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Equity for Early Employees in Early Stage Startups

SoCal CTO

I was asked by a reader how much equity he should give out to early employees and to service providers in a very early stage startup.

The Truth About Early Stage Pre-Money Valuations

Ask the Angels

think there are three fundamental truths regarding the valuation of early stage businesses by potential investors: The first is that a pre-money valuation is ultimately an outcome of negotiation , rather than a mathematical calculation of discounted cash flow or any other metric of potential company performance.

When In Doubt on Pre-Money Valuation, Smart Guys Procrastinate

Recent Buzzes - VC Experts, Inc.

This means the conversion price is 10% to 25% lower than the conversion price of the other players or at a negotiated pre-money valuation. Assume the pre for the bridge is somewhere between $1 and $4 million, this is too big a gap so the price is discounted 25% from the next rounds price. By Joseph W.

The Challenge Of Figuring Out Your Pre-Money Valuation

YoungUpstarts

As an entrepreneur, every time you seek money in exchange for ownership, you will face the challenge of setting a reasonable and defensible PMV.

2011 Valuation Survey of North American Angel Groups

Angel Investing News

During the summer of 2010, I developed a workshop, A New ACEF Valuation Workshop for Angels and Entrepreneurs.  To provide some reference points, I surveyed thirteen angels groups in North American to determine their recent experience in negotiating the pre-money valuation of pre-revenue companies.  Valuation.

10 Rules of Thumb for Startup Investment Valuation

Gust

How much is NewCo worth to investors at this point (pre-money valuation)? Early customers and contracts in progress add value.

A Five-Minute Tutorial On How To Value Your Startup

Startup Professionals Musings

Equally bad is professing no valuation estimate at all, asking investors to “make me an offer.” reveneue Shark Tank startup valuation

Valuations 101: Scorecard Valuation Methodology

Gust

These angel investors generally invest $25,000 to $100,000 in a round totaling $250,000 to $1,000,000.  In 2011, the valuation of pre-revenue, start-up companies is typically in the range of $1.5–$2.5 Scorecard Valuation Methodology. As can be seen the average (mean) pre-money valuation for recent pre-revenue deals is $2.1

The Silliness Of Recapping Seed Rounds

Feld Thoughts

company raises $1m of seed money from angels in a convertible note with a $6m cap. 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. ” They are running out of money. It blew my mind.

2011 Valuation Survey of North American Angel Groups

Gust

During the summer of 2010, I developed a workshop,  A New ACEF Valuation Workshop for Angels and Entrepreneurs.  To provide some reference points, I surveyed thirteen angels groups in North American to determine their recent experience in negotiating the pre-money valuation of pre-revenue companies.  Valuation.

Kevin Learned’s Perspective on Valuation

Angel Investing News

Kevin recently wrote a series of articles on the valuation of early stage enterprises, which I believe to be noteworthy. Part I – Valuing Early Stage Businesses:  The Value of an Early-Stage Company is Related to its Riskiness. Part II – Valuing Early Stage Businesses:   Comparisons.

10 Rules of Thumb for Startup Investment Valuation

Startup Professionals Musings

How much is NewCo worth to investors at this point (pre-money valuation)? Early customers and contracts in progress add value.

How Investors Think About Valuation of Pre-Revenue Startups

SoCal CTO

A lot of my time is spent helping early-stage companies get to proof points so that they can raise capital. They might have some seed money and are thinking or raising a Series A based on success of an early release (MVP). Bill Payne is an expert on how early-stage investors should look at valuation.

What is it Like to Negotiate a VC Round?

Both Sides of the Table

In the old days VCs funded off of a “pre-moneyvaluation. If you add the pre-money valuation (let’s say $8 million) to the amount of money you’re raising (let’s say $2 million) you get the post-money valuation. It’s very simple. Size of my check.

Sizing Option Pools In Connection With Financings

A VC : Venture Capital and Technology

Investors like to require that an unissued option pool is in the pre-money valuation calculation when they put money into early stage companies. Let's say you are raising $1mm at $4mm pre-money. And the investors want the option pool to be in the pre-money valuation.

When Should Startup Founders Discuss Valuation with Seed VCs?

View from Seed

Or, in the case of a convertible note, they’ll explicitly state a valuation cap. Building a startup and currently in the seed stage?

10 Ways to Size Your Company’s Value for Funding

Startup Professionals Musings

How much is NewCo worth to investors at this point (pre-money valuation)? Early customers and contracts in progress add value.

Want to Know How VC’s Calculate Valuation Differently from Founders?

Both Sides of the Table

This starts with understanding how VCs and entrepreneurs often see valuation differently. Thus the “true&# pre-money is only $2.4

What to Expect When You're Expecting Venture Capital Returns

This is going to be BIG.

so that's what I said my exits would be as a seed stage fund. Series A's are done as a $5mm round on a pre-money valuation of $15mm.

