Startup Professionals Musings

AUGUST 4, 2014

Because these considerations can be quite complex, very emotional and have long-term implications, smart entrepreneurs don’t hesitate to get some legal advice at this early stage, in drawing up an agreement document to be signed by each of the co-founders. Other common terms, like the right to re-purchase, should be investigated.

Cofounder 261

Cofounder Stock Founder Technical Cofounder 261

Startup Professionals Musings

SEPTEMBER 25, 2019

It never hurts to ask in a job interview what stock options are available, and don’t fall for the offer which promises to “work out the equity terms later.” You should also assume that your percentage will go down through dilution as the company raises additional rounds, and offer sizes will go down as the company grows.

Equity 237

Equity Stock Options Advisory Board Stock 237

SoCal CTO

SEPTEMBER 27, 2011

An employee is later, has a greater portion of compensation as cash, has lower risk, and generally does not bring as much to bear in terms of the concept. If the company is pre-funding or only has a small friends and family seed round, then the numbers should go up from there based on expected dilution and greater risk.

Early Stage 391

Early Stage Equity CTO Hire Sweat Equity 391

This is going to be BIG.

JANUARY 18, 2024

On the other hand, they could be the opposite—much more focused on near-term cash distributions than long-term equity appreciation. One of the biggest downsides I’ve experienced when you deal with non-VCs is the addition of non-standard terms to a deal, especially when they use a lawyer who doesn’t typically work on venture deals.

.Net 88

.Net Cap Table Startup Technical Review 88

View from Seed

AUGUST 17, 2021

One industry specific example is the strange fascination among some LPs and GPs around term IRR. This may not always happen, but it’s been reassuring to see that this really is a long-term business. at exit due to dilution. It creates dilution, and investing in these rounds increases your effective post-money.

IRR 205

IRR Dilution Founder Portfolio 205

Both Sides of the Table

JULY 22, 2010

Back in 1999 when I first raised venture capital I had zero knowledge of what a fair term sheet looked like or how to value my company. Due to competitive markets we ended up with a pretty good term sheet until we needed to raise money in April 2001 and then we got completely screwed. Those were the dog days of entrepreneurship.

Valuation 405

Valuation Liquidation Preference Pre-Money Valuation Term Sheet 405

Startup Professionals Musings

SEPTEMBER 27, 2023

This is called stock dilution control. This allows the entrepreneur more influence in controlling dilution of his or her shares, investment terms and acquisition decisions. Otherwise, people with no ongoing effort (“free riders”) will own the value growth that you are adding after their departure.

Stock 240

Stock .Net Vesting Founder Vesting 240

Gust

APRIL 11, 2014

Let’s get right down to business: Dilution of founders’ and other early shareholders’ equity in startups is frequently a subject of intense interest and debate. That’s the concept of what some call mathematical dilution. That is not economic dilution, but rather its opposite ( accretion ).

Dilution 162

Dilution Equity Pre-Money Valuation Prospectus 162

Startup Professionals Musings

AUGUST 24, 2016

Because these considerations can be quite complex, very emotional, and have long-term implications, smart entrepreneurs don’t hesitate to get some legal advice at this early stage, in drawing up an agreement document to be signed by each of the co-founders. Other common terms, like the right to re-purchase, should be investigated.

Equity 120

Equity Cofounder Technical Cofounder Intellectual Property 120

View from Seed

AUGUST 17, 2021

One industry specific example is the strange fascination among some LPs and GPs around term IRR. This may not always happen, but it’s been reassuring to see that this really is a long-term business. at exit due to dilution. It creates dilution, and investing in these rounds increases your effective post-money.

IRR 156

IRR Dilution Founder Portfolio 156

Startup Professionals Musings

JANUARY 15, 2021

This is called stock dilution control. This allows the entrepreneur more influence in controlling dilution of his or her shares, investment terms and acquisition decisions. Otherwise, people with no ongoing effort (“free riders”) will own the value growth that you are adding after their departure.

Vesting 298

Vesting Dilution Stock Founder Vesting 298

Tim Keane

JANUARY 12, 2010

Term-sheets and Valuations: Thinking about Negotiations. 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 Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

Both Sides of the Table

MAY 9, 2018

You race back to the office to tell everybody how well it went and you wait for the follow-up call to have a partners’ meeting or talk about term sheets or at least dip into due diligence. The assistant tried to end the meeting twice but was shoooshed away. What do I do now? Some were interesting, some weren’t.

