Ferguson Case Study

Hidden Action:

Will Ferguson (F) consult for an outside client after the funding.
Will Ferguson leave the company after the funding.

What will prevent VCs from taking the information of the Entrepreneur and give/sell it away to another company they already have a stake in.

1. Reputation
2. More tacit and implict and actual technical knowledge required than just the basic idea for the startup.

Participation Constraint and Initial Valuation

Initial Valuation directly sets the expected utility from the company and the company share of the financier.

So initial valuation is directly related to participation constraint whether or not the agent will accept the contract offered by the principal.

To determine participation constraint it is important to consider the opportunity cost. For example the previous employees were treated better since they had more technical knowhow and the impact of their leaving was higher on the company.

Position on the board is both a monitoring as well as an incentive structure.

Heaviest weight on incentives based on stock prices was placed on Ferguson's pay because of it being a big indicator of the performance of the firm.

Comments

Anonymous said…
this icd thing seems like a real revolution in HR..if I understood it properly...
but the way you have explained makes it seem a bit too overloaded with mathematical vocab...and functions like simple averaging etc. are given big names...
well, that's what corporate world is anyways...so dude you are right on track ;)
7:02 AM
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