-margin profitable venture throws off more cash for personal use than most entrepreneurs have uses for spending.

2. The result is a capital-rich and cash-rich company with enormous capacity for debt and reinvestment.

3. The text uses the example of a health care-related venture that used its excess capital to buy back company stock and return to its closely held status.

C. Employee Stock Ownership Plan.

1. Employee stock ownership plans have become popular among closely held companies as a valuation mechanism for stock for which there is no formal market.

2. An ESOP is viewed as a positive motivational device be-cause it creates widespread ownership of stock among employees.

D. Management Buyout.

1. In a management buyout (MBO), a founder can realize a gain from a business by selling it to existing partners or to key managers in the business.

2. Financing can be arranged via banks, insurance compa-nies, and other financial institutions.

3. However, the managers who want to buy out the owners usually do not have the capital.

4. MBOs typically require the seller to take a limited amount of cash up front and a note for the balance.

a. The seller is totally dependent on the ability and in-tegrity of the buyer.

b. The new management may grow the business rapidly and show little profit along the way, de-valuing the seller’s return.

E. Merger, Acquisition, and Strategic Alliance.

1. Merging with a firm is another way for a founder to real-ize a gain.

2. The text uses the example of two founders who merged their computer training firm with a larger company.

a. The larger company had a larger customer base and an internal need for computer training.

b. The two founders retained a 20% ownership and obtained employment contracts and capital ad-vances of $1.5 million.

3. In a strategic alliance, founders can attract needed capital from a large company interested in their technologies.

Identified the principal harvest options, including going public.

Transparency Master 19-1“Harvest Options” gives the seven principal harvest options.

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F. Outright Sale.

1. Most advisors view outright sale as the ideal route be-cause up-front cash is preferred over most stock, even though stock can result in a tax-free exchange.

2. In a stock-for-stock exchange, volatility of the pur-chaser’s stock price can decimate the value of the deal.

3. Often the acquiring company wants to lock key manage-ment into long-term employment contracts.

G. Public Offering.

1. Having one’s venture listed on one of the stock ex-changes is appealing for many entrepreneurs.

2. Yet taking a company public may be far more time and trouble that it is worth.

3. After the stock market crash of October 1987, the market for new issues of stock shrank.

a. In 1992 and into 1993, the IPO window opened again.

b. The SEC tried to reduce issuing costs by adopting Form S-18 which reduced disclosure requirements.

c. Regulation D created exemptions from regulation for some companies.

4. The cyclical pattern repeated itself again during the mid-1990s into 2002.

a. From 1995 to 2000, the IPO markets exploded.

b. Once the NASDAQ began its collapse in March 2000, the IPO window virtually shut.

c. Few signs of recovery were evident in 2002.

d. Depending upon the IPO market for a harvest is a highly cyclical strategy.

5. There are advantages to going public.

a. Public equity markets provide access to long-term capital, while meeting subsequent capital needs.

b. Founders and initial investors are limited in the timing and amount of stock they can dispose of in the public market.

c. It can take several years after an IPO before a liq-uid gain is possible.

d. A public offering contributes to the marketability of the products.

6. There are also some disadvantages.

a. Survey results show that the focus on short-term profits and performance results was a negative at-tribute of being a public company.

Text Exhibit 19.1A“Number of Recent IPOs” shows the cyclical fluctuations in the number of IPOs per year.Also:Transparency Master 19-2“Number of Recent IPOs” (Text Exhibit 19.1A)

Text Exhibit 19.1B“Recent IPOs ($millions)” shows the cyclical nature of the IPO market based on value of the offerings by year from 1996 to 2001.Also:Transparency Master 19-3“Recent IPOs ($millions)” (Text Exhibit 19.1B)

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b. Public companies lose some of their operating con-fidentiality.

c. Costs of public disclosure, audits, and tax filings are ongoing.

d. Management has to be careful about the flow of in-formation to avoid insider trading.

7. The Paul Tobin/Boston Communications Group, Inc. case at the end of the chapter identifies the key components of the IPO process.

