Gust

AUGUST 10, 2014

Here are some basic rules of thumb that every Angel or venture capital equity investor uses, to help you anticipate their reactions. According to a recent Dow Jones VentureSource report, the average time to liquidity of an equity investment in a startup is now about five years. Build a path to 10x return.

Liquidity Event 176

Liquidity Event Equity Venture Capital Merger 176

Gust

OCTOBER 18, 2014

What this investor is seeking is called “permanent, full-ratchet, anti-dilution protection”, and that is neither (a) in line with the market, nor (b) practical. Instead, let me suggest that you offer “weighted average anti-dilution protection” to the next equity round. Invested Interests'

Dilution 137

Dilution Ratchet Equity Finance 137

Gust

JULY 19, 2012

1) Non-equity, creative project crowdfunding portals, which are currently allowed and are not subject to legislation under the JOBS Act. 2) Pure-play equity crowdfunding portals as directly envisioned by the JOBS Act. I believe this is likely to continue, and that at least the two leaders will be very successful.

Accredited Investor 144

Accredited Investor SEC Equity Early Stage 144

Gust

MAY 24, 2012

Some commentators have suggested this is the wave of the future, signifying a shift in the balance of power from investors to founders of the relatively small, elite group of growth companies that make it to public markets. Nevertheless, these preferences aren’t intended to last forever.

IPO 159

IPO Equity Common Stock Stock 159

Gust

JANUARY 4, 2012

Entrepreneurs: if you’re looking seriously at angel investment, and you have the kind of product-market fit and management experience investors will like, you need to take a good look at convertible notes. Do yourself and the investors you want to talk to a favor: take a few minutes and do some homework on this issue.

Angel Investor 114

Angel Investor Valuation Angel Groups Equity 114

Gust

SEPTEMBER 20, 2012

The key questions are: Who can you MARKET to? However, the fascinating wrinkle is that it looks like startups will NOT be able market this sale to anyone, but that instead the sale will have to be done through a new form of web site called a funding portal (think “Kickstarter for equity” ). Who can you SELL to?

Accredited Investor 121

Accredited Investor SEC Stock Startup 121

Gust

NOVEMBER 1, 2012

Or “ FundingUniverse.com ” needing to change to “ Lendio.com ” when they pivoted from equity to debt. Similarly, “ stickybits.com ” is perfect for a QR code tagging site, but doesn’t work nearly as well as “ turntable.fm ” once it turns into a collaborative music-playing site.

Naming 138

Naming Differentiation Equity Developer 138

Gust

OCTOBER 26, 2014

Bootstrapping avoids all the cost, pain, and distractions of finding angels or VCs, and allows you to keep control and all your hard-earned equity for yourself. Practice creative marketing. When someone asks me for the best way to fund a startup, I always say bootstrap it, meaning fund it yourself and grow organically.

Bootstrapping 176

Bootstrapping Startup Merger Salary 176

Gust

AUGUST 19, 2012

Here are the ten slides you need: Problem and market need. Make sure to communicate the relevance of your product / services to market needs. Define the characteristics of the overall industry, market forces, market dynamics, and customer landscape. Investors like $1B markets with double-digit growth rates.

Elevator Pitch 146

Elevator Pitch Exit Strategy Burn Rate Merger 146

Gust

MAY 11, 2014

A grant is not an equity investment, so the entrepreneur doesn’t have to give up a stake in the company either. You need to enhance your business plan and marketing with all the benefits to your customers of the multiple “stimulus” plans and tax breaks now being put together, especially related to alternative energy products.

Seed Money 164

Seed Money SBIR Dilution Government 164

Gust

DECEMBER 6, 2011

An experienced software engineer, for example, can develop a new mobile app with his or her own resources and market the product on the web with very little capital. Most high-impact companies need substantial cash resources to sustain their rapid grow.

Angel Investor 179

Angel Investor Venture Capital Valuation Software Engineering 179

Gust

AUGUST 5, 2012

Industry & market sizing. Start with the evolution of the overall industry, market segmentation, market dynamics, and customer landscape. Data from accredited market research groups like Forrester or Gartner is required for credibility. Avoid any statements like “All we have to do is get 1% of the market.”

Business Plan 182

Business Plan Sweat Equity Exit Strategy Intellectual Property 182

Gust

JULY 13, 2014

Make sure they understand the sense of urgency to address customer satisfaction and market needs. “I Every company needs to promote equity among all employee levels, and relate benefit levels to profit levels. I give my all to this company, so I deserve healthcare coverage.” Health care is a need, like water or food, and not a right.

