Startup Professionals Musings

JANUARY 27, 2012

Entrepreneurs sometimes assume an initial agreement with an Angel is a commitment, so they start spending before any money is received. It’s true that Angel investors typically do not present entrepreneurs with overly complicated deal structures, especially when compared to venture capitalists. Anti-dilution protection.

Term Sheet 223

Term Sheet Pre-Money Valuation Due Diligence Post-Money Valuation 223

Both Sides of the Table

APRIL 14, 2010

It’s meant to be a bit provocative but the reality is that I give this advice to entrepreneurs all the the time and I usually leave the “e&# off of the end. I normally offer this advice in the capacity of really wanting to help entrepreneurs so please bear with me. Let’s say the company had raised $15 million.

Venture Capital 289

Venture Capital Liquidation Preference Common Stock Pre-Money Valuation 289

Tim Keane

JANUARY 12, 2010

Please see later version of this post on May 16, 2010 Entrepreneurs are often not experts in the area of term-sheet negotiations and all of the surrounding issues.   Investors sometimes “present” the terms they’d like and expect the entrepreneurs to react. Term-sheets and Valuations: Thinking about Negotiations.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

Gust

SEPTEMBER 17, 2014

Me: Raising convertible notes as a seed round is one of the biggest disservices our industry has done to entrepreneurs since 2001-2003 when there were “full ratchets” and “multiple liquidation preferences” – the most hostile terms anybody found in term sheets 10 years ago. Me: More dilution? A down round? And so forth.

Liquidation Preference 153

Liquidation Preference Valuation Term Sheet Stock 153

The Equity Kicker

JANUARY 18, 2013

If you’ve been paying attention you will know that Nicholas Lovell and I are writing a book for entrepreneurs who want to raise venture capital. We are now preparing to shoot a promotional video which opens with five frustrations that entrepreneurs frequently encounter when they embark on the fundraising process, expressed as questions.

Liquidation Preference 159

Liquidation Preference Venture Capital Dilution Video 159

Startup Professionals Musings

SEPTEMBER 26, 2015

Most entrepreneurs looking for an investor can tell you how much money they need, but few have given much thought to what they are willing to give up for it. Smart entrepreneurs will limit these seats to one or two top investors, to keep the board size manageable, as well as to balance control with startup founders.

Term Sheet 120

Term Sheet Demand Preferred Stock Liquidation Preference 120

Startup Professionals Musings

SEPTEMBER 14, 2010

Entrepreneurs sometimes assume an initial agreement with an angel is a commitment, so they start spending before any money is received. It’s true that angel investors typically do not present entrepreneurs with overly complicated deal structures, especially when compared to venture capitalists. Anti-dilution protection.

Term Sheet 227

Term Sheet Pre-Money Valuation Due Diligence Post-Money Valuation 227

Gust

OCTOBER 17, 2011

Entrepreneurs sometimes assume an initial agreement with an angel is a commitment, so they start spending before any money is received. It’s true that angel investors typically do not present entrepreneurs with overly complicated deal structures, especially when compared to venture capitalists. Anti-dilution protection.

Term Sheet 158

Term Sheet Pre-Money Valuation Due Diligence Post-Money Valuation 158

ithacaVC

JUNE 3, 2015

The punishment comes in the form of “unjust” liquidation preference that the note holders end up with when they convert at a valuation cap that is way lower than the valuation of the actual round. per share (calculated by taking $10mm premoney valuation/10mm shares outstanding fully diluted = $1.00). 70 a share!!

Liquidation Preference 40

Liquidation Preference Pre-Money Valuation Dilution Valuation 40

Both Sides of the Table

SEPTEMBER 28, 2013

You know this isn’t likely to lead anywhere and frankly you didn’t quit your job to pursue your life dream of being an entrepreneur to sell 12 months later in an acquihire. The don’t understand VC liquidation preferences or multiple return expectations. Dilution / valuation. ” Yes.

