TAKING THE MONEY - The 411 On Startups (tm)

Current Pre-money Valuations of Pre-revenue Companies

May

2012

I just returned from the 2011 Angel Capital Association Summit in Boston, April 4-6, 2011. It was attended by over 500 angels and associates, including about 60 international angel leaders. It was an excellent meeting – the best yet of the half-dozen or so US ACA angel Summits to date. On Wednesday afternoon, I was ...

Conversion Discounts in Convertible Notes

May

2012

Convertible promissory notes do not include a stated pre-money valuation. Instead, the convertible note seed investor and startup agree that the pre-money valuation for the convertible note investment will be determined by the pre-money valuation the startup receives at the Series A round. However, the convertible note investor does not receive the Series A pre-money ...

Option Pool, Post-Money and True Pre-Money. Trade Pool for Valuation.

May

2012

One of the common areas of misunderstanding, and therefore conflict, in financing negotiations has to do with the relationship between the pre-money valuation and the option pool. Investors want the company to have an adequate option pool for future hiring and it is customary to include the pool in the pre-money valuation. Some entrepreneurs see ...

Venture Hacks Series A Cap Table, with Note Conversion and Option Pool

Apr

2012

This is a Youtube video explanation of a cap (capitalization) table example that is available online. It may take a while get your head around the terminology and concepts involving the option pool and note conversion, and their impact on valuation. It is worth taking time to understand this if you want to see how ...

Revenue Based Financing — often non-dilutive to founders, no valuation impact

Apr

2012

A revenue-based finance (RBF) investment provides capital to a business by “selling” an ongoing percentage of a company’s future revenues to the investor. For simplicity, you can think of it as a revenue share type of arrangement. Investor gives capital to company in exchange for a small percentage of gross revenues. RBF lives as a ...

Everything You Ever Wanted To Know About Convertible Note Seed Financings (But Were Afraid To Ask)

Apr

2012

We are in the golden age of seed financing. Venture capital funds, seed funds, super angels, angel groups, incubators, and “friends and family” are all playing the seed financing game and investing early in startups in an attempt to land the next Facebook. As a result, the pendulum has swung dramatically in the founders’ favor, ...

Cap (Capitalization) Tables — Example Spreadsheet

Oct

2011

Cap Tables (short for capitalization tables) are spreadsheets that show how much everyone owns of the company. You can get a stockholder ledger from your lawyer that will list all the stockholders and show how many shares or options they have, but I don’t consider that a cap table. For the past 25 years, I’ve ...

Orrick – Start-Up Tool Kit – Term Sheet Creator – Start-Up Forms Library

Sep

2011

There are many items useful to entrepreneurs on the site including: Example cap (capitalization) table spreadsheet Term Sheet Creator Non-disclosure Agreements Employment Agreements Stock Option plans Confidential Information and Invention Assignment Agreement for Employees & Consultants and much more …..

Why Super Pro-rata Rights are Not a Good Deal for Entrepreneurs

Sep

2011

Yesterday I saw a Tweet from Chris Sacca fly by that prompted me to want to write a blog post helping entrepreneurs understand why they should push back against VCs asking for “super pro-rata” rights. I’ll explain what they are and why you should avoid them if you can. A primer on “pro-rata” rights Institutional investors will ...

How do the sample Series Seed financing documents differ from typical Series A financing documents?

Sep

2011

After the recent announcement of the Series Seed Financing documents by Marc Andreesen, Brad Feld points out that there are now four sets of “open source” equity seed financing documents: TechStars Model Seed Funding Documents (by Cooley) Y Combinator Series AA Equity Financing Documents (by WSGR) Founders Institute Plain Preferred Term Sheet (by WSGR – disclaimer, I represent the Founders Institute and was involved ...