H. Wealth-Building Vehicles.

1. The 1986 Tax Reform Act severely limited the ability of a private company to make large deductible contributions to a retirement plan.

2. An owner can still contribute up to 25% of his or her salary to a retirement plan each year, an amount that is deductible and grows tax free.

VIII. Beyond the Harvest.A. A majority of highly successful entrepreneurs accept a respon-

sibility to perpetuate the system that treated them so well.

B. Entrepreneurs contribute to the self-renewal process by:

1. College endowments.

a. Entrepreneurs are the most frequent contributors to college endowments, scholarship funds, and the like.

b. College buildings and facilities are often funded by entrepreneurs whose successful firms enabled them to make major gifts of stock to their alma mater.

2. Community activities.

a. Entrepreneurs often reinvest their leadership skills and money in community activities.

b. These entrepreneurs lead fund raising campaigns, serve on boards of directors, and devote many hours to volunteer work.

3. Investing in new ventures.

a. Post-harvest entrepreneurs also reinvest in the next generation of entrepreneurs.

b. Successful entrepreneurs know that perpetuating the system is vitally important.

C. Innovation, job creation, and economic renewal are all results of the entrepreneurial process.

1. Government does not cause this process.

2. Entrepreneurs, investors, and hardworking people in pur-suit of opportunities create it.

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3. The marketplace and society are once again allocating re-wards to entrepreneurs.

IX. The Road Ahead: Devise a Personal Entrepreneur-ial Strategy.A. Goals Matter—A Lot!

1. Two anchors of the entrepreneurial process are preemi-nent:

a. A passion for achieving goals.

b. A relentless competitive spirit and desire to win.

2. These two habits drive the quest for learning, personal growth, continuous improvement, and all other develop-ment.

B. Values and Principles Matter—A Lot!

1. The values of Ewing M. Kauffman provide guidance:

a. Treat others as you would want to be treated.

b. Share the wealth with those high performers who help you create it.

c. Give back to the community and society.

2. A fourth principle can be added: Be a guardian and a steward of the air, land, water, and environment.

3. It is possible to combine a passion for entrepreneurship with a love of the land and the environment.

X. Seven Secrets of Success.A. There are no secrets.

B. As soon as there is a secret, everyone else knows about it, too.

C. Happiness is a positive cash flow.

D. If you teach a person to work for others, you feed him or her for a year, but if you teach a person to be an entrepreneur, you feed him or her, and others, for a lifetime.

E. Do not run out of cash.

F. Entrepreneurship is fundamentally a human process, rather than a financial or technological process.

G. Happiness is a positive cash flow.

Transparency Master 19-4“Seven ‘Secrets’ of Success” lists the “secrets” discussed in this section.

XI. Chapter Summary.

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Answers to Study Questions

1. Why did Walt Disney say, “I don’t make movies to make money. I make money to make movies”?

Creating and building a venture requires cash, energy, enthusiasm, and drive to succeed. The enjoyment of the journey is as important as the financial returns. If the entrepreneur doesn’t enjoy the process, the price of victory is too high.

2. Why is it essential to focus first on building a great company, rather than on just getting rich?

Wealth and liquidity are results—not causes—of building a great company. Most suc-cessful entrepreneurs understand this. They get their kicks from growing the company, knowing the payoff will come if they concentrate on the moneymaking part of the process.

3. Why is a harvest goal so crucial for entrepreneurs and the economy?

Entrepreneurs should keep harvest options open and think of harvesting as a vehicle for educing risk and for creating future entrepreneurial choices and options. Having a harvest goal can help an entrepreneur get after-tax cash out of an enterprise and enhance substantially his or her net worth. It can provide a strategic focus that does not sacrifice customers, employees, and value-added products just to maximize quarterly earnings. It can also create a lighter work load and less stressful environment.

Society also benefits. Harvest-worthy ventures provide impact and value added in a vari-ety of ways. These companies contribute most disproportionately to technological and other inno-vations, to new jobs, to returns for investors, and to economic vibrancy.