Startup 417

Startup Dilution San Diego Stock Options 417

David Teten

AUGUST 21, 2019

Less or no dilution. These entrepreneurs want to maintain two major options: 1) To raise VC later (or not), and/or. But you also can’t run the company forever, since investors need a liquidity event. So you’re stuck selling mid-term, which is frequently sub-optimal for the entrepreneur. “. Optionality.

Revenue 60

Revenue Liquidation Preference Equity Cofounder 60

Scott Edward Walker

AUGUST 31, 2011

Introduction This post was originally part of the “ Ask the Attorney ” series which I am writing for VentureBeat (one of my favorite websites for entrepreneurs). We’re first time entrepreneurs, and we don’t know if this is standard practice and what we should do. Any advice would be appreciated.

Silicon Valley 45

Silicon Valley Term Sheet Liquidation Preference Redemption 45

Scott Edward Walker

SEPTEMBER 14, 2011

I have previously discussed this issue in detail, and the importance of choosing solid investors, in my post “ Doing Deals In The New Decade: 7 Tips For Entrepreneurs ” (see tip #1). Indeed, some very pro-entrepreneur investors, like Fred Wilson , do not require no-shop provisions (see rule #4 in Fred’s post “ Competing To Win Deals ”).

Term Sheet 76

Term Sheet Due Diligence Liquidation Preference Redemption 76

Scott Edward Walker

APRIL 9, 2012

Most sophisticated investors, however, will not accept shares of common stock for their investment and will push hard for shares of preferred stock, with special rights (as discussed below). A valuation of the startup is thus unnecessary; and, if there is no valuation, there are no problems of dilution, taxes and option pricing.

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

Babbling VC

AUGUST 31, 2010

The term "I t's Not in My Interest to Screw You " is one I find myself commonly uttering in regards to entrepreneurs. I 'm simply trying to clarify the comment and the thoughts behind VC's not necessarily screwing entrepreneurs. Fred, Brad and Mark as well as many other VC's truly want to help the entrepreneur be successful.

Liquidation Preference 62

Liquidation Preference Semantic Dilution Reputation 62

Scott Edward Walker

JULY 27, 2011

There is, however, another set of rights with which many entrepreneurs may not be familiar: State law rights. These are rights granted to stockholders pursuant to the respective laws of the company’s State of incorporation and are often the only rights that minority common stockholders have.

Delaware 49

Delaware Liquidation Preference Redemption Los Angeles 49

ithacaVC

APRIL 25, 2012

If you give an actual number and it is too high, you have just given that VC a reason to say no (as in “why do I want to deal with an entrepreneur whose expectations are out of whack with my reality”). If a VC asks for your input early on in the process about pre-money valuation, be skeptical and careful in your response.

Valuation 49

Valuation Pre-Money Valuation Liquidation Preference Preferred Stock 49

www.mattbartus.com

DECEMBER 9, 2012

If you are a company that is fundraising, keep in mind that there are a few different levers you can pull to change the amount of dilution that the founders will experience. Let’s say you receive a term sheet for a $1 million investment at a $3 million fully diluted pre-money valuation, and you’re kind of disappointed.

Warrant 40

Warrant Valuation Pre-Money Valuation Term Sheet 40

VC Adventure

AUGUST 30, 2010

I think the answer to these questions are that 1) it’s not at all clear that this trend is as definitive as Graham suggests; 2) it’s a mixed bag for entrepreneurs (more positive in the short run, potentially negative in the long term); and 3) it’s clearly not a positive trend for early-stage investors. Good for investors?

Angel Investor 103

Angel Investor Early Stage Equity Valuation 103

Pascal's View

DECEMBER 30, 2012

While every company founder makes trade-offs in building a company, few entrepreneurs appreciate the far-reaching implications of several critical decisions they will are required to make at the outset of a startup’s evolution. Many of these issues come to the foreground once entrepreneurs have raised money from VC’s.

Cofounder 34

Cofounder Liquidation Preference Vesting Equity 34

K9 Ventures

MARCH 23, 2011

The founders’ interest is to maximize the valuation of the company at the time of a follow-on financing, thereby minimizing founder dilution. Before the era of capped notes, entrepreneurs preferred to do notes because the note essentially deferred the valuation of the company. There are multiple issues at hand here.

