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

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

OCTOBER 17, 2012

In addition, angels were up against a selection problem: All the best entrepreneurs and opportunities would naturally gravitate to the best venture capital funds, leaving only the “scraps” for angel investors. This is absolutely competitive with venture capital returns. So which is it? Only they’re not.

Angel Investor 152

Angel Investor Venture Capital Seed Stage Silicon Valley 152

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

DECEMBER 28, 2011

In the “good old days,” angels invested in seed-stage startups and teed up promising companies for subsequent venture capital financing. If the company was successful, this quickly led to an IPO – a very happy ending for the entrepreneur, the angels, and the venture capitalists. Raising venture capital may lead to a huge exit.

IPO 153

IPO Venture Capital Entrepreneur Angel Investor 153

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

DECEMBER 13, 2011

Here are the trends in venture capital financings from 2006 through 2010 – the number of seed stage deals funded and total investment by region in millions of dollars. . For VCs, I chose to look at all seed stage VC deals (from MoneyTree©) as well as those in five of the most active regions in the country. All Seed-VC. Silicon Valley.

Seed Stage 162

Seed Stage Southern California San Diego Silicon Valley 162

Gust

NOVEMBER 11, 2011

Usually these term sheets involve convertible notes, which are supposed to convert to equity at the next round of financing, like when the serious venture capitalists do a Series A. Angel investment events where the group investment is supposed to go to the winner, but the winner ends up hating the term sheet.

Software Review 79

Software Review Term Sheet Due Diligence Angel Investor 79

Gust

JANUARY 4, 2012

I don’t think most groups are locked in under all circumstances – for example, the one I’m a member of decided to jump straight to equity for one deal a couple of years ago, even though we generally assume our investment will be as convertible notes.

Angel Investor 114

Angel Investor Valuation Angel Groups Equity 114

Gust

SEPTEMBER 17, 2014

Me: So, you raised venture capital? But lawyers will charge much more for equity.” Try doing THAT with equity. How about you close your first capital (say $500,000) and put in the docs that you have up to [90] days to raise an additional $1 million at the same price at your discretion. On the phone …. Employment.

Liquidation Preference 153

Liquidation Preference Valuation Term Sheet Stock 153

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

OCTOBER 5, 2011

In case it isn’t clear by now, angel investors aren’t in the business of making risky early stage investments in order to earn 6% interest on their money, or even 10%— the upside is all in conversion to equity—so the interest rate isn’t a major point of negotiation. per share for 2,000,000 shares of newly issued Series A Preferred Stock.

Finance 79

Finance Preferred Stock Term Sheet Early Stage 79

Gust

DECEMBER 27, 2011

Here is the inverse, sometimes called reverse due diligence, describing what you should do to validate your investor before signing up for an equity partnership. A while back, I published an article on “ Startup Due Diligence Is Not a Mysterious Black Art ,” describing what investors do to validate your startup before they invest.

Due Diligence 119

Due Diligence Entrepreneur Offshore Angel Groups 119

Gust

OCTOBER 12, 2011

In rare cases where a startup is cash flow positive very early in its lifecycle, it may actually be able to pay off the notes without raising any equity investment. Practically speaking, if the company is out of money, it’s out of money, so the difference between numbers 1 through 4 may not mean much.

Finance 107

Finance Term Sheet Pre-Money Valuation Early Stage 107

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

OCTOBER 25, 2011

I’m an angel investor now, but I also had a small piece of co-founder equity in a software company that went public, and whole ownership of a software company that grew and prospered but remained private. That’s what we’re here for. But angel investment isn’t for everybody. My own experience keeps me open minded on this point.

Cofounder 133

Cofounder Angel Investor Equity Software 133

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

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 3, 2011

If a company is appropriate for angel financing , for example, it is highly unlikely that it would also be in a position to raise venture capital, and vice versa. 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.). From +/- $1.5m

Finance 70

Finance Venture Capital Intellectual Property Early Stage 70

Gust

DECEMBER 22, 2013

Consider the non-cash alternatives, like offering team members equity instead of cash and bartering for services. Professionals will tell you that the sequence is friends and family first, angel investors second, and only then venture capital. Do you have a viable plan? Each of these has a cost in time an effort.

Entrepreneur 184

Entrepreneur Angel Investor Bootstrapping Venture Capital 184

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. In recent years, government regulation has emerged as another such force to be reckoned with in the technology industry.

IPO 110

IPO Prospectus SEC Intellectual Property 110

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. Generally, the same criteria applies to venture capital investors, although they invest other people’s money, at a later stage, in larger amounts. Non-profit businesses.

Angel Groups 143

Angel Groups Angel Investor Early Stage Startup 143

Gust

OCTOBER 26, 2011

When a company is asked to make legal representations about its standing, prior equity and debt issuances, corporate governance formalities and so forth, if taken seriously, matters of “deferred maintenance” often surface and must be handled before closing.

Finance 79

Finance Term Sheet Covenant Accredited Investor 79