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TAG: Preparation

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4
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Typical Burn Range for 3 Person Startup in Silicon Valley? $70 K/Mn?

TheFunded.com Discussion

Posted by Anonymous on 2008-07-03

Tags: Preparation Model Expenses

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Is a Business Plan Necessary for Pitching These Days?

TheFunded.com Discussion

Posted by Anonymous on 2008-07-01

Tags: Preparation Materials Busines Plan

PUBLIC:

I am preparing my pitch my business to some VCs and I've got a 30-slide PPT ready. I'm reading through the threads here and seeing that a business plan may or may not be necessary anymore. I don't have one at the moment but am thinking of starting the process and write one if someone asks to see it. What do others think of this strategy"

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5 Reasons Convertible Debt Sucks

TheFunded.com Advice

Posted by fnazeeri on 2008-06-20

Tags: Preparation Convertible Debt

PUBLIC:

I just posted this over on my blog [http://tinyurl.com/3n4wsz] but figured some folks might be interested here as well.

There are two scenarios where convertible debt is typically used: bridge financing and angel financing. I've raised convertible debt a few times and I have to say that in most angel funding scenarios it sucks as a way to finance a startup (I think it's okay for bridge funding, but I'd avoid that too if possible). Why"

PRIVATE: Members Only (3971 Characters)

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Have a Lawyer That's a Friend

TheFunded.com Advice

Posted by RichieBlueEyes on 2007-12-14

Tags: Preparation Lawyers Friends

PUBLIC:

Lawyers are great - when they are on your side. They are horrible when you are just a toad in their collection of clients. Find an honest lawyer and become friends. You need someone on your side. At the end of the day, the term sheet will come down to negotiation, I would rather have a shark of a lawyer who has my interest at heart negotiating the terms then me. Why" He can get away with being an ass and I can't. Pretty simple, eh"

PRIVATE: Members Only (288 Characters)

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The Game of Innocence

TheFunded.com Advice

Posted by MrJames on 2007-12-10

Tags: Preparation Strategy Venture Business

PUBLIC:

Aspiring entrepreneurs be warned. Venture capitalists will provide money for your idea, but they often walk away with most of the value, especially if you are not careful. Like an amateur sitting at a table of professionals, the cards are stacked against your success, so be prepared. Know the game.

Here are some anecdotal facts. There are five times as many people working in venture capital as there are CEO's that are funded each year (~16,500 vs ~3,000). The average venture funded CEO is fortunate to make 1/10th to 1/20th the return on exit as the venture capitalists. Just the legal fees on a later stage deal will run $50,000 or more per party involved, and the venture capitalists always flip the bill, directly or indirectly. Who do the lawyers work for again"

No matter how nice, no matter how fair, and no matter how genuine a venture capitalist appears, you are being out-smarted, out-lawyered, and out-maneuvered the second you sit down and ask for money. The first step in winning is to understand their motivations: (1) control, (2) risk, and (3) opportunity, in that order. Let's take a look at all three.

The entirety of a venture investment centers around control, and control takes many forms: control of the board, control of the voting, control of the investment capital, and, most importantly, control of the management. Venture capitalists are "control freaks," and the psychology of control is embedded in nearly every aspect of the deal legal structure. Assume that most financing terms, from Board meeting frequency to protective provisions have some origin in control, and analyze them as such. Ask yourself: in good times and in bad, how do these terms affect my behavior as a CEO" For example, did Google really need to have 14 Board meetings in one year... ever"

Venture capitalists are excellent at managing risk. It is assumed that at most venture investments fail, but approximately one in ten succeed. Following this simplistic logic, a venture capitalist would need to make at least $10 from every $1 invested in a success to recover from the 9 losses. Now, not every deal is a total loss, but a lot are. Complex protections are inevitably put in place. Let's look at a common scenario: a company receives $10 MM for 50% of the stock in a participating preferred with a 2x liquidation preference. The company sells for $25 MM right after the investment. How much does the founding team make" Nothing. The "50%" is legalese.

Venture capitalists are not very good at spotting opportunities, or they might have better odds than 1 in 10. However, they are very good at "managing" opportunities as a result. Here are some examples. Venture capitalists do not say "no" (for risk of losing an opportunity). They postpone meetings until you are achieving success, and they flock around markets with success stories. Ever wonder why a venture capitalist calls you out of the blue asking about your company" It's probably because a competitor is succeeding. Every wonder what "demonstrate traction" actually means" It means a nine figure IPO or liquidity event in your sector. Your dream is just potential, and you will be held on the sidelines until "the time is right" for the venture capitalists to make money.

The irony is that the venture capital behavior is largely a response to other abuses by CEO's. At this point, however, the venture capitalists have gone too far. The opportunities in building a venture funded start-up are gone for the great entrepreneurs. It simply makes more sense to go it alone.

You can quote me without attribution.

PRIVATE: Members Only

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Pick the First Investors Really Wisely

TheFunded.com Advice

Posted by Anonymous on 2007-04-02

Tags: Preparation Targets

PUBLIC:

Your first investors in the angel round or Series A will set the tone for your business and all of your fundraising going forward in a big way. These investors will be your long-term partners in any future funding event, helping your company secure future rounds, or, in the worst case, sabotaging future rounds through indecision or desire for control. Members, read on...

PRIVATE: Members Only (1833 Characters)

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Know the Trends

TheFunded.com Advice

Posted by Anonymous on 2007-04-02

Tags: Preparation Strategy Trends

PUBLIC:

Venture capitalists tend to invest around trends in the various investment sectors that they cover, which makes sense from a capital concentration standpoint in a given sector. You may be pitching a business that is not related to the current trends, since the trends change every few months, but it is important to understand them. The partners and associates will be actively researching the trends, so a lot of the questions in a pitch meeting will be influenced by the current trends. Questions that may appear irrelevant to you as an entrepreneur may be influenced by the current sector trends. Be prepared.

