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Bad Notes on Venture Capital

Both Sides of the Table

Me: There is no rational explanation for valuations of A round companies by ANY objective financial measure. If you’re wildly successful early on or if they help you achieve a great valuation they actually pay a significant price for their eventual stock even though they took much more risk than a future investor and backed you early.

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Knowledge Is Power: Convertible Note Financing Terms, Part I

Gust

Given that convertible debt financing has become the de facto standard for small (<$1MM), early stage deals in recent years, I thought I would write a primer on the elements of a term sheet and definitive documents for entrepreneurs looking at the earliest stage financing rounds.

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Ten million users is the new one million users

cdixon.org

Some observations: - Thousands of early-stage consumer web/mobile companies were started and funded in last 24 months. A few breakout early-stage consumer hits (Instagram, Pinterest) have reached tens of millions of users in record time. Hence, many early-stage consumer startups are switching to transactional models. -

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Bad Notes on VC

Gust

Me: There is no rational explanation for valuations of A round companies by ANY objective financial measure. If you’re wildly successful early on or if they help you achieve a great valuation they actually pay a significant price for their eventual stock even though they took much more risk than a future investor and backed you early.

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Thoughts on Convertible Notes

K9 Ventures

I may be well be in the minority in the Valley to think this way — especially so as a seed stage investor — but I have a strong preference for doing priced equity rounds for funding companies at any stage. Since the financing would likely happen in short order, there was no need to have a valuation cap in the note.

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ProfessorVC: Why I Hate Convertible Debt.Let Me Count the Ways

Professor VC

In a convertible note structure, Im penalized for increasing your valuation. Instead of getting a 2-3x multiple from seed to Series A, I get a discount off of the Series A, so Im better off financially with a lower valuation. Is This a Bridge or a Pier? In cases where it is truly a bridge financing (i.e.

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Startups and VCs Should Avoid “Pier” Funding

Both Sides of the Table

This happens when the company has been making steady progress but hasn’t built enough “ proof &# to raise its next round of financing from external investors. a loan) that is later converted to equity at the time of the next financing. It starts as a debt instrument (e.g.

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