Gust

JUNE 17, 2012

After bootstrapping, friends and family are the most common funding sources for early-stage startups. A startup incubator is a company, university, or other organization which provides resources for equity to nurture young companies, helping them to survive and grow during the startup period when they are most vulnerable.

Technical Review 164

Technical Review Bootstrapping Venture Capital Incubator 164

Gust

NOVEMBER 8, 2012

In April 2012, Congress passed the JOBS Act , which authorizes equity crowdfunding and liberalizes some requirements regarding the issuance of securities by privately held companies. Now all eyes are on the SEC as it adopts regulations to implement the new law with the hope that it won’t get tied up in red tape.

Silicon Valley 187

Silicon Valley San Francisco Intellectual Property Accredited Investor 187

Gust

JUNE 7, 2014

In many, if not most, seed and early stage funding scenarios, the investments are structured in LIFO order: Last In, First Out. Invested Interests company early stage funding investors startup starup'

Warrant 157

Warrant Preferred Stock Early Stage Common Stock 157

Gust

NOVEMBER 13, 2013

Equity-based crowdfunding (that is, providing regular people with the opportunity to purchase stock in private companies) will not be legal in the US until the first quarter of 2013 at the earliest. You should also engage an attorney familiar with early stage financing to advise you on the legality of your plans.

Securities and Exchange Commission 137

Securities and Exchange Commission Equity Early Stage Startup 137

Gust

APRIL 23, 2014

From a completely biased perspective, I’d nominate the nascent and not yet completely visible rise of online equity investing platforms. While Gust is generally flying under the radar, and currently accounts for an infinitesimally tiny fraction of the marketplace, the actual numbers may be a bit surprising.

Angel Groups 127

Angel Groups Accredited Investor Private Equity Deal Flow 127

Gust

SEPTEMBER 29, 2011

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.

Finance 178

Finance Term Sheet Preferred Stock Bridge Financing 178

Gust

JANUARY 4, 2012

If you’re here on gust.com as an entrepreneur, I think you should know that many angel investor groups like convertible notes, mainly for one of the reasons Fred mentions: angel groups often look at relatively early stages, and the convertible note puts off the valuation for later, when – everybody involved.

Angel Investor 114

Angel Investor Valuation Angel Groups Equity 114

Gust

JULY 19, 2012

My personal guess is that the early stage funding world will likely trifurcate (or even quadricate, if that’s a word) into several distinct groups. 1) Non-equity, creative project crowdfunding portals, which are currently allowed and are not subject to legislation under the JOBS Act.

Accredited Investor 144

Accredited Investor SEC Equity Early Stage 144

Gust

OCTOBER 12, 2011

Particularly when there are multiple closings taking place over a period of months, the fuse burns awfully quickly on a 12-month note given the many competing priorities of early stage entrepreneurs. Without any other language to the contrary, the Notes become due and payable in full, including principal and accrued interest.

Finance 107

Finance Term Sheet Pre-Money Valuation Early Stage 107

Gust

SEPTEMBER 5, 2012

How to finance a new seed-stage startup? Convertible equity? The new form of convertible security or “convertible equity” is essentially a convertible note containing most of the usual terms — except it’s been stripped of the features that would make it a loan. Convertible debt?

Finance 134

Finance Convertible Security Equity Seed Stage 134

Gust

SEPTEMBER 6, 2012

In this case, what the investor receives in exchange for his or her cash starts out as debt, and potentially converts into equity. Equity is a fancy word for “ownership” That is, I give you money and you give me part ownership of the company.

Valuation 117

Valuation Equity Stock Angel Investor 117

Gust

OCTOBER 5, 2011

Last week , we gave some attention to the “why” behind convertible note financing for early stage startups. Moreover, assuming an eligible equity financing takes place before the maturity date, the interest isn’t paid in cash, but rather is added to the principal amount of the note before converting it to equity.

Finance 79

Finance Preferred Stock Term Sheet Early Stage 79

Gust

NOVEMBER 29, 2011

Consequently, US regulators have discouraged the selling of equity (shares) through crowd funding websites, so online companies, such as Kickstarter.com , offer the opportunity to donate funds to interesting US startup ventures in exchange for the right to become early product users or simply listed on the new ventures’ websites.

