Posted by Anonymous on 2010-07-29
Tags: Operations Board Article
Posted by fnazeeri on 2010-01-21
Tags: Operations Legal Agreement
Posted by Anonymous on 2009-09-08
Tags: Operations Developers outsource
Posted by Anonymous on 2009-04-22
Tags: Operations Debt Banks TARP
Posted by fnazeeri on 2009-04-06
Tags: Operations Lawyers Taxes
Great post from Prof. Noam Wasserman at HBS on the legal and tax issues of splitting equity.PRIVATE: Members Only
Posted by Anonymous on 2009-01-10
Tags: Operations Design
Posted by Anonymous on 2009-01-08
Tags: Operations Advisor Equity
Posted by Anonymous on 2008-11-12
Tags: Operations Marketing
Posted by Anonymous on 2008-11-01
Tags: Operations Crisis
Posted by fnazeeri on 2008-10-27
Tags: Operations Crisis
It's pretty rare that during a crash and recession there are employees and managers with recent experience on how to handle the situation. Well, the "good news" with the Great Depression 2.0 is that a whole bunch of us have relatively fresh experience. Last time the financial grenade went off in our lap. This time, we're collateral damage, which means it should be less painful assuming similar size crashes (which is looking less and less like a valid assumption).
In any event, here are some lessons I learned from the last time through this mess:
Posted by Anonymous on 2008-07-27
Tags: Operations Hiring
Posted by fnazeeri on 2008-05-26
Tags: Operations Venture Debt
I always thought it was crazy for early stage companies to take on venture debt. Here's a company that just raised $5MM of venture capital, is burning $300K per month and they think it's smart to raise debt"!" I admit that my view is colored by my one experience raising venture debt in 1999 which did not end well (for anyone). So recently, I decided to take a look at venture debt and talked to about a dozen lenders, quite a few startups and some other industry experts. To my surprise, I found that in some cases, it does make sense.
First, a bit about venture lenders. Various estimates put the number of firms that have serious venture lending businesses at 20-30 in the US. My take is that there are three categories of lenders: (1) banks, (2) dedicated funds with "stable capital" and (3) dedicated funds without "stable capital." By stable capital, I mean a fund that raises capital from limited partners similar to a venture capital fund. The capital is committed for a specific period of time (like 5 or 7 years or more). Bank-backed venture lenders are regulated and tend to invest in less risky areas (like capital equipment or receivables financing). Dedicated funds tend to be more aggressive and invest in "growth capital" (more on this later). The permanency of capital is an important factor as this can have an impact on the borrowers stability of capital and the willingness of a lender to work with the borrower should the company hit a rough patch.
For startups, there are three main types of venture debt: (1) equipment financing, (2) receivables factoring and (3) growth capital. There are other types of borrowing (e.g. acquisition financing, but I'm focusing on these three categories for now). Equipment financing is borrowing tied to a specific capex purchase, e.g. building out a NOC. Receivables financing is useful for companies that have material A/R against which they can usually borrow as much as 80-85%. Growth capital (also referred to as "stretch equity") has availability tied to venture metrics and is useful when the startup can use the extra capital to reach specific business benchmarks beyond those achievable with equity financing alone and that will provide a material step up in valuation (or insurance that they meet those already committed to).
Some key terms/rules-of-thumb for venture debt include:
* Availability: A/R factoring - up to 85% of receivables; equipment financing - up to 100% of specific capex; and growth capital - up to the cumulative amount of capital invested by the lead investor (minus any other debt).
* Repayment: 3 to 12 month interest only period followed by up to 36 month interest plus amortized principal period (i.e. up to 48 months).
* Rates: For working capital financing, a good rate would be prime +1% and for growth capital, a good rate would be prime +3%.
* Warrants: Expect 6-12% warrant coverage on growth capital. That means take 6-12% of the loan principal and convert that into an at-the-money warrant to purchase an amount of shares at the price of the last equity round.
* Covenants: With growth capital, you can avoid them (including a "MAC" clause), however, most working capital loans will have them.
The process for raising venture debt is straight forward. The borrower will require some material (which you probably already have from raising your last equity round) including:
* Powerpoint pitch deck
* Financials since inception
* Current cap table
* Board approved forecast
* 1-hour meeting with the CEO to get the "pitch"
After reviewing the materials and the initial meeting above, a lender will issue / negotiate a term sheet. Once accepted, that will be followed by a half-day diligence meeting with the management team, legal documentation and closing. The whole process typically takes 4-6 weeks from term sheet to close.
So in terms of who to borrow from, my assessment is that banks will offer the best price but on the least favorable terms. The dedicated funds will offer the most flexibility, but will cost more. Consequently, I'd go to banks for equipment or receivables financing, but to the dedicated funds for growth capital. If you think you'll need both (i.e. both equipment/receivables financing as well as growth capital), I'd go to the dedicated funds for growth capital first and then work w/ banks to get additional financing later.PRIVATE: Members Only (3302 Characters)
Posted by Anonymous on 2010-07-21
Tags: Operations Compensation Article
Posted by Anonymous on 2010-07-02
Tags: Operations Recommendations
Posted by Anonymous on 2010-06-25
Tags: Operations Management Team Bonus
Posted by ammosov on 2010-06-06
Tags: Operations Fund Raising
7 lessons, and most of them are not usual textbook stuff.
Seed round in 21 days - they did it (via Founders Institute and Venturehacks in part)PRIVATE: Members Only
Posted by Anonymous on 2010-05-28
Tags: Operations Board Compensation
Posted by Anonymous on 2010-01-27
Tags: Operations Trademarks
No matter how obscure you think something is, or how off-beat a domain name is, never, EVER register the domain and then leave it parked even for a minute.
We just went through the painful process of spending hours and hours until we hit on a cool domain name for our rebranding (sending coupons to mobile phones) -- kupongo.com. Less than 45 days later while we were working up our new look website to launch with it, we got an inquiry from someone about buying it. When we told them we were going to use it for our business... they went and registered kupongo.net and filed a trademark for kupongo in the exact same line of business. Then tried to bully us into selling them the .com domain for $500 because "we wouldn't be able to use it anyway."
Unless they don't actually put it into use (and we can then pursue abandonment), well, we can't use the domain for OUR site.
If we had used the domain at all beforehand, well, we'd have a position. But by trying to be stealthy, and conserve cash...well...it didn't work.
Lesson learned for me...don't let it happen to you!PRIVATE: Members Only