Both Sides of the Table

JULY 29, 2010

We received so much positive feedback from our This Week in Venture Capital show walking through valuation calculations & term sheets that we decided to do a Q&A show this week to address topics that entrepreneurs want to learn about. Q: “If you have a term sheet on the table how should you leverage with other VCs?&#

Venture Capital 282

Venture Capital Term Sheet Valuation Stock Options 282

View from Seed

APRIL 30, 2015

It can be lower cost and can either buy more time or accelerate growth. It’s generally got a lower cost compared to equity capital and can help support growth. In terms of negotiation, there are always hot buttons. Traction and revenue? What is it, and how should founders think about it? What are some pros and cons?

Term Sheet 120

Term Sheet Equity Startup Seed Stage 120

Steve Blank

FEBRUARY 26, 2020

There are two reasons to raise money: You have a killer idea that is only partially validated, that you think can get to $50M+ of revenue in 5 years with 80%+ gross margins (if margins are lower, you need a lot more revenue)and you need money to get to product-market fit, or. Revenue per customer? Revenue, Gross Margin?

Cofounder 429

Cofounder Seed Stage Valuation Metrics 429

Both Sides of the Table

DECEMBER 17, 2009

Ability to Pivot – I don’t like to invest in people that I’ve never met before who come through my office wanting to have a term sheet within 30 days. Yes, there is the mythical company you all heard about that walked into Sequoia and had a term sheet 24 hours later. They were product and cost focused.

Entrepreneur 291

Entrepreneur Term Sheet Early Stage Affiliate 291

Startup Professionals Musings

JUNE 5, 2020

Tailor investor proposals and term-sheets. They watch for formal follow-up to questions, demonstration of real product, and revenue results. Most experts agree that acquisition of a new customer costs six times retaining existing customers. Passionate reiteration of the idea won’t close funding.

Entrepreneur 307

Entrepreneur Cofounder Term Sheet Acquisition 307

ReadWriteStart

JUNE 1, 2020

The primary source of your funds should be your paying customers, i.e., your business should generate enough revenues and profits to fund the growth and expansion. It is going to cost a lot of money just to get the initial batch of products to test the market and would definitely require external funding. Incubators and Accelerators.

Startup 150

Startup Entrepreneur Elevator Pitch Seed Stage 150

Startup Professionals Musings

AUGUST 3, 2015

Thus it behooves every entrepreneur to optimize their investment strategies early, based on time and dollar costs, as well as odds of success. Weigh the cost of every pitch against the potential return. Thus it always costs money to raise money, so plan ahead. There are just too many scams.

Cost 120

Cost Angel Groups Due Diligence Silicon Valley 120

Hunter Walker

FEBRUARY 15, 2016

My business is about investing in extraordinary founder talent so it pains me that I can’t write a Homebrew Term Sheet to Laura Weidman Powers. Is there a revenue generating aspect to the organization that makes it self-sustainable? The Fellows Program is a great example of an earned revenue strategy that’s gone well.

Programming 48

Programming Term Sheet Revenue United States 48

ReadWriteStart

OCTOBER 6, 2011

Sramana Mitra is the founder of the One Million by One Million (1M/1M) initiative, an educational, business development and incubation program that aims to help one million entrepreneurs globally to reach $1 million in revenue and beyond. The company has generated excellent investor interest and multiple term sheets.

Silicon Valley 118

Silicon Valley India San Francisco Entrepreneur 118

reidhoffman.org

NOVEMBER 12, 2013

we had no revenue. As a result, we knew that our pitch would need to steer into investors’ biggest concern: the lack of revenue. Instead, our strategy was to steer immediately into the revenue question because that was the top concern of investors in 2004. We made the mistake of listing three different revenue streams.

Entrepreneur 111

Entrepreneur Revenue Viral Networking 111

Life Beyond Code

SEPTEMBER 27, 2011

One Million by One Million is a global initiative that aims to nurture a million entrepreneurs reach a million dollars each in annual revenue and beyond by 2020, thereby creating a trillion dollars in global GDP and ten million jobs. 1M/1M Program has a bold mission. This is where numerous ventures fail.

Programming 116

Programming Silicon Valley Bootstrapping Technical Review 116

Both Sides of the Table

SEPTEMBER 18, 2014

At an accelerator … Me: Raising convertible notes as a seed round is one of the biggest disservices our industry has done to entrepreneurs since 2001-2003 when there were “full ratchets” and “multiple liquidation preferences” – the most hostile terms anybody found in term sheets 10 years ago.