Securities and Exchange Commission 154

Securities and Exchange Commission Accredited Investor Angel Investor Due Diligence 154

Gust

JULY 13, 2014

I’ve written about this before, but I was reminded again a while back at a conference for startups when an entrepreneur started berating investors for not funding early-stage startups. Every company needs to promote equity among all employee levels, and relate benefit levels to profit levels.

Later Stage 153

Later Stage Early Stage Equity Employee 153

Gust

DECEMBER 8, 2013

The intent of this question is to determine the level of commitment of founders, both cash and “sweat equity,” and how much others have already invested into this plan. If the runway is less than six months, with no new source signed, both you and the startup are at risk. How much “skin” is already in the game?

Due Diligence 174

Due Diligence Sweat Equity Intellectual Property Burn Rate 174

Gust

MAY 24, 2012

As a quick review, most startups begin life as corporations with a single class of equity securities, referred to as Common Stock , issued to founders, employees, and outside service providers. Options and warrants, when issued, are also typically exercisable for shares of Common Stock.

IPO 159

IPO Equity Common Stock Stock 159

Gust

OCTOBER 21, 2011

For convertible notes, the only liquidity event we need be concerned with is an acquisition of the startup in the near future, before the maturity date; otherwise, the notes will convert to equity of one kind or another, and the eventual sale of that equity (in a public offering, acquisition, or private sale) is a different subject for another day.

Finance 79

Finance Pre-Money Valuation Term Sheet Liquidity Event 79

Gust

DECEMBER 18, 2013

Note: The one significant exception to this is that Friends & Family seed rounds are usually done as Convertible Notes with a Cap, because in the absence of a professional investor (such as a serious angel or an early stage VC) the extreme likelihood is that both sides will price the deal incorrectly, and will thus cause significant problems down (..)

Valuation 150

Valuation Founder Seed Money Common Stock 150

Gust

OCTOBER 17, 2012

Conventional wisdom dictated that they made reckless investments in very early-stage ventures mostly doomed to fail. Deductions like this are problematic because early-stage venture investing does not happen in an efficient market. Only they’re not.

Angel Investor 152

Angel Investor Venture Capital Seed Stage Silicon Valley 152

Gust

SEPTEMBER 17, 2014

They only people I have heard promoting them tend to be super early stage investors or accelerators and often when I talk to them about the structure they’ve never given much thought beyond “they’re easier,” “they’re cheaper” or “it’s faster to raise this way” none of which is actually true. Try doing THAT with equity.

Liquidation Preference 153

Liquidation Preference Valuation Term Sheet Stock 153

Gust

DECEMBER 27, 2012

Keep in mind that any cash you put in will remain in the company as Founders’ Equity, and will only come back to you on a successful exit in which your investors make money. [3a. With #1 – #3 under your belt, you should start preparing the components you will use to support your pitch to outside investors.

Software Review 164

Software Review Term Sheet Technical Review Angel Investor 164

Gust

JANUARY 5, 2012

Since the IPO market has been in the doldrums for most of the past decade, high-profile private companies have chosen (or been forced) to stay private while raising huge sums of money from VCs and other private equity sources. Raising $1000 each from 1000 investors would surely seem to violate current SEC regulations.

SEC 131

SEC Angel Groups Technical Review Private Equity 131

Gust

OCTOBER 20, 2011

Individual accredited investors in typical angel deals put personal capital at risk for an equity share of growth-oriented, start-up companies. For this round of investment, the angels collectively purchase 20-40% of the equity of the company and are seeking a return on investment of 20-30X in a period of five to eight years.

Valuation 146

Valuation Pre-Money Valuation Intellectual Property Technical Review 146

Gust

JULY 1, 2012

We are talking about angel investors here, meaning people who invest their own money in early-stage startups for a share of the equity. It doesn’t make financial sense to give up equity ownership on an asset purchase, with built-in collateral. Non-profit businesses.

Angel Groups 143

Angel Groups Angel Investor Early Stage Startup 143

Gust

OCTOBER 3, 2011

Once in, this money stays in, and is part of what makes up your Founder’s Equity (along with your work and your intellectual property.). will get angel money; 0.25% will get early stage VC money; and probably 0.025% will make it to later stage VCs. From +/- $1.5m

Finance 70

Finance Venture Capital Intellectual Property Early Stage 70