Software Review 381

Software Review Churn Rate Due Diligence New York 381

Startup Professionals Musings

JANUARY 27, 2012

Remember a term sheet agreement is not a deal until the check clears. However, there is no set pattern of terms an entrepreneur might be able to anticipate from either. Your best strategy is to bring your own term sheet to the negotiation as a starting point. Anti-dilution protection. Right of first refusal.

Term Sheet 223

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

ithacaVC

OCTOBER 10, 2017

Here is the big problem with investors – they dilute the founders’ ownership in the company. Let’s cover some basics: It is impossible to issue stock to investors without existing shareholders (founders, employees and prior investors) being diluted. Is this actually a big problem?

Dilution 53

Dilution Stock Options Stock Valuation 53

The Startup Magazine

MARCH 14, 2022

The equity dilution at this nascent stage is on desirable terms; such investing can lead to profitable returns. At this stage, the founder mainly raises funding from their sources or family and friends. If you are one of the fortunate early-stage investors to be presented with such an opportunity, it could lead to rewarding returns.

Technical Review 143

Technical Review Due Diligence India Startup 143

Startup Professionals Musings

SEPTEMBER 26, 2015

Perhaps they're way off in their valuation (usually far too high), or paralyzed by fear at seeing the other terms, because they have no idea what's normal, and what's worth a fight to the death (their startup's). Still, no one wants the terms to be so complex that the deal never closes. Term sheets are something you can’t avoid.

Term Sheet 120

Term Sheet Demand Preferred Stock Liquidation Preference 120

View from Seed

AUGUST 17, 2021

One industry specific example is the strange fascination among some LPs and GPs around term IRR. This may not always happen, but it’s been reassuring to see that this really is a long-term business. at exit due to dilution. It creates dilution, and investing in these rounds increases your effective post-money.

IRR 136

IRR Dilution Founder Portfolio 136

Startup Professionals Musings

JULY 31, 2012

It leaves you with no long-term personnel commitment, but low control of your core assets. In general, unless you are a quick learner, these alternatives don’t solve your long-term challenge of managing and keeping up with a high-technology business. Focus on finding the right partner to double your strength rather than dilute it.

Technical Review 230

Technical Review Technology Founder Management 230

Startup Professionals Musings

NOVEMBER 7, 2022

In my experience, team members with an entrepreneur mindset are rare in mature companies, due to a growing focus on low risk fixed processes, narrow job roles with specialized expertise, and long-term tenure. Don’t let early success dilute your focus, or demand that the new venture quickly meet your mainline financial and growth metrics.

Advisory Board 359

Advisory Board Incubator Dilution Agile 359

Startup Professionals Musings

AUGUST 31, 2018

You look forward to the day when your business becomes self-sustaining, and settles into a long-term growth curve, ensuring financial success. Totally new and risky products will dilute your focus, and may confuse existing customers. Expand your product line, staying close to the core.

Angel Investor 167

Angel Investor Dilution Software Review Distribution 167

YoungUpstarts

JULY 31, 2019

It has become an established term in the software industry to indicate the short term fixes of quick and dirty coding that can create problems down the road — problems that come knocking at the door to collect with interest. The kicker, of course, is that at some point you have to pay that debt down to actually scale. .

Cofounder 127

Cofounder Burn Rate Technical Cofounder Seed Capital 127

Startup Professionals Musings

SEPTEMBER 14, 2010

Remember a term sheet agreement is not a deal until the check clears. However, there is no set pattern of terms an entrepreneur might be able to anticipate from an angel, either. Your best strategy is to bring your own term sheet to the negotiation as a starting point. Anti-dilution protection. Right of first refusal.

Term Sheet 227

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

View from Seed

DECEMBER 4, 2019

This is because the feedback cycle in venture is long, and VCs favor LPs with a long-term perspective. So, if the venture asset class performs well in terms of unrealized mark-ups, the % of VC relative to the total portfolio actually increases. That 10% might start to look more like 12% or 15%. How Good is Good?

LP 256

LP IRR Distribution Portfolio 256

Startup Professionals Musings

FEBRUARY 14, 2021

All of these are competitors in terms of speed, price, or luxury. Non-specific terms, like better usability and low cost don’t incite customers to action these days. The focus is diluted, it’s hard to keep up with individual product changes, and you will always be on the defensive.