Within the entrepreneurial process, the seeds of renewal and reinvestment are sown. Re-cycling of entrepreneurial talent and capital ensures continued private responsibility for economic renewal and individual initiative.

4. Define the principal harvest options, the pros and cons of each, and why each is valu-able.

A “capital cow” is to the entrepreneur what a “cash cow” is to a large corporation. The high-margin profitable venture throws off more cash for personal use than most entrepreneurs have uses for spending. The result is a capital-rich and cash-rich company with enormous capac-ity for debt and reinvestment.

Employee stock ownership plans have become popular among closely held companies as a valuation mechanism for stock for which there is no formal market. An ESOP is viewed as a positive motivational device because it creates widespread ownership of stock among employees.

In a management buyout (MBO), a founder can realize a gain from a business by selling it to existing partners or to key managers in the business. Financing can be arranged via banks, in-surance companies, and other financial institutions. However, the managers who want to buy out the owners do not have the capital. MBOs typically require the seller to take a limited amount of cash up front and a note for the balance of the purchase price. If the purchase price is linked to the future profitability of the business, the seller is totally dependent on the ability and integrity of the buyer. The new management may grow the business rapidly, spending on new products and peo-ple, and showing little profit along the way. This can devalue the seller’s return.

Merging with a firm is another way for a founder to realize a gain. In a strategic alliance, founders can attract badly needed capital from a large company interested in their technologies.

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Most advisors view outright sale as the ideal route because up-front cash is preferred over most stock, even though stock can result in a tax-free exchange. In a stock-for-stock ex-change, volatility of the purchaser’s stock price can decimate the value of the deal. Often the ac-quiring company wants to lock key management into long-term employment contracts.

Pursuing an initial public offering, having one’s venture listed on one of the stock ex-changes, is appealing for many entrepreneurs. Yet taking a company public may be far more time and trouble that it is worth. The market for new issues has boomed and collapsed several times of the last few decades. After the stock market crash of October 1987, the market for new issues of stock shrank. From 1995 to 2000, the IPO markets exploded. Once the NASDAQ began its col-lapse in March 2000, the IPO window virtually shut. Depending upon the IPO market for a har-vest is a highly cyclical strategy.

The advantages to going public relate to the ability of the company to fund its rapid growth. Public equity markets provide access to long-term capital, while meeting subsequent cap-ital needs. However, it can take several years after an IPO before a liquid gain is possible.

There are also some disadvantages. Survey results show that the focus on short-term prof-its and performance results was a negative attribute of being a public company. Public companies lose some of their operating confidentiality. Costs of public disclosure, audits, and tax filings are ongoing.

Other wealth-building vehicles exist. The 1986 Tax Reform Act severely limited the abil-ity of a private company to make large deductible contributions to a retirement plan. However, an owner can still contribute up to 25 percent of his or her salary to a retirement plan each year, an amount that is deductible and grows tax free.

5. Beyond the harvest, what do entrepreneurs do to “give back,” an why is this so important to their communities and the nation?

A majority of highly successful entrepreneurs seem to accept a responsibility to renew and perpetuate the system that treated them so well. The American system of opportunity and mobility depends in large part on a self-renewal process.

Entrepreneurs contribute to the self-renewal process in several ways. Entrepreneurs are the most frequent contributors to college endowments, scholarship funds, and the like. College buildings and facilities are often funded by entrepreneurs whose successful companies enabled them to make major gifts of stock to their alma mater.

Entrepreneurs often reinvest their leadership skills and money in community activities. These entrepreneurs lead fund raising campaigns, serve on boards of directors, and devote many hours to volunteer work.

Post-harvest entrepreneurs also reinvest in the next generation of entrepreneurs. Success-ful entrepreneurs know that perpetuating the system is vitally important.

Notes on Case

“Paul J. Tobin”

Preparation Questions

Students are asked to consider the following questions:

1. Evaluate the situation and harvest options for BCGI.

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2. How should Paul think about the process? What should he do with the RFQ (Ex-hibit N)?

