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

Both Sides of the Table

Because convertible debt deals often have both a ‘full ratchet’ and often have ‘multiple liquidation preferences’ “ Yup. The key for entrepreneurs to understand is whether it’s a “full ratchet” or a “weighted average ratchet.” You rarely find full ratchets in early-stage deals any more. I’ll pay the price but I want a full ratchet.” How Convertible Debt with a Cap Behaves Like Full Ratchet.

Mentors 5/18: Listen Too

Feld Thoughts

I don’t go so far as to “think out loud” like some people I work with, but I regularly find myself talking too much and have to consciously ratchet it back to listen. As I’m about to head down to Austin for Techstars FounderCon (the annual meeting of all Techstars founders), I figured I crank out a few more Mentor Manifesto items this week. Item 5 is “Listen Too.” ” Pause and ponder for a minute. Do you talk too much?

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Walker Twitter Highlights: November 9th – 29th

Scott Edward Walker

” A few solid responses: [link] “The only folks that win on this are the later stage investors who get the benefit of the ratchet…“ – @weschan [link]. I’m using Twitter as a form of micro-blogging to share interesting articles, blog posts and video clips relating to startups, entrepreneurship and legal issues. Below are my five most popular tweets (via bitly ) for the past three weeks.

Should I give my seed investors anti-dilution protection?

Gust

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. Even if you were willing to give it to him, it is highly, highly unlikely to stand up beyond the next financing round, because there’s no way your next investor is going to take a dilution hit for this first one. That’s why anti-dilution provisions are typically only applicable to the next financing.

One Simple Paragraph Every Entrepreneur Should Add to Their Convertible Notes

Both Sides of the Table

This is called a “full ratchet,” which is also historically a term that VCs would be crucified for trying to get away with but I’ll avoid talking about that in this post.]. I’m so tired of seeing young entrepreneurs get screwed by their angel investors on convertible notes and I know I can’t convince you not to do it so I’d like to offer one simple bit of advice to help you avoid getting screwed (at least on one part of your note).

Thoughts on WeWork

This is going to be BIG.

Sometimes they have various ratchets and other bells and whistles that protect their downside further, like when Square IPO’d. I got asked by a reporter yesterday what I thought about WeWork’s IPO situation and I’ll summarize what I said here: First off, let’s pull back for a moment and acknowledge that WeWork has built a huge company that generates a ton of value for its members. Real estate was previously a huge headache for small businesses before WeWork made co-working mainstream.

Links for 2006-07-24 [del.icio.us]

OnlyOnce

I wrote about this (a little bit) last year in Ratcheting Up is Hard to Do ([link] but Fred's posti A VC: Scars From The Last Bubble. Fred has a good posting on some of the downsides of having managed through the bubble bursting.

[Singapore] Shopify Partners SingTel To Grow Presence In Singapore

YoungUpstarts

The e-commerce space in Singapore has been ratcheted up by another notch as online shopping platform Shopify partners telecommunications provider SingTel to make available its services to businesses in the country.

On the Square and Match IPOs and hopes for a correction

The Equity Kicker

They had a ‘ratchet’ which repriced their investment in the event of a down round to give them a 20% return. Match.com and Square both enjoyed strong first days after their IPOs yesterday. Match closed up 23% at a valuation of $3.5bn and Square was up 45% at a valuation of $4.2bn. That’s good news for both companies, because first day declines can sour a stock for months to come.

Abandoned Cart Email Offers: What We Learned from 1,000 Ecommerce Brands

ConversionXL

There are many more ways to ratchet up the conversion power of your abandoned cart emails. Cart abandonment is a huge issue in ecommerce. So cart abandonment emails are often a top revenue generator. And discounts and offers within those emails are proven tactics for increasing conversions. All standard wisdom. But we wanted to see how ecommerce brands deployed their offers. Are “best practices” for offers prevailing? Which strategies are brands using—or neglecting?

3 Ways To Make In-House Filing Less Taxing

YoungUpstarts

If your startup is eyeing international expansion early on, your tax compliance and planning needs, both home and abroad, immediately ratchet up. by Anjum Tunuli, c hief tax officer at Early Growth Financial Services. Cutting your own hair can be a dangerous endeavor that whites many a knuckle. Sure, it saves money and it could end up looking good, but one sneeze, flinch, or cough could turn your once-beautiful ‘do into a literal head-scratcher.

Investing Notes From The Inaugural Pre-Seed Summit

Haystack

I would bet most of them can barely cut through the flow, and then they have to find the best deals and look over their shoulder for a larger VC who can pick off the deal, give the founder more money, and ratchet up the valuation in the process. Earlier today, the folks from Afore Capital hosted their inaugural “Pre-Seed Summit” in San Francisco. About 150 people showed up, a healthy mix of founders, seed-stage investors and big fund VCs, and a bunch of LPs of various sizes.

Common Problems Facing Startup Businesses

The Startup Magazine

The problem is, the majority of startups are in the red throughout their first year, and overstaffing is one of the surefire ways to ratchet up debt. It takes a special talent to own and/or operate a successful startup. In light of the many risks associated with business ownership, helming a profitable startup is a solid indicator of intelligence, financial savvy and business acumen. As any seasoned entrepreneur will tell you, a well-oiled startup doesn’t just materialize overnight.

Abandoned Cart Email Offers: What We Learned from 1,000 Ecommerce Brands

ConversionXL

There are many more ways to ratchet up the conversion power of your abandoned cart emails. Cart abandonment is a huge issue in ecommerce. So cart abandonment emails are often a top revenue generator. And discounts and offers within those emails are proven tactics for increasing conversions. All standard wisdom. But we wanted to see how ecommerce brands deployed their offers. Are “best practices” for offers prevailing? Which strategies are brands using—or neglecting?

Accepting Outside Investors? Here Are 5 Things to Watch Out for in Your Contract

Up and Running

The version of “anti-dilution protection” that most benefits outside investors is commonly called a “full ratchet.” As a middle ground on the “anti-dilution clause” you should be pushing for what’s called a “partial ratchet.” As a business owner, the idea of accepting expertise and a big check from an outside investor can seem like a complete win for you and your business.

Living in the Time of Covid

Feld Thoughts

The other is from The Full Ratchet and is an interview with Brian titled Breaking into VC; Excelling at Goldman Sachs; and the Origin of BLCK VC (Brian Hollins). Oh yeah. That Covid thing is still around. And in the US, it’s getting worse again because it never went away as much as our magical thinking hoped it did.

Tulsa 93

Bad Notes on Venture Capital

Both Sides of the Table

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. This week. On the phone … Me: So, you raised venture capital? Him: Yeah. We raised a seed round. About $1 million. Me: At what price?

Founders – Use Your Down Round To Clean Up Your Cap Table

Feld Thoughts

I’ve seen every imaginable type of liquidation preference structure, pay-to-play dynamic, preferred return, ratchet, share/option bonus, option repricing, and carveout. Mark Suster wrote a great post yesterday titled The Resetting of the Startup Industry. Go read it now – I’ll wait.

The writing is coming

Jeff Hilimire

Anyway, just thought I’d check in and say, sorry the content hasn’t been quite as consistent lately, but it’s for a good cause and I expect to ratchet back up…that is, until the Dragon Army blog is set up next week and then I’ll be writing there as well. I know I haven’t been blogging quite as much lately, but that doesn’t mean I haven’t been writing.

Inspired Ideas to Boost Employee Productivity During the Holidays

Up and Running

Ratchet up your company’s social networking posts. The busy holiday season can make it hard to stay focused at the office. Here’s how to keep your team productive during the holidays. Wintertime brings with it a bevy of holidays, and that means one thing for business owners: your workers are going to be distracted. Whether it’s planning a New Year’s Eve soiree or buying gifts for family members, employees may experience productivity dips when the holiday season is in full swing.

The Coming Chip Wars

Steve Blank

There’s a high probability Taiwan will still refuse despite all of this, so China would then ratchet up the pressure. A version of this article appeared in War on the Rocks. Controlling advanced chip manufacturing in the 21st century may well prove to be like controlling the oil supply in the 20th. The country that controls this manufacturing can throttle the military and economic power of others.

Taiwan 253

28 Entrepreneurs Share Their Tips and Tricks of Staying Motivated

Hearpreneur

Such a team can also often do the work for you, which helps to ratchet-up your effectiveness. When the going gets rough in business, you’ll need motivation to keep moving. Motivating yourself can be hard but practicing consistent habits such as reminding yourself of why you started can be a major boost. A network of friends and partners can also serve as a great assurance and reminder that you’re not walking.

Startup Outlook from Silicon Valley Bank

Growthink Blog

Its very charter utterly excludes the notion of fostering development, opting instead for a one-way ratchet that can only lead to longer, more costly development cycles with no improvement in real safety for efficacy.” “Our On Friday Silicon Valley Bank released a survey of 375 executives at startup technology companies in the 4 core venture capital investment sectors – Software/Internet, Hardware, Life Science, and Cleantech. Here is what they found: Tech. Execs. Are Bullish.

How to Keep Your Team Productive Around the Holidays

Up and Running

Gather your thought leaders together for a discussion of what you can do in the coming 12 months to ratchet up sales and blow the roof off your revenue stream. With the holiday season approaching, it can be hard to keep the office productive. As Halloween comes to a close and attention turns to Thanksgiving and the winter holidays, you’ll probably notice a perceptible dip in employee productivity.

What To Do When Your Trusted Employees Defect To The Competition

YoungUpstarts

But even worse than the cost of recruiting someone new to fill the vacancy when a key employee leaves, there’s one big, looming worry that’s sure to ratchet your anxiety up to critical levels: “She knows everything!” By James Pooley, author of “ Secrets: Managing Information Assets in the Age of Cyberespionage “. In today’s competitive global market, managers know that employees (including really valuable ones) are likely to change jobs every few years or so.

Introducing New Lean Startup Practitioners

Startup Lessons Learned

Each MVP is like a ratchet tooth or belay anchor that keeps the work from going backward, while enabling me to generate greater momentum for the next, more ambitious reach.” Guest post by Lisa Regan, writer for The Lean Startup Conference. In building the program for this year’s Lean Startup Conference , we’ve tried to strike a balance.

Lean 128

Transcript of Increase Your Focus and Combat Distractions

Duct Tape Marketing

A lot of that involves ratcheting down how stimulated we are by default because I think you got it right. It’s a simple tactic but it’s a way of ratcheting down how often you check.

Think Global, Act Local

OnlyOnce

We ratcheted that up a lot in the last year, which is why we added the following statement in as one of our 14 Core Values : Think Global, Act Local. Think Global, Act Local. At Return Path , we have always had a commitment to community service and helping make the world around us a better place. We commit our time and energy to support our local communities. . We feel strongly that companies can and should make the world a better place in several different ways.

Horse Trading

ithacaVC

” Or possibly, “Ok, I would ask for the same thing if I were you, but let’s lose that full ratchet anti-dilution protection… ” Anyway, I am sure you get the point. “Horse trading” is a bad phrase in the startup/VC community. It typically is used in the context of someone (often a VC) attempting to change deal terms between a signed term sheet and the closing of the investment.

LP 46

So You Wanna be a VC?

Professor VC

I can just picture Mr. Rogers saying "Children, can you say participating preferred stock with an uncapped 3x liquidation preference and a full ratchet?" Opening Day Barron Park Elementary School (9/8/98) "Make new friends, but keep the old. One is silver, the other is gold. A circle is round, it has no end. That's how long, I will be your friend."

CA Venture terms starting to recover

Fred Destin

There was a Participation feature to the Liquidation Preference in 53% of cases Anti-dilution in the Bay Area is 97% of the time of the mild form (weighted average, not detailed by type), with only 3% of deals involving full-ratchet (a message to European entrepreneurs here!). Fenwick & West's venture barometer always provides useful insights into terms used in venture financing in Silicon Valley / the Bay Area.

Bad Notes on VC

Gust

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. This week. On the phone …. Me: So, you raised venture capital? Him: Yeah. We raised a seed round. About $1 million. Me: At what price? Him: It wasn’t priced. We raised a convertible note. Me: With a cap?

How VCs Make Money….Hopefully

ithacaVC

That is a hefty sum (and over the life of a fund, can amount to a large amount of management fee; most funds have a life of 10 years and the management fee often ratchets down after 5 years). I thought it would be useful to demystify how VCs make money. Here is a short explanation. First, VCs get capital commitments from limited partners (i.e., investors). Let’s say VC1 has a $100mm fund. That means that it has capital commitments from investors of $100mm.

Annual Takeaways from LeWeb2010

Babbling VC

If the quality of the conference remained high, you could easily ratchet up the prices and just make it a must-attend event, even if you have to pay more than for an open event. Little did I know a couple years back that this post would become an annual practice. Once again, I've attended LeWeb in Paris and as always, I'd like to share my thoughts on what I saw and experienced there. . First and foremost, the conference has become big. When I say big, I mean BIG.

Three Ways PR and SEO Can Be Best Friends

Duct Tape Marketing

In effect, it’s like a ratchet that will constantly wind up more tightly and thereby twist SEO and PR closer together until one day they aren’t just friends but they are one and the same. Three Ways PR and SEO Can Be Best Friends written by Guest Post read more at Duct Tape Marketing. photo credit flickr. Not so long ago people would have called you crazy for suggesting that PR and SEO could be friends.

SEO 36

Colleges Become Startup Factories | Crain’s New York Business

Campus Entrepreneurship

And Mr. Parthasarathi’s story is not an isolated one: In recent years, New York’s colleges and universities have ratcheted up their commitment to supporting budding entrepreneurs. Phil Auerswald ( The Coming Prosperity ) shared a great piece by Steve Garmhausen of Crain’s New York on the city/region’s universities and colleges.

Version 2.0 and why Series Seed Documents are better than capped convertible notes

www.seriesseed.com

I completely understand not wanting to put in an onerous full ratchet but the fact that there is no weighted average ratchet seems a bit bizarre. SeriesSeed.com. Series Seed Financing Documents Blog. Documents. Blog Archives. Subscribe. « Step 2 (as opposed to version 1.1) | Main. 09/02/2010. Version 2.0 and why Series Seed Documents are better than capped convertible notes. First they ignore you. Then they laugh at you. Then they fight you. Then you win.” Mahatma Gandhi.

The VC Market – 2015 and 2016

Rob Go

The ratchet protection put in place by the last round of investors in Square is just the tip of the iceberg, and is relatively benign relative to other structures that I suspect are out there. In October, we held our annual Limited Partners meeting at NextView. In addition to reporting on the progress of our funds and the exciting stuff happening with the portfolio, we shared some thoughts on the broader market environment for VC’s and venture backed technology companies.

Raise Capital With The Skin You’re In: Blunt Truth from Don Charlton, CEO, The Resumator

David Teten

Yes, you like hip-hop, “urban” clothing and “ ratchet television”, but all that sinks you deeper into stereotypes. How do you raise capital for your company when you’re not in the traditional social circles of the money people? In particular, the VC industry is 76% white male and overwhelmingly straight; what if you do not fit into that bucket? I’m speaking on a panel this afternoon on fundraising for minority founders at the Rainbow PUSH Wall Street Project.

6 Reasons I’m bullish on mobile gaming #dragonarmy

Jeff Hilimire

I’m betting that as more mobile game studios generate substantial returns, the angel and VC community will ratchet up their interest in investing in these studios and entrepreneurs. Dragon Army is a mobile gaming studio. We’re going to create games for mobile devices for consumers (not for “clients”, which is my past experience). I’ve had several people ask me since we started, “Cool. Why exactly?”

Become a Great Leader – Harness the Power of Primal Emotions

Up and Running

When team members experience heartfelt emotion, their creative ability ratchets up a notch. If you’ve been seeking answers to the question of how to build the most effective and happy teams, Primal Teams , by Jackie Barretta is a great place to start, whether or not you currently own a business.

Focus on awareness and metrics are keys to success

Up and Running

With continuous development it can lead to percentage improvements at each step, which ratchet up and can have a profound impact on the final revenue tally. In this guest post, Alan Gleeson, General Manager of Palo Alto Software, Ltd., gives a U.K. perspective on entrepreneurship. Entrepreneurship in Britain continues to remain very much in vogue, ably assisted by heavy backing from most quarters (not least the media and government).

Fear is the mind-killer

Startup Lessons Learned

As the product matured, they were able to ratchet up the quality to prevent regression on features that had been truly embraced by their customers. Starting instead from a position where feedback cycle time is the priority and allowing quality to ratchet up as the product matures provides a more natural lead in to continuous deployment. Lessons Learned by Eric Ries Thursday, May 7, 2009 Fear is the mind-killer Fear is an emotion that slows teams down. It makes us more cautious.