PRIVATE: Members Only (438 Characters)

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Are There Any VC;S Out There Who are Not Web Hunters?

TheFunded.com Discussion

Posted by Anonymous on 2010-08-08

Tags: Preparation Web 2.0 VC

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VC Math and Subscription Revenue Businesses

TheFunded.com Discussion

Posted by Anonymous on 2008-11-08

Tags: Preparation Busines Plan Model

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The Funny Game of Financial Predictions

TheFunded.com Discussion

Posted by Anonymous on 2008-11-03

Tags: Preparation Model

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Entrepreneurial Experience a Negative When Engaged in a Job Hunt?

TheFunded.com Discussion

Posted by Anonymous on 2008-08-14

Tags: Preparation Income

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Most Business Books are Total Crap

TheFunded.com Discussion

Posted by Anonymous on 2008-07-14

Tags: Preparation Resources

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Show that You Know the Way to the Exit.

TheFunded.com Advice

Posted by Black Squirrel on 2008-05-27

Tags: Preparation Liquidity Model

PUBLIC:

"This Way to The Egress -> "
- P.T. Barnum

An important part of your presentation to investors is the exit strategy; to wit, how are the investors going to get their money back"

Devote a couple of those 16 precious PowerPoint slides to the exit. Show comparable companies to the one you plan to build, and their acquisition dates, prices, capital raised and the excellent financial return to *their* investors. Show that you know the names of the prospective acquirers in your space. Show that you understand the way multiples of revenues and earnings are calculated for acquisition prices in your sector. Don't talk too much about IPOs....

PRIVATE: Members Only (494 Characters)

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Convertible Debt

TheFunded.com Advice

Posted by Anonymous on 2007-09-11

Tags: Preparation Convertible Debt

PUBLIC:

I've had a few people recommend this as a viable (and even preferable) option for us. I know there have to be others out there who are looking for honest feedback as well.

Experienced entrepreneurs - post your thoughts (as comments) on whether its a good, a bad, or (as I suspect) a conditional thing.

PRIVATE: Members Only (151 Characters)

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--

TheFunded.com Discussion

Posted by Anonymous on 2011-09-06

Tags: Preparation Idea Validation

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Traction: Verb or Adjective?

TheFunded.com Discussion

Posted by Anonymous on 2009-01-21

Tags: Preparation Traction

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Attorney's and Start Ups

TheFunded.com Discussion

Posted by Anonymous on 2009-01-13

Tags: Preparation Lawyers

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Tracking Your Business Plan

TheFunded.com Discussion

Posted by Anonymous on 2009-01-09

Tags: Preparation Busines Plan Materials

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1
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Negotiating Legal Fees

TheFunded.com Discussion

Posted by Anonymous on 2008-12-17

Tags: Preparation Lawyers Fees

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1
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Utilizing Advisors to Find Investors

TheFunded.com Discussion

Posted by Anonymous on 2008-12-02

Tags: Preparation Advisor

1
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Late Stage Slowdown

TheFunded.com Advice

Posted by Anonymous on 2008-10-10

Tags: Preparation Late Stage

PUBLIC:

The declining economy and difficult IPO markets have made it increasingly hard for venture funds to price late stage equity. As a result, less and less late stage deals are getting done.

First, existing investors in late stage companies can not easily lead an internal round without a new investor pricing the round to satisfy the appearance of objectivity among their own investors, the limited partners.

Second, new investors have difficulty pricing later stage deals because evaluating the range exit opportunities is impossible right now. There have been no venture funded IPOs in the last quarter, and traditional public acquirers have seen a dramatic decrease in equity values and an inability to raise debt. Without public comparables or reference M&A deals, pricing equity is a guessing game.

On the other hand, early stage investments are largely based on pursuing market opportunities and owning certain percentages of preferred stock. A strong management team with a good market opportunity can raise capital without problem in today's market.

Your best shot as a late stage company is to conserve capital through cost savings and find a "friendly" to price your deal. Once a price is set, there is plenty of money for investment. The price is the hardest part to get. Any suggestions on some ways to land a "friendly""

PRIVATE: Members Only

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Raising Money Takes Longer Than You Think

TheFunded.com Advice

Posted by Anonymous on 2008-08-02

Tags: Preparation Strategy Effort

PUBLIC:

As a CEO I make sure I periodically look back at my 'fuck ups' and learn from them. Theres been a few along the way, some small, a couple a little bigger, so I wanted to share one here.

Funding

Raising money took way longer than I expected. The search didn't take too long.. the deal completion tooks months and put enormous strain on our resources. Both financially as we bridged our way to funds and on our time and focus. Raising money is a major distraction from running your day to day business. I estimated 2 months to complete the deal. Its taken almost 5 and stretched us thin as well as pulled my attention away from what I am here for - building the business. I'm lucky, we raised money.. but now I get 80+ hour weeks making up lost ground in business development as well as the backlash of robbing Peter to pay Paul the past couple months.

Lesson: Assume 6 - 9 months to search, obtain and close funding and make sure you have both the financial and human resources to run and grow your business during the deal cycle.

PRIVATE: Members Only

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Must Read Books for Entrepreneurs

TheFunded.com Discussion

Posted by Anonymous on 2008-07-12

Tags: Preparation Resources

0
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1
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Frihet Holdings

TheFunded.com Discussion

Posted by Anonymous on 2008-07-10

Tags: Preparation Intermediaries

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1
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Founders, Would You Do It Again?

TheFunded.com Discussion

Posted by Anonymous on 2008-02-25

Tags: Preparation Founders