Professor Steve Rogers cuts an imposing figure. Tall, with a bellowing voice, his presence seemed to fill the entirety of A241 that wasn’t already occupied by the bustling crowd of 85 investment club members. The sharply-dressed Harvard Business School lecturer immediately struck a chord with the budding entrepreneurs; he talked about his two daughters being Wildkit alumni, and why he believes ETHS is the, “Harvard of High Schools”, and how he even spurned a beautiful house in Wilmette simply out of unabiding hatred for our rivals, New Trier. Once he had captured his audience in a Socratic net of knowledge, the lecture began.
The topic was equity. A parallel was applied to Shark Tank, but the simplified vernacular of the show was elucidated to reveal the sophisticated business-lingo behind the curtain. Debt equals loans, while equity equals ownership. Mr. Rogers repeated this over and over, searing it into the minds of those in attendance, then proceeded to whir across the chalkboard in an instructional seminar.
Here is Professor Rogers’s lecture, abridged in 150 words: A corporation usually goes public after 7 “series”; this is where the founder is going out in search of investors. It’s all about the valuation of the company: the investor wants it low, the entrepreneur wants it high. Negotiation occurs, settling the Pre-money valuation (Post-money minus Investment), the Post-Money valuation (Investment plus Pre-Money), and finally the equity the investor receives (Investment divided by the Post-Money). This compromise represents one of the rounds in the series, which will continue to occur as the business expands. In these situations, in order to attract new investors, new equity must be created; therefore, Dilution happens, where the percentage of ownership of early investors shrinks. This is okay, Rogers warns, as long as the dollar amount doesn’t get diluted. By the time a company gets its IPO, usually the founder and board own about 15% of their creation. The rest is owned by numerous shareholders/investment banks.
A hallmark of the lecture was a dialogue between Rogers and a curly-haired, wannabe whiz-kid dressed in a Haven gym uniform. Rogers attempted to, “browbeat” the young entrepreneur, but, “Haven” was witty and quick, firing back the lessons Rogers had taught until the lecturer was forced to submit, in good-humored pride, to his financial disciple. It could’ve been a metaphor for the whole presentation, a strong, wise force instilling business knowledge, sure that his audience of Investment Club Members would be armed with his financial expertise if or when they need it most.
This post was written by Ben Osterlund. Photos by Benjamin Silverman.