Venture Capital 417

Venture Capital Liquidation Preference Valuation Term Sheet 417

Both Sides of the Table

APRIL 14, 2012

At least for a couple of years until you’ve grown into your new valuation / made enough revenue / captured enough customers / etc. Strategic must be a hugely defensive move or a move that the management team of the buyer believes could drive a huge increase in future revenue to more than cover the costs of having acquired your company.

Valuation 316

Valuation Balance Sheet Dilution Term Sheet 316

David Teten

DECEMBER 3, 2019

Some notable metrics are revenue growth rates, free cashflow, leverage ratios, historical financing amounts, returns on marketing spend, customer acquisition costs, lifetime value of customers, customer churn rates, and team social scores. Capital has built a free online tool for founders to calculate their cost of capital.

Technical Review 78

Technical Review Software Review Analytics Private Equity 78

Startup Professionals Musings

MAY 15, 2016

Tailor investor proposals and term-sheets. They watch for formal follow-up to questions, demonstration of real product, and revenue results. Most experts agree that acquisition of a new customer costs six times retaining existing customers. Passionate reiteration of the idea won’t close funding.

Cofounder 120

Cofounder Term Sheet Acquisition Metrics 120

Steve Blank

APRIL 9, 2009

And it was going to mention the two words that SuperMac marketing needed to live and breathe: revenue and profit. If marketing can’t deliver the 40,000 leads what else can we do for sales to still achieve our revenue and profitability?”) They understood the mission intent was our corporate revenue and profit goals.

Silicon Valley 259

Silicon Valley Technical Review RSS PR 259

K9 Ventures

APRIL 27, 2011

The day before we were supposed to sign the term sheet for the investment, Like.com sued Ugmode (the parent company of Modista.com) for patent infringement. The estimate for resolving a patent infringement dispute was about $1M in legal costs and the process could potentially take at least 2 years.

Software Review 134

Software Review Technical Review IP Finance 134

Startup Professionals Musings

MAY 9, 2015

Tailor investor proposals and term-sheets. They watch for formal follow-up to questions, demonstration of real product, and revenue results. Most experts agree that acquisition of a new customer costs six times retaining existing customers. Passionate reiteration of the idea won’t close funding.

Cofounder 120

Cofounder Startup Term Sheet Acquisition 120

Eric Friedman

AUGUST 18, 2021

The opportunity cost of the money I have not made on crypto is insane because I first was talking about crypto in 2011 as I’ve been in financial services for a long time. People talk about businesses that are obviously lending businesses as if they take no balance sheet risk or have no credit exposure. That scares me.

Silicon Valley 88

Silicon Valley Venture Capital Cofounder Africa 88

www.paulgraham.com

APRIL 28, 2010

There never has to be atime when you have no revenues. One experienced CFO said: The better ones usually will not give a term sheet unless they really want to do a deal. Heres a partial solution: when a VC offers you a term sheet, askhow many of their last 10 term sheets turned into deals.

Technical Review 76

Technical Review Startup Software Review Angel Investor 76

Gust

SEPTEMBER 17, 2014

Me: Raising convertible notes as a seed round is one of the biggest disservices our industry has done to entrepreneurs since 2001-2003 when there were “full ratchets” and “multiple liquidation preferences” – the most hostile terms anybody found in term sheets 10 years ago. Revenue multiple? Your A round? Him: On metrics.

Liquidation Preference 153

Liquidation Preference Valuation Term Sheet Stock 153

Startup Lessons Learned

AUGUST 17, 2020

They were providing low-cost healthy meals for schools across the country and, before the crisis, were delivering two million federally reimbursable school and community meals per week nationwide. We literally started just as we got our first term sheet for investment on the day that we graduated from business school in June of 2006.

Cofounder 60

Cofounder Security Founder Entrepreneur 60

Eric Friedman

JUNE 11, 2019

Partnership Forcing Functions can be tricky because they typically don’t involve revenue, which drives most business decisions, but there are other reasons to do the deal. Typically a startup wants a POC with a LargeCo. and they move at a glacial pace.

Term Sheet 68

Term Sheet Stock Options Early Stage Agile 68

Business Plan Blog

DECEMBER 26, 2013

This process may include the provision of various scenarios on revenues and costs as the investors validate forecasts initially presented. The term sheet is a legally binding document and should include the following elements: - Offer terms, such as: Company, founder and investor details. .

Angel Investor 51

Angel Investor Due Diligence Pre-Money Valuation Angel Groups 51

Both Sides of the Table

SEPTEMBER 2, 2009

We should end the year with a few million in fully recurring revenue and we’re projected to double next year. But more spend = more viral opps = more revenue down the road. >50% of our revenue in now viral. Many term sheets ensued. I had that against the backdrop of several term sheets.