3. Evaluate the deals struck in 1990 and 1992 (Exhibits H and K.)

4. What do investment bankers do? How do they make money?

5. What should Paul do, and why?

Note especially the reference to several exhibits, and emphasize to students the impor-tance of spending additional effort on these as they will drive much of the analysis and discus-sion.

Harvesting Strategies: Strategic Sale or IPO?

This two-case series addresses both the strategic sale and IPO option. They occur in the peak capital markets of 1995 to mid-1996 and are in the cellular telecommunications industry. As a founding shareholder and director, the text author, Professor Jeffry Timmons, had intimate knowledge for the development of the case and teaching note. The first case (Tobin) traces the development of a venture capital backed start-up in 1990 to the late summer of 1995, with annu-alized revenue approaching $40 million. GTE Sylvania is expressing serious interest in acquiring the company. Tobin, the founder/CEO, gathers valuation books from leading investment banks in preparation for the November Board meeting. The valuations are in the $55 to $90 million range, the upper end for an IPO. The major decision is what to do and when.

The second case (Boston Communications Group, Inc. in Chapter 20) is just prior to the early February 1996 Board meeting. It reveals some due diligence by a Director and the CEO that significantly changes the valuation ranges originally proposed by the investment banks to the $210-300 million range! This is a stunning development that provides enormous learning opportunities.

Use of the Paul I. Tobin Case

This case enables students to examine the anatomy of the harvest concept, particularly the strategic sale and IPO process, in great detail. The sequential nature of the case and the startling valuation changes thoroughly challenge students to reexamine all of their knowledge and beliefs about the IPO process and the role and veracity of the investment banks.

The case is complex and requires substantial preparation, but is packed with learning. It is effective with undergraduates, MBAs, venture capitalists (Professor Timmons uses it in Kauff-man Fellows Program modules), and practitioners.

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Positioning and Objectives

One of the most important concepts for entrepreneurs and suppliers of capital is the har-vest. This case takes us through the anatomy of the process and explores the minefields and breathtaking vistas along this journey. It requires careful preparation and attention to the details in the exhibits noted in the preparation questions.

The learning focus and content issues in the case explore and examine:

Value creation and value realization through harvest and exit strategies, and inher-ent conflicts between the various constituencies, especially investors and manage-ment.

The nature and sensitivity of capital markets timing.

Valuation methodologies and the selection of investment bankers.

Managing and orchestrating the harvest process.

Deal structure and deal consequences.

The role of CEO, directors, venture capitalists and investment bankers in the process.

Class Discussion (1 to 1½ hours)

A. Opener and Votes

One vote will anchor the discussion. Should BCGI:

Go Public ASAP ________

Strategic Sale ASAP ________

Build more value for 2-3 years _______

What should Tobin do? How should he think about this process?

This is a good opener to focus immediately on a discussion and analysis of the basic deci-sion. The votes will drive the discussion and provide a basic layout for your chalkboards with pros and cons for each of the three areas. What value has and is being created? When will this value be created? Here the big issue is, is it too early for a harvest?

The discussion needs to be pushed beyond the first layer of pros and cons to an under-standing of who and how the decision will actually be made. Pose this as a question. The discus-sion should look to the role and motivations of the venture capitalists who control the Board and majority ownership at this point. A good probe here is: What might be their IRR requirements and what has to happen to the valuation for them to achieve this? Their timing requirements, e.g., what is the age of the fund? If it is nearing its natural life expectancy (10 to 12 years typically) ,then there is additional pressure beyond IRR targets to achieve liquidity in the portfo-lio companies such as BCGI.

What are the company’s capital requirements?

This discussion gets at the rationale and motivations for an IPO. If the company doesn’t need the capital, then why will it go public?

What should Tobin do with the exhibit about a “request for quotation” from EASEL Corpora-tion’s IPO?

