Both Sides of the Table

OCTOBER 12, 2014

All the confusion you hear from friends or read in the press is related to this nuance that early investors demand prorata rights and sometimes fight like hell to maintain them (Facebook problem) and sometimes prefer not to take them (overvalued company that they perceive isn’t doing as well as new investors coming in think).

Technical Review 336

Technical Review Later Stage Early Stage LP 336

YoungUpstarts

APRIL 19, 2012

When not approached carefully, growth can destroy value as it outstrips a company’s managerial capacity, processes, quality, and financial controls, or substantially dilutes customer value propositions. Growth can dilute a business’s culture and customer value proposition and put the business in a different competitive space.

Dilution 209

Dilution Virginia Management Washington 209

View from Seed

JULY 15, 2020

These companies are probably burning a lot of cash, seeing headwinds in demand, and have funding needs that are substantial. Many of these companies are probably valued at their last financing round, which probably occurred in a very frothy funding environment. I think every investor has some of these.

Portfolio 215

Portfolio IRR Dilution Distribution 215

Genuine VC

JULY 19, 2010

I think that the number of players in this devloping class of what I’d call “Micro VCs” will continue to increase over the coming years: the model fits into an opportunity on the capital supply side, as well as more importantly becomes the right product for many entrepreneurs on the demand side. Structural.

Seed Stage 175

Seed Stage Technical Review Dilution Offshore 175

Austin Startup

JULY 6, 2018

Re: cash, the more “unbundled” types of accelerators (less formalized, less equity) tend to not provide any cash upfront, but also typically “cost” less in equity, often just 1–2% of your fully diluted capitalization. Anti-Dilution. See: Startup Accelerator Anti-Dilution Provisions; The Fine Print.

Dilution 48

Dilution Startup Technical Review Equity 48

Both Sides of the Table

NOVEMBER 14, 2017

This financial leader could well have come through the finance org at another startup or at a larger company but they often also can come from strategy consulting (Bain, BCG or McKinsey) or through investment banking (Goldman Sachs, Morgan Stanley, etc.). and we were met with weak demand, slow growth and high costs.

Operations 286

Operations New York City Technical Review Startup 286

David Teten

JANUARY 19, 2021

From RBI, Flexible VCs borrow the ability to reap meaningful returns without demanding founders build for an exit. Part of the magic of revenue-based financing is how historical performance and strong, achievable financial projections are ultimately the backbone of how RBI/RBF investment decisions are made.”

Cofounder 78

Cofounder Technical Review Equity Dividend 78

Feld Thoughts

MARCH 24, 2017

In general, these investments were rarely competitive at the time of their first financing. They’re a rare venture fund that doesn’t exercise pro-rata rights over the lifetime of an investment, meaning they dilute alongside company founders, which they believe better aligns their interests as seed investors with the entrepreneurs.

Founder 75

Founder LP Technical Review Seed Stage 75

Both Sides of the Table

OCTOBER 7, 2014

5 million was always the classic definition of an A-round between the late nineties (crazy financings aside) and say 2007. Entrepreneurs started demanding that VCs call their first-round financings “seed” rounds even if they were $3 million. Why the latter? and there''s always a but].

Cap Table 399

Cap Table Silicon Valley Term Sheet Finance 399

ReadWriteStart

JUNE 1, 2020

In very few specific cases, depending on the nature of the business, the business model might demand a considerable gestation period or extensive research and development. If you are facing any problem you can always check out this: Business Loan vs. Equity Financing. Stages of Equity-based funding. ? Inception stage.

Startup 150

Startup Entrepreneur Elevator Pitch Seed Stage 150

Hunter Walker

AUGUST 7, 2017

Employee options pools, typically created at the point of financings, shouldn’t be treated as haggling over dilution, but rather a strategic resource that will help founders build the best team and, by extension, a more valuable company.

Equity 94

Equity Pre-Money Valuation Option Pool Founder 94

Hunter Walker

SEPTEMBER 5, 2021

As a venture fund I might have a strategy which says “for every dollar I invest into companies, I will hold one dollar in reserve for additional financings.” Instead my recommendation is to ask every ~6 months or so in-between financings. If I have a $100m fund, $50m into initial investments and $50m into follow on.

Cap Table 94

Cap Table Seed Stage Syndicate Syndication 94

Both Sides of the Table

JUNE 5, 2011

But the reality is that you’re faced with two problems: 1) the earlier the stage the riskier and thus more write-offs so you need to have enough ownership percentage in your winners to make up for the losers and 2) the earlier stage your check the more likely the company will need many more funding rounds behind you and thus you face dilution.