Founder 329

Founder Liquidation Preference Term Sheet Participating Preferred 329

Cracking the Code

MARCH 28, 2022

So, tell us more about the inspiration for Melio… At PayPal, I led the group responsible for peer-to-peer payments globally, and grew it to around $50 billion in payment volume, and more than a billion dollars in revenue. In fact the term sheet was signed the day before the world went into lockdown!

B2B 62

B2B Cofounder Small Business 62

Up and Running

JANUARY 7, 2020

As a result, we helped save millions of dollars in economic loss and firefighting costs for the nation. We ended up receiving a $5m term sheet from investors, dozens of government customers from all across the western United States, and several offers to acquire us for 10x the initial investment. Getting there was a struggle.

Product 82

Product Marketing Silicon Valley Term Sheet 82

Hippoland

AUGUST 31, 2018

I’m of the belief that early ideas can never effectively deploy $4-$5m in a very cost effective way. Post-seed (pre-A) : This is a stage that was created, because the bar for the series A has gone sky high. And companies typically have $2m-$3m revenue runrate at this point. This really is what the series A used to be.

Pre-Money Valuation 90

Pre-Money Valuation Valuation Silicon Valley Early Stage 90

Gust

SEPTEMBER 5, 2012

I won’t rehash all of the customary convertible note financing deal terms and points of negotiation here. (For For a comprehensive tutorial with sample term sheet, see my prior series here at Gust.) This adds cost and administrative complexity, especially with multiple closings on different dates.

Finance 134

Finance Convertible Security Equity Seed Stage 134

K9 Ventures

OCTOBER 10, 2017

I’ve been an avid reader of Dan’s Term Sheet while he was at Fortune , and now Pro Rata at Axios. Yes, the infrastructure is cheap (to start), but the human costs have gone up dramatically. Seed is the new Series A. (~$2M used get for building product, establishing product-market fit and early revenue).

Seed Stage 82

Seed Stage Finance Later Stage Equity 82

www.currentlyobsessed.com

MAY 28, 2010

I have to admit, the light bulb didn’t go off for me until I was negotiating term sheets. Read Terms that Hurt (Venture Hacks). Read up on the “unwritten terms&# in term sheets having to do with exit multiples here For bootstrappers, the math is even easier: 100% of the upside goes to you and your awesome team.

Valuation 42

Valuation Channel Pre-Money Valuation Term Sheet 42

Hippoland

AUGUST 31, 2018

I’m of the belief that early ideas can never effectively deploy $4-$5m in a very cost effective way. Post-seed (pre-A) : This is a stage that was created, because the bar for the series A has gone sky high. And companies typically have $2m-$3m revenue runrate at this point. This really is what the series A used to be.

Pre-Money Valuation 48

Pre-Money Valuation Valuation Silicon Valley Early Stage 48

Steve Blank

APRIL 16, 2009

Our calculations had us losing money on the two lowest cost boards, breaking even on the third and making great margins on the other six. And in this very unique case, we figured out how to maximize revenue and profit by branding and product line extensions. We were going to price the products from $699 to $3,999.

Silicon Valley 134

Silicon Valley Product RSS Engineer 134

abovethecrowd.com

APRIL 20, 2016

A high performing, high-growth SAAS company that may have been worth 10 or more times revenue was suddenly worth 4-7 times revenue. The Sharks Arrive With Dirty Term Sheets. The typical Silicon Valley term sheet does not include such terms. Dirty term sheets are a massive problem for two reasons.

IPO 40

IPO Term Sheet Silicon Valley Valuation 40

www.paulgraham.com

APRIL 28, 2010

We chargedquite a lot for our software—about $140 per user per month—butit was at least a year before our revenues would have covered evenour paltry costs. It costs not justthe time of the actual meeting, but the time getting there and back,and the time preparing for it beforehand and thinking about itafterward.

Bootstrapping 77

Bootstrapping Term Sheet Founder Startup 77

This is going to be BIG.

FEBRUARY 24, 2020

This way, you’re eating the cost of your own additional budget by selling more of the company—and the investor doesn’t have to feel like they’re paying you more directly. Focus on ideas that have near term revenue opportunities. If your 18 month plan calls for raising $1mm, raise $1.5mm at the same valuation. Set milestones.

Founder 113

Founder Salary Term Sheet Valuation 113

abovethecrowd.com

NOVEMBER 28, 2022

As the bull market raged on from 2015 to 2022, it became quite trendy for venture capitalists to wave the requirement for an annual audit which is embedded in almost every standard Series A term sheet. Building a unique set of financials can be a reasonable way to use cost accounting to help drive key OKRs.

Venture Capital 113

Venture Capital Non-Compete Government Delaware 113