Jill and Jack developed an iPhone case that extends the WIFI reception of an iPhone by $5$X$.$ They developed the product during their senior year at Santa Clara University.

Jill was a mechanical engineering major and developed the hardware and the drawings and specifications needed for a contract manufacturer to produce the product.

Jack developed a software application which the customer downloads from the App Store to operate the device.

Jill was a graphic arts minor and developed a really $$cool$$ logo for the company that really set the value of their company apart from the competition.

They formed a company and named it J&J Enterprises $($J&J$).$

At graduation:

J&J had a negotiated contract with Paramit, a contract manufacturer in Morgan Hill, to manufacture the product.

Key terms of the contract:

$-$Initial build of $10,000$ units

$-$First build to be completed by June $1$

$-$Cost per unit: $$5\mathrm{.}00$

$-$Paramit to direct ship to retailers

$-$Payment due to Paramit $30$ days from date of shipment.

J&J had also negotiated a contract with Best Buy $($BB$)$ to purchase $10,000$ units.

Key terms of the contract:

$-$Purchase price: $$10\mathrm{.}00$

$-$Payment terms of $60$ days from receipt of product

$-5,000$ units to be delivered on June $1$

$-5,000$ units to be delivered on August $1.$

Jill and Jack did not draw a salary during their senior year, the product development and initial sales phase. They do not plan to draw a salary until funding closes.

J&J hired a sales and marketing person, James, to close deals with other major retailers like Walmart, Costco, Amazon and others. James started work on June $1$ and agreed to work on a commission only basis until funding closed. They believe sales will reach $$250,000$ by the end of the first year. Based on preliminary discussions with other retailers and talking with other iPhone case vendors, J&J expects $$1,000,000$ sales in year $2$ and $100\%$ growth in years $3$ and $4.$

Jill, Jack and James are all working remotely from home and gather weekly at the local Starbucks to touch base and plan for the future.

During the summer, J&J received an offer from an early$-$stage venture fund for an A round of $$5,000,000$ at a pre$-$money valuation of $$20,000,000.$ The venture fund was guaranteed two board seats along with other typical preferences.

Prior to the funding, Jill and Jack owned $100\%$ of the company.

Questions:

What legal structure would you recommend for J&J$?$ Why?

What are J&J$$s intellectual property assets $($clue there are three$)?$

How should each be protected

Develop an $$elevator pitch$$ for J&J

Draw a cash conversion cycle $($CCC$)$ diagram, like the one reviewed in class, showing J&J CCC cash flows from June $1$ through November $1,$ assuming no sales beyond the initial BB order or any other expenses.

What is the biggest negative cash?

How long does it last?

Should J&J finance their business with debt or equity? What are the pros and cons of each?

After the venture funding round closes:

What will be J&J$$s valuation?

How much will Jill and Jack own?

How much will the venture fund own?

What form of stock will the founders and future employees own?

Jill, Jack and the venture fund want to be sure the founders$$ and employees$$ interests are all aligned. Beyond salary, what are the best ways to do that?

For equity incentives describe a typical vesting schedule

As J&J grows, what fixed costs are they going to incur?

Jill, Jack and James are all just graduating from college and have no prior business experience. How would you recommend they get $$execution intelligence$$ to improve their chances for success?

Would you follow Jack and Jill up the hill $?$