Pre-Money Valuation 336

Pre-Money Valuation Valuation Silicon Valley Stock 336

Gust

OCTOBER 21, 2011

To account for scenarios in which the startup is acquired before it has a chance to complete a priced equity financing round, most term sheets and deal documents contain a “ change in control ” provision. Suppose the notes converted as if the acquisition were an eligible financing round.

Finance 79

Finance Pre-Money Valuation Term Sheet Liquidity Event 79

Gust

OCTOBER 12, 2011

Last week , we took the plunge and began dissecting an example term sheet for a convertible debt financing round piece by piece. In Part II, we looked at the mandatory conversion language that is at the heart of any convertible debt financing. Same, except at the option of the noteholders (per the term sheet example above).

Finance 107

Finance Term Sheet Pre-Money Valuation Early Stage 107

Startup Professionals Musings

SEPTEMBER 5, 2016

Many aspiring entrepreneurs jump ship from corporate environments, complaining that they want to be their own boss, only to find that investors are more demanding bosses than the ones they left. Keep later critical financing needs viable. Don’t let early funding increase risk and dilute your potential.

Bootstrapping 120

Bootstrapping Entrepreneur Startup Exit Strategy 120

The Next Web

FEBRUARY 27, 2014

This is typically in conjunction with an upcoming financing or pending takeover offer. Supply and demand. To start, let’s not forget about the obvious: the natural economic principles of supply and demand apply to valuing your business. your equity in a hot new patented technology business), the higher the demand (e.g.,

Valuation 167

Valuation Forecast Seed Stage .Net 167

Berkonomics

FEBRUARY 21, 2019

Second, almost no professional investor will consider putting that much into a startup until there is proof of market demand, product viability or some other mitigation of failure. Third (if you’re keeping score), it is not wise to dilute the founder’s ownership greatly in the first round of financing.

Dilution 48

Dilution Retention Valuation Startup 48

Both Sides of the Table

SEPTEMBER 25, 2011

All it says is that the VC has the right (but not obligation) to invest his/her proportional ownership in the next round of financing. So if you’re raising $10 million and only want to face 20% dilution and that’s the threshold for a new investor, you’re going to see tension. Why would this happen? Two at a push.

Entrepreneur 310

Entrepreneur Dilution Finance Silicon Valley 310

Ben's Blog

MAY 24, 2021

Second, by better matching supply and demand, direct listings have generally mitigated the magnitude of IPO Pops, thus engendering better overall price discovery. Among the findings are: SPAC dilution amounts to roughly 50% of the cash ultimately delivered to the companies brought public. Time Period IPO Pop* 1980-1989 6.1%

SEC 36

SEC Accredited Investor IPO Technical Review 36

Both Sides of the Table

APRIL 25, 2011

It’s nearly impossible to get a services company financed by VCs. They have created two internal technology “products&# and wanted to figure out how they could turn their services business into a product business that could be financed. You’re a small fish. This team is talented. They wanted advice.

Silicon Valley 332

Silicon Valley IP Dividend Finance 332

Babbling VC

OCTOBER 3, 2011

This is very difficult to do if you constantly have to worry about running out of capital in your fund or not having enough reserves to avoid dilution. Exits will feed future intermingling amongst the entrepreneurs and the funds financing them. Hypothesis 9: The problem is on the demand side .

LP 82

LP Europe Germany Venture Capital 82

Up and Running

MAY 27, 2014

Is this the investor’s first time investing in a company that needs to raise multiple rounds of financing (if you are in fact doing so)? Is the investor asking for a non-dilution clause (a stipulation that their equity shares never dilute) in your operating agreement? (No Every time an investment is made, everyone dilutes!).

Angel Investor 119

Angel Investor Dilution Accredited Investor Due Diligence 119

Tim Keane

JANUARY 12, 2010

For angel groups, the distinction between groups and VCs on this issue is dwindling, especially as angel groups do bigger rounds of financing.   Note that this applies only to earl stage Series A-type equity financings and assumes no cash dividends are paid to investors.   First , dividends.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

K9 Ventures

JUNE 12, 2012

Founders typically get their equity in a company once — at the time of founding and then get diluted with each subsequent round of financing. This situation is not always in the best interest of founders. The VC focus on quick growth is not without reason.