Intellectual Property 417

Intellectual Property Angel Investor Dilution Differentiation 417

Startup Professionals Musings

OCTOBER 7, 2022

Are you flexible on the terms of the investment? Most professional investors will expect preferred stock, a board seat, rights to later rounds and perhaps anti-dilution protection. If you refuse to offer these, or balk at negotiating even more restrictive terms, the amount of a viable investment will be compromised.

Preferred Stock 304

Preferred Stock Exit Strategy Equity Angel Investor 304

Startup Professionals Musings

NOVEMBER 8, 2021

The term applies to anyone who places passion before profit, and intends to combine personal interests and talent with the ability to earn a living. Of course, that doesn’t dilute the owner’s equity, but it may well limit you to organic growth, versus international rollouts and acquisition options.

Entrepreneur 371

Entrepreneur Equity Dilution LLC 371

Gust

NOVEMBER 1, 2011

in the case of one investment round, no subsequent investment and therefore no dilution). I have seen some complex methods for accommodating anticipated dilution, but here is an easy way to adjust the pre-money valuation of the current round. Then: Post-money Valuation = Terminal Value ÷ Anticipated ROI.

Venture Capital 161

Venture Capital Valuation Pre-Money Valuation Post-Money Valuation 161

Startup Professionals Musings

JANUARY 31, 2020

In my work with new startups, I often find people who believe that the terms “ entrepreneur ” and “ inventor ” are interchangeable. Ability to raise money, manage it, and think in financial terms. In fact, they may fear team leadership as a burden, or a potential dilution of their ownership.

Founder 312

Founder Intellectual Property Dilution Startup 312

Gust

OCTOBER 17, 2011

Remember a term sheet agreement is not a deal until the check clears. However, there is no set pattern of terms an entrepreneur might be able to anticipate from either. Your best strategy is to bring your own term sheet to the negotiation as a starting point. Anti-dilution protection. Right of first refusal.

Term Sheet 158

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

Startup Professionals Musings

JULY 1, 2022

It never hurts to ask in a job interview what stock options are available, and don’t fall for the offer which promises to “work out the equity terms later.” You should also assume that your percentage will go down through dilution as the company raises additional rounds, and offer sizes will go down as the company grows.

Stock Options 343

Stock Options Advisory Board Stock Startup 343

ithacaVC

SEPTEMBER 10, 2012

But here is one that I want to focus on in this post: “Can I ask for undiluted stock (non dilution clause)?” I am not even sure what “undiluted stock” is, but safe to say the person (I will call him Exec X) meant stock that his equity would not be dilutable in terms of ownership.

Dilution 53

Dilution Employee Cap Table Stock 53

Austin Startup

JULY 6, 2018

Very simply, what are you giving and what are you getting in return in terms of cash and equity for joining the program? Re: cash, the more “unbundled” types of accelerators (less formalized, less equity) tend to not provide any cash upfront, but also typically “cost” less in equity, often just 1–2% of your fully diluted capitalization.

Dilution 48

Dilution Startup Technical Review Equity 48

View from Seed

APRIL 30, 2015

So it makes it a lot more challenging when you have debt on the books that isn’t as longer term as equity. In terms of negotiation, there are always hot buttons. Investors have typically seen our term sheets and documents before, and the startup’s lawyers have seen these too, so everyone knows the standard and what to expect.

Term Sheet 120

Term Sheet Equity Startup Seed Stage 120

Startup Professionals Musings

JULY 23, 2021

Yet every change can cause brand dilution or competition you don’t need. Don’t let the day-to-day pressures from customers, competitors, and scaling push you into shortcuts that look good on paper today, but may damage your brand image in the long term. Evaluate the brand impact of proposed market moves.

Leadership 426

Leadership Management Brazil Differentiation 426

Startup Professionals Musings

DECEMBER 11, 2022

Naïve expectations on funding terms and process. Founder insistence on non-dilute clauses, arms-length relationships, and quick closure without due diligence will short-circuit active interest. Future unproven projections don’t set today’s valuation. Ask only for the money you can justify.

Due Diligence 271

Due Diligence Intellectual Property Entrepreneur Preferred Stock 271

David Teten

AUGUST 19, 2019

According to Brian Parks, “Bigfoot provides RBI, term loans, and lines of credit to SaaS businesses with $500k+ ARR. We’re currently evaluating about 20 companies a month and issuing term sheets to 25% of them; those that fit our investment criteria. Benefits: Non-dilutive, flexible credit offerings that fit SMB or enterprise SaaS.

Revenue 60

Revenue Technical Review Software Review Equity 60