The Rules of Engagement is the first building block in the Open Incubation model. The Rules of Engagement consists of five venture governance design principles that are applicable throughout the venture life time: from start-up to incorporation to exit.
- Role based Venture Governance – The rights and obligations of the venture team members are governed through six pre-defined roles, each reflecting their role and contribution to the venture. The Open Incubation model recognizes the following roles: Founders, Founding Investors, Friends Family & Crowd, Key Employees, Venture Partners and Venture Capital. In addition, there is a Leaver category for those who no longer contribute to the venture.
- One Man, One Vote – The Founders, Founding Investors and if applicable Venture Capitalists will each obtain one vote following the ‘one man, one vote’ principle in the Venture Board. This principle is important to safeguard the continuation of spirit of the participants at the incubation phase the moment the venture becomes incorporated. Why should you change venture governance at the moment of the incorporation?
- Contribution & Rewards – Participants make their envisaged role, contribution and reward explicit and transparent through the Contribution & Reward framework. Starting with the six roles, venture teams discuss and write down the expected contributions of the venture team members. Following agreement on the role and contribution, the venture team will discuss the expected rewards. There are four categories of rewards: leadership, ownership, cash and in kind compensation.
- Full Transparency – To ensure full alignment of the venture team members over the course of the development of the venture, founders realize they need to give early-on guidance on the roles, expected contributions and (potential) rewards of the participants. Good venture governance design helps to establish trust among the venture team members to collaborate more effectively. This becomes even more relevant in an online collaboration environment where participants might not know each other. Full transparency on the venture governance and the expected contribution and awarded rewards will serve as an enabler of trust in the venture team.
- Role based Ownership – Once the venture has been incorporated, some participants may become shareholder. Like in the initial incubation phase their shareholding and the associated rights & obligations remain directly linked to their role at the venture. Role based ownership is further detailed in the Venture Governance framework.
To apply the five governance design principles, venture teams need to discuss, map-out, and agree upon two frameworks: The Contribution & Reward framework and the Venture Governance framework. These two frameworks will be discussed in more detail on the next pages.
Continue reading the next post of the Open Incubation Playbook