The EASEL RFQ has been included in the case, along with evidence that Tobin and Kahn actually met. It is here to get students to examine it carefully, in order to understand the due

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diligence and preparation by the company. It highlights which questions are important when and why they are included, in order to reveal the bankers competence and motivations. A good sum-mary question after this discussion is: When might an RFQ like this be a brilliant tactic, and when might it backfire? Thoughtful students will quickly put it in the capital markets context of how hungry underwriters are for new business at the time. Clearly, the first half of 1991 (EASEL) was dead compared to l996.

The discussion can transition to a generic question: Who should be a public company? This topic can explore the criteria investors look for in IPO candidates, e.g. typically $20 to 30 million or more in revenues, several quarters of profitability, substantial growth prospects, excel-lent management team, etc. This is an excellent point to revisit Text Exhibit 3.8, “Criteria for Evaluating Venture Opportunities,” to link the start-up to what is attractive in the public markets for initial offerings. One can quickly see the logical extension.

B. Additional Discussion

Timing issue: When should BCGI sell or go public?

The timing issue is a major one always. Here the students need to pay close attention to the data on the capital markets and the timeline associated with the completion of either a sale or IPO. The revelation that from today it takes 6 to 9 months under favorable capital market condi-tions to complete an IPO and at least 6 months for a sale is important for them to grasp. Push one or two students to say what they believe the market will be, and what is the basis of their reason-ing? What are the implications? The sobering answer is we do not have a clue what the market conditions for IPOs will be in 3, 6, 9 or 12 months, just witness the NASDAQ collapse in 2001.

The issue of building value over the next 2 to 3 years is important here. The business plan financials show that most of the value creation is 3 to 4 years hence, e.g. 2000 when sales reach $200 million. It poses a serious conflict between investors who want to cash out and management who know the company is cheap now vs. in 3 to 4 years.

Valuation issue: What is the company worth? When? To whom? How do they get to the numbers?

This part of the anatomy lesson will focus on the valuations presented in the exhibits by the investment banks. There is quite a range here, and this raises many issues regarding the meth-ods and logic for arriving at a valuation. Numerous methodologies are included in the exhibits, which are worth examining and discussing in detail. The essence here is to see ranges and the na-ture of comparables and how, at the end of the day, the valuations are driven first and foremost by what is happening recently in the capital markets. This latter issue turns out to be key in the sec-ond case. Be sure students note and understand the comparable companies that BCGI is posi-tioned with: basically plain vanilla order processing, billing, and related service firms such as ADP.

Role of Investment Banks: What do they do? How do they make money?

This can be a revealing discussion of the economics of the investment banking business. Larger commissions and fees are earned on IPOs and merger work than on any other piece of the business. Research is a loss leader.

Deal Structures—1990 vs. 1992: What happened here and why?

The two exhibits are very valuable to examine since they reflect a major change in the deal structure, precipitated by a failed initial business strategy. Of prime importance is getting students to figure out who gets what under each deal, and what has to happen for the VCs and for management to achieve a home run on the investment. The put-call arrangement was crucial in

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preserving upside for management. What must the investors believe about the company’s future prospects and ability to achieve its financial forecasts if it agrees to the 1992 deal? What are the consequences and implications for both investors and management if the company meets or ex-ceeds its projection; and if it falls considerably short? Students who analyze this carefully will figure out that the new deal enabled management to realize a major upside if, and only if, they performed very well.

Transition to Second Case in Series— Boston Communications Group, Inc. (BCGI)

Teaching Tip: Read the first paragraph in the BCGI case in Chapter 20 aloud to the class. They will be stunned by the revelation that the IPO valuations have suddenly increased by two- to threefold to $200-300 million! How can this be? How could this happen? Why did this happen? Challenge the student: “As you contemplate these issues in the BCGI case for the next class also come prepared select an underwriter and define specifically what you believe should be the num-ber of shares and offering price for an IPO.” This is a very effective technique if you have not tried it, to rivet students attention on the next class and to motivate them to prepare.

Special thanks to Professor William Sahlman for his contribution on this case series and the Theory and Reality of IPOs.

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