How to Evaluate an Offer from a Startup Incubator

The Startup Lawyer

The following are some issues to consider and actions to take before accepting an incubator’s offer: (1) Calculate Valuation and Determine Value. Pre-money valuations startups receive from incubators are typically low…really low. Great news — your startup just got accepted to an incubator! Conclusion.

A Great Discussion with @skupor @davemcclure @msuster on Changes in the VC Industry

Both Sides of the Table

Video 1 is here : Late stage valuations are in a mini bubble. tl;dr version. Each of the two videos is about 10 minutes long.

Convertible Debt – Valuation Caps

Ask The VC

Today, in our series on convertible debt, we examine the conversion valuation cap. The valuation cap is typically only seen in seed rounds where the investors are concerned that the next round of financing will be at a price that is at a valuation that wouldn’t reward them appropriately for taking a risk by investing early in the seed round.

Why Startups Should Raise Money at the Top End of Normal

Both Sides of the Table

It’s the one bit of advice I find myself giving most frequently these days, “raise money at the top end of normal.&#. Simple.

Thoughts on Convertible Notes

K9 Ventures

There has been a lot of noise in the Valley lately about how most seed stage deals are now being done as convertible notes. Where are you going?

The Changing Structure of the VC Industry

Both Sides of the Table

The rise of “micro VCs” or seed-stage funds. We are in a bubble (with so many private $1bn+ valuations). Where are we today?

So What is The Right Level of Burn Rate for a Startup These Days?

Both Sides of the Table

There is much talk these days that startup valuations have decreased and may continue to do so and that the amount of time it takes to fund raise may take longer. The earlier the round, the less capital you need and the more reasonable your valuation the less time that is needed generally to raise capital. million. Only you can know.

The Truth About Convertible Debt at Startups and The Hidden Terms You Didn’t Understand

Both Sides of the Table

Some thoughts on raising angel money. ” And some seed stage investors told me, “I prefer not to fight over price now. Voila.

Rule 409A – Again

ithacaVC

Here is the post, which focused mostly on how 409A valuations are used for stock option purposes. And I think that early stage companies should take the risk and not use 409A valuations.  As companies move to later stages and have meaningful revenues and profits then 409A valuations begin to make more sense.

Don’t Pitch A Venture Capitalist Without This Checklist

David Teten

The cover note should include: name, website, location, revenues (if any), detailed financing history (if any), and precise terms on which you are seeking to raise capital.  If you are testing the market to see what terms you can get, just say, “We are targeting to raise $X at pre-money valuation of $Y.” Location.

Why the New Seed Might Be a Bad Seed

This is going to be BIG.

About a year ago, I started hearing about the existence of a "pre-seed" round. You''re ending up at a post-money valuation of $10mm versus $5mm.

Why Valuations are Ready to Tumble

Fresh Inc.: The Staff Blog

New figures from Pepperdine University show that startup valuations are through the roof. We all know valuations are up. million.

How and Why To Be an Angel Investor

David Teten

Enter Dave: Angel investing is a great way to make a lot of money. It’s also a fast way to lose all your money. Time Period. Study.

Investor Nomenclature and the Venture Spiral

K9 Ventures

Sometimes this money comes with strings attached – strings in the form of expectations, which if not met can often hurt the relationship. Angel.

8 Questions to Help Decide if You Should be Raising Money Now

Both Sides of the Table

When times are really good for fund raising many teams delay to maximize their valuation. How do you push valuation? 25% dilution).

Raising Financing: Convertible Debt vs. Equity

Instigator Blog

And I’d like the pre-money value to be $1.5M. The post money-value would be $2M and the $500k is worth 25% of the company. So in the Series A, when you now want to raise $2M and the pre-money valuation is $6M, the $500k is measured against a pre-money valuation of $4.8M.

Finance Fridays: Getting Started – Allocating Equity and Founder’s Investment

Feld Thoughts

While they could both go without salaries for a year, Dick had no extra money to invest in the business. Jane and Dick had several options, including structuring this as a debt transaction where Jane simply loaned the money to the company, or as convertible debt transaction where Jane’s investment would convert into equity in the next round.

How does someone get a meeting with angel investor David S. Rose?

Gust

So even if my own mother asked me to meet with you, and you were pitching me a biotech opportunity for a $10 million investment at a $90 million valuation, I might take the meeting, but it wouldn’t be particularly useful for either of us. In this case, it’s not a lack of interest, just a lack of time and efficiency. My bad! Rose

Entrepreneur Tools: The Returns Analysis

Secret Formula

Also, early-stage investors fund younger, riskier companies, most of which fail. learned this the hard way.

Series A Warrants Based On Milestones Versus A Deal With Two Closes

Ask The VC

Let’s assume a post-money valuation of $4m. The post money valuation after the warrant is exercised is $6.25m (2.5m / 0.40). Bottom line – the investor is proposing a $3.75m pre-money / $6.25m post-money for a total investment of $2.5m. from the warrant). This buys a total of 2m shares.

Entrepreneurs and VCs: Turning the Tables

Fresh Inc.: The Staff Blog

Pre-money valuations are up. Investors are assigning companies a higher value even before they put their money in.