19: Stock Options, Careers, and Social Entrepreneurship

Thursday, May 27, 2010

*This class has two sections, Stock Options and Careers / Social Entrepreneurship.  Make sure to scroll all the way down.

Stock Options

Summary: Barbara Arneson must decide which job offer to take. With all other factors being equal, she is now down to a decision based on the value of the stock options offered by each company. One company is a public company with easily gathered data on the financial status of the company. The other offer is from a start-up company which has only financial projections.

Quote of the Day: "Leadership is having a clear idea of what you're trying to accomplish (and) articulating it to whomever you work with... and being able to overcome all the little issues that get in the way of achieving your goals. But only a leader can overcome the obstacles." Ralph Waldo Emerson 

Study Questions (Policy on Study Questions.)
  1. What is the number of shares outstanding at BioGene as of May 31, 2006? What is its current PE ratio? Why do you think it is higher than the current average of other bioinformatics companies (hint: consider the recent annual growth rates of revenues and profits)?
  2. What is Barbara's percentage ownership in each firm?
  3. Compare the firms in 4 years (i.e. 2010) when the stock options will be fully vested. Assuming Barbara remains employed until that time, which stock option offer is better? Make sure to include the cost of the stock options and state all critical assumptions.
  4. In addition to compensation matters, what other factors would you suggest Barbara consider in making her decision?
Case Analysis (Policy on Case Analyses.) All students submit All other factors being equal, and based on the stock option packages only, I would accept the (BioGene/InterWeb -- choose only one) offer because ... (please submit a numerical analysis along with your assignment, spreadsheet is fine).
*Note that this is an individual assignment.  You are encouraged to discuss the case in your teams, but each person must submit his/her own write up reflecting his/her personal decision.

Required Readings (Policy on Required Readings.)
  • Case:Barbara Arneson, Dorf and Byers textbook, Appendix B
  • How Stock Options Work from Inc. Magazine
  • Technology Ventures (Byers, Dorf, and Nelson): Ch 18.1, 18.3-18.8 (Highlights)
  • Notes on P/E Ratios
  • Review the accounting and finance workshop handouts (Sessions 4 & 14), textbook readings, and the venture capital notes from earlier sessions.  In particular, recall these basic formulas of venture finance:
    • Earnings per Share = Earnings / Number of Shares Outstanding
    • Share Price = Earnings per Share * PE Ratio
    • Market Capitalization = Earnings * Number of Shares Outstanding
    • Note: Earnings is also called Net Income and After Tax Profit. Earnings per Share is abbreviated EPS.
Watch the following short video clips:

Recommended Readings (Policy on Recommended Readings)

Careers and Social Entrepreneurship

Summary: Entrepreneurs have a spirit and skills that are effective at changing things. They may choose to change products, or industries, or society. Their talents are not limited to bottom line enterprises; they are every bit as effective pursing broader missions without consideration for profits. To start, we will discuss the Barbara Arneson case originally scheduled for Session 16.

(Click for Bios)
Debra Dunn, Stanford and Skoll Foundation

Study Questions
(Policy on Study Questions.)
    • How is social entrepreneurship different from the other kinds of entrepreneurship that we've looked at in this course?
    • What types of Social Entrepreneurship are there?
    • Why would someone spend their career at a social venture rather than at a for-profit startup?  Would you?

Required Readings (Policy on Required Readings.)
Technology Ventures
(Byers, Dorf, and Nelson): 7.4, 8.2 (Highlights)
The Meaning of Social Entrepreneurship - J. Gregory Dees

Recommended Readings (Policy on Recommended Readings)

Watch the following short video clips: