The Silliness Of Recapping Seed Rounds

Feld Thoughts

So they recapitalize the company. Here’s the scenario. A company raises $1m of seed money from angels in a convertible note with a $6m cap. Assuming equity is raised at or above that cap, the total dilution, before the new money, is 16.6% (equivalent to an equity financing of $1m at a $6m post money valuation. The company spends the $1m building and launching their first product.

What Just Happened With OnLive?

Feld Thoughts

Rather than shut down, they found a buyer / investor (which could be a subset of the existing investors) who would recapitalize the company and keep it going as long as he didn’t inherit the liabilities. Disclaimer: I’m not an investor in OnLive and I know nothing about the specifics of what happened. I’m just speculating, but it’s informed speculation based on my experience.

Survivors

Both Sides of the Table

You find out those that have the fortitude to work out a new way forward, who can handle recapitalizations or downsizing or shutting down business lines or hiring whole new teams. Failure. It smells. People are afraid of it. It’s like cancer. When you have it you find you who your true friends are because they’re the ones who double down on helping, on being available, on listening, on understanding. Most people run from failure or disease because they’re hard to handle.

Startup Financial Models: Best Practices in Spreadsheet Design

David Teten

A good model should have the ability to test assumptions in order to analyze the impact on future financial performance, including growth rates, operating margins, product lines/individual segments, and refinancings/recapitalizations.

Design 150

Stock Market Drops. Then It Rallies. What Happens Next for Funding?

Both Sides of the Table

On the positive side, corporate profits are up, their balance sheets have been repaired and they have recapitalized themselves to have lower amounts of debt relative to equity. This article was originally published on TechCrunch.

Stock 329

The Entrepreneur Thesis

Both Sides of the Table

I really believe that some firms have the strategy of edging out the entrepreneurs, bringing in a new management team, recapitalizing the company, minimizing the founders’ share and taking maximum ownership for the VCs.

On the Road to Recap:

abovethecrowd.com

This severely heightens the risk of either running out of money or a complete recapitalization that wipes out previous shareholders (founder, employees, and investors alike). Why the Unicorn Financing Market Just Became Dangerous…For All Involved. In February of last year, Fortune magazine writers Erin Griffith and Dan Primack declared 2015 “ The Age of the Unicorns ” noting — “Fortune counts more than 80 startups that have been valued at $1 billion or more by venture capitalists.”

How to Be an Angel Investor

www.paulgraham.com

The reason you dont want to give them up is the following scenario.The VCs recapitalize the company, meaning they give it additionalfunding at a pre-money valuation of zero. It doesnt happen often.Brand-name VCs wouldnt recapitalize a company just to steal a fewpercent from an angel. March 2009 (This essay is derived from a talk at AngelConf.) When we sold our startup in 1998 I thought one day Id do some angelinvesting. Seven years later I still hadnt started.

The Right Way to Lay People Off

Ben's Blog

outcome with no recapitalization. “I’m tryin’ to right my wrongs, But it’s funny them same wrongs helped me write this song”. Kanye West. Shortly after we sold Opsware to Hewlett-Packard, I had a conversation with the legendary venture capitalist Doug Leone of Sequoia Capital. He wanted to hear the story of how we went from doomed in the eyes of the world to a $1.6B

Everything you ever wanted to know about advisors: Part 2.

venturehacks.com

The company is acquired, recapitalized, or otherwise restructured and the advisors are no longer useful or desired. Venture Hacks Good advice for startups. Disclaimer: This is not legal advice.

Startup Founder Agreements

blog.simeonov.com

The only way to remove their equity holding in the cap table is by buying them out or through a recapitalization of the company. I have been thinking a lot recently about how to apply agile development principles to investing and key aspects of startup development such as team building. That’s also the thread connecting my two recent posts on VentureHacks. Both stem from the agile principle of delaying decisions until the last responsible moment.