Venture Capital 117

Venture Capital Silicon Valley Founder Seed Stage 117

K9 Ventures

JUNE 12, 2012

Founders typically get their equity in a company once — at the time of founding and then get diluted with each subsequent round of financing. This situation is not always in the best interest of founders. The VC focus on quick growth is not without reason.

Venture Capital 105

Venture Capital Silicon Valley Founder Seed Stage 105

Gust

OCTOBER 8, 2014

Cautionary note: No competent VC is actually fooled when you show up after raising $6M in seed financing and say you’re now raising an A! 5 million was always the classic definition of an A-round between the late nineties (crazy financings aside) and say 2007. Marc Andreessen (@pmarca) October 7, 2014. Why the latter?

Cap Table 136

Cap Table Silicon Valley Term Sheet Non-Compete 136

Berkonomics

FEBRUARY 24, 2012

Second, almost no professional investor will consider putting that much into a startup until there is proof of market demand, product viability or some other mitigation of failure. Third (if you’re keeping score), it is not wise to dilute the founder’s ownership greatly in the first round of financing.

Dilution 72

Dilution Retention Valuation Equity 72

K9 Ventures

OCTOBER 10, 2017

This post is intended to be a dynamic document, and I will attempt to update it from time to time with new questions that may arise or as financing trends evolve. Q: What amount of financing is considered Pre-Seed? It’s a legitimate stage of financing in the venture eco-system as of this writing (October 2017).

Seed Stage 82

Seed Stage Finance Later Stage Equity 82

Both Sides of the Table

SEPTEMBER 5, 2012

Was Paul Graham right in his “high resolution” financing post? In a standard VC term sheet there is a standard term called an “anti dilution provision” and they are in nearly 100% of deals. It has nowhere near the same dilutive effects as a full ratchet except in extreme edge cases.

Ratchet 354

Ratchet Liquidation Preference Equity Stock 354

The Startup Lawyer

JUNE 9, 2010

A startup’s Series A financing shouldn’t be a large liquidity event or salary payday for the startup’s founders. The term sheet was pretty much a done deal, when the startup’s CEO demanded a salary of $25,000. Not all startup founders understand this tenet. Case Study. The Importance of Startup CEO Salary.

Salary 99

Salary Term Sheet Liquidation Preference Liquidity Event 99

Scott Edward Walker

JULY 27, 2011

There are, however, certain formal procedural requirements that the stockholder must comply with, including making a written demand upon the corporation, “under oath” and stating a “proper purpose.” The board can either accept or reject the demand. Moreover, there are certain tricky evidentiary issues.

Delaware 49

Delaware Liquidation Preference Redemption Los Angeles 49

Up and Running

APRIL 24, 2018

You and your team must know how to think about problems from new angles and adapt to changing market and customer demands. Because of complex government regulations and a lengthy incubation period, funding a healthcare startup is more difficult compared to financing a tech startup. Secure timely funding.

SBIR 73

SBIR Startup Artificial Inteligence Intellectual Property 73

ithacaVC

MAY 1, 2013

The article states “When venture capitalists invest, they typically demand preferred shares that accrue a yearly dividend of about 8 percent. Fiduciary duty law is well settled, and, no, directors cannot approve dilutive financings without regard to common shareholder interests. I hope that does not need much explanation.

Dividend 45

Dividend Liquidation Preference Common Stock Venture Capital 45

rapidrollout.wordpress.com

JANUARY 15, 2011

He or she might call himself a “consulting CTO,&# “freelance CTO,&# “on-demand CTO,&# “CTO on call,&# “CTO for hire,&# or just a “technology strategy advisor.&# And finally, you may be able to avoid diluting your equity.

Fractional CTO 40

Fractional CTO CTO CTO Hire Fractional VPE 40

Pascal's View

OCTOBER 9, 2013

This video focuses on four of those fundamental risks: ( 1) A startup’s high probability of failure; (2) The mathematics of dilution; (3) The tendency to misunderstand a company’s stage of development and, therefore, its capital needs; (4) Understanding the risks associated with investing good money after bad and knowing when to call it quits.

Angel Investor 28

Angel Investor Video Dilution Venture Capital 28

Both Sides of the Table

MARCH 11, 2011

Too many entrepreneurs focus on dilution. But over-optimizing for dilution is a bad attribute relative to focusing on creating a big & winning company. They would launch quickly and test whether or not there is any demand. It also is how they financed their entry into the United Nations.

Product 350

Product Tuvalu Dilution Incubator 350