Later Stage 153

Later Stage Early Stage Equity Employee 153

Gust

OCTOBER 25, 2011

Assume you have the right factors to get angel investment: experienced team, good product-market fit, growth potential, defensibility, and a reasonable shot at a successful exit. Have you asked yourself whether that’s what you really want? Have you considered the tradeoffs? That’s what we’re here for. But angel investment isn’t for everybody.

Cofounder 133

Cofounder Angel Investor Equity Software 133

Gust

DECEMBER 16, 2012

The corporate entity lends itself best to the concept of “sharing” equity required by investors, and unincorporated entities don’t get funding. All the conviction and market research in the world are no substitute for real customers paying real money. Line up an experienced team. Variables for “what if” questions add credibility.

Angel Investor 179

Angel Investor Intellectual Property Elevator Pitch Angel Groups 179

Gust

NOVEMBER 4, 2011

In brief, a cap acts to place a limit on the conversion price of a convertible note such that investors are guaranteed a minimum number of shares for their bridge loans if the startup does a priced equity round at a high pre-money valuation – “high” meaning above the cap, which is often a heavily negotiated term. (The

Valuation 98

Valuation Pre-Money Valuation Merger Vesting 98

Gust

SEPTEMBER 17, 2014

It’s simply what a market is willing to pay based on a future belief that your company will grow and non-linear rates and be worth much more in the future. But lawyers will charge much more for equity.” Try doing THAT with equity. Cashflow projections? I’m not sure. And so forth. Not in my experience. A few M&A transactions.

Liquidation Preference 153

Liquidation Preference Valuation Term Sheet Stock 153

Gust

DECEMBER 27, 2012

Looked at from their perspective, given two teams equal in entrepreneur, market, business model and potential, why should they invest in one that exists on paper, when the other has reduced its risk and improved its viability by actually getting started?

Software Review 164

Software Review Term Sheet Technical Review Angel Investor 164

Gust

OCTOBER 17, 2012

Their firsthand knowledge of creating new businesses and new markets seemed quite relevant to successfully investing in other entrepreneurs working to do the same. 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

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 29, 2014

” If we’re talking about the US and you are NOT at the Accredited level ($1 million in investable assets, or $200,000 annual income), then for the moment you are actually not allowed to invest in privately held startups (emerging public companies, of course, you can buy on the stock market like everyone else.).

Accredited Investor 157

Accredited Investor Securities and Exchange Commission Technical Review Due Diligence 157

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

DECEMBER 28, 2011

The two major differences in the exit environment in the past decade are (1) the disappearance of the IPO market and (2) the rapidly increasing size of the average VC fund. As you may know, startups can go public on active foreign exchanges – such as Toronto’s TSXV and the London AIM market – but there’s a catch.

IPO 153

IPO Venture Capital Entrepreneur Angel Investor 153

Gust

NOVEMBER 23, 2011

Talented entrepreneurs are nothing if not resilient in the face of change: Market forces, competitive threats, technological shifts, you name it. Google, which incorporated in 1998, has a market cap of $200 billion and employs more than 30,000 people. Facebook, which did not exist in 2003, is now valued at nearly $100 billion.

IPO 110

IPO Prospectus SEC Intellectual Property 110

Gust

DECEMBER 31, 2012

First of all, the Boomer demographic is currently the single largest, mainstream pool of experienced talent in the market today (76 million people strong). How can you beat finding someone who has been there and done that, able to mentor Gen-Y, has lots of connections to people in your industry, and is often willing to work for equity alone?

Advisory Board 177

Advisory Board Angel Investor Startup Equity 177

Gust

AUGUST 7, 2012

Investors bet on people, specific people, more than on businesses, markets, ideas, or products. Sweat equity can be a problem. And of course founders making more than market-justified salaries is a problem too. Big disruptive successes create new markets, they don’t copy other successes in existing markets.

Business Plan 172

Business Plan Sweat Equity Salary Founder 172

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. Even in today’s market, there is capital available from financial institutions at a lower cost for these purposes. Non-profit businesses. I think investments in non-profits are called “contributions.”

Angel Groups 143

Angel Groups Angel Investor Early Stage Startup 143

Gust

DECEMBER 22, 2013

Consider the non-cash alternatives, like offering team members equity instead of cash and bartering for services. Beyond the traditional new product or service model, you can always buy an existing business, purchase a franchise, join a multi-level marketing (MLM) company, or simply go out on your own as a consultant. Ask around.

Entrepreneur 184

Entrepreneur Angel Investor Bootstrapping Venture Capital 184