Pre-Money Valuation 132

Pre-Money Valuation Valuation Equity Liquidation Preference 132

Professor VC

JULY 25, 2013

This is the feeling you get from watching the venture capitalists talk about the entrepreneurs and other investors in the film. In investment parlance, it strictly means that new classes of stock have equal rights with prior classes in terms of liquidation preference, voting rights, etc.

Term Sheet 46

Term Sheet Silicon Valley Syndicate Syndication 46

dondodge.typepad.com

JANUARY 15, 2011

Entrepreneurs face some pretty tough questions at a very early stage. Both the entrepreneur and the investor have much higher expectations than just "even money" on their bet. The entrepreneur expects the company to be worth many times this valuation and so does the investor. Should I take Angel or VC money?

Equity 40

Equity Employee Dilution Valuation 40

Gust

MAY 24, 2012

Yet I’m skeptical that a widespread shift will occur anytime soon, and for reasons discussed below, as much as I admire and advocate for talented entrepreneurs, I believe it would be a losing proposition for nearly all involved.

IPO 159

IPO Equity Common Stock Stock 159

thestartuplawyer.com

FEBRUARY 24, 2010

Entrepreneurs often believe their startup company faces legal threats from only external sources. Even so, I believe the negative experience can end up producing a better entrepreneur if he or she applies lessons learned to current and future startups. He obviously never launched a startup and got shafted by a co-founder.

Cofounder 40

Cofounder Founder Preferred Stock Startup 40

Board Effect

MAY 10, 2019

Such metrics can include an investor’s liquidation preference, option exercise windows and expiry dates, and shareholders’ fully diluted ownership percentages. There’s the owner—maybe a partner or two—but unless employees are offered equity from the get-go, there’s typically not a whole lot of dilution.

Cap Table 40

Cap Table Liquidation Preference Dilution Liquidity Event 40

Austin Startup

AUGUST 1, 2017

TL;DR: In a market that has historically idolized huge, splashy financings and exits, an increasing number of entrepreneurs are realizing that everyone else’s definition of success — particularly among certain large VCs — isn’t necessarily aligned with their own. Most individual VCs can only support about 7–10 companies at a time.

Liquidation Preference 48

Liquidation Preference Common Stock Valuation Silicon Valley 48

abovethecrowd.com

APRIL 20, 2016

Many modern entrepreneurs have limited exposure to the notion of failure or layoffs because it has been so long since these things were common in the industry. Examples of dirty terms include guaranteed IPO returns, ratchets, PIK Dividends, series-based M&A vetoes, and superior preferences or liquidity rights.

IPO 40

IPO Term Sheet Silicon Valley Valuation 40

Feld Thoughts

JULY 14, 2015

Assuming equity is raised at or above that cap, the total dilution, before the new money, is 16.6% (equivalent to an equity financing of $1m at a $6m post money valuation. In some cases this turned into nothing, but in a few cases it had magnificent outcomes for me and my gang, along with the entrepreneurs. Here’s the scenario.

Recapitalization 70

Recapitalization Pre-Money Valuation Post-Money Valuation Angel Investor 70

Both Sides of the Table

FEBRUARY 14, 2016

I’d like to explain as best I can my opinion on what is going on because most of what I hear from entrepreneurs is not only wrong but is reminiscent of what I heard in 1997-2000. ” “This will be great for VCs and bad for entrepreneurs.” What is the True Sentiment of VCs? ” “Sure, prices are dropping.

Valuation 150

Valuation Down Round Startup Later Stage 150

Life Beyond Code

SEPTEMBER 27, 2011

One Million by One Million is a global initiative that aims to nurture a million entrepreneurs reach a million dollars each in annual revenue and beyond by 2020, thereby creating a trillion dollars in global GDP and ten million jobs. SM: In September 2008, when the first Entrepreneur Journeys book was released, D.D.

Programming 116

Programming Silicon Valley Bootstrapping Technical Review 116