Posted by fnazeeri on 2010-01-21
Tags: Operations Legal Agreement
Posted by Anonymous on 2010-01-07
Tags: TheFunded.com Traction
So, in my experience, there are seven levels of "traction," and each level has various nuances. For example, "the launch" could be a soft launch or a beta launch. "The idea" may be rough, modeled, patented, etc.
THE TRACTION CURVE
1. The Idea
2. The Team
3. The Prototype
4. The Launch
At each level of traction, quality of the execution is measured by investors. So, a great idea with a great team may secure a similar sized funding as a mediocre idea with strong adoption.
In the 2010 market, most semi-professional investors, such as organized angels, require a prototype for serious consideration, and most venture capitalists require initial success with adoption. There are exceptions, though rare, and you can overcome the need to hit traction thresholds by dominating in the present. Amazing adoption eliminates the need for revenue (Twitter, FaceBook, YouTube). A great team overrides the need for a prototype, etc.
Any other advice?PRIVATE: Members Only
Posted by calbin on 2009-11-04
Initially my business partner and I were so enamored with our idea that we didn't get feedback from our potential cutomers. This lead to a two year journey that should have taken 6 months.
Early on my partner and I said that we were not going to put our families in jeopardy for our venture. No credit cards. No risky loans. No robbing our 401k. We stuck by that and it was a wise choice.
From the outset we received tons of accolades from friends and family so we went to investors who said they liked our idea but couldn't figure out who was going to pay for it. The gift came in two forms 1) Not getting funding early which would have almost certainly been spent on a dead end road and 2) forcing us to make our idea stronger and better.
What our lack of funding made us do is go back to basics. We know we had the seed of a good idea but struggled to come up with a sustainable model. Along with lots of hard work we talked with potential customers and came up with a solid way to generate revenue. Our potential customers are now signing letters of support saying they like our product and find it beneficial for their business and are willing to be contacted by investors. We have never had this in previous attempts to raise money and now feel confident in our plan.
A potential investor we met early on who now heads an angel fund believes in our new plan and is working to get us funding. Our CA lawyer helped us craft a very sharp executive summary and in the next few weeks will begin making warm introductions.
Don't despair if you haven't gotten funded yet. It could be a gift in disguise.
So what I am asking of The Funded community is can you recommend any investors/angels/groups/VC's in the consumer space (specifically investors who might have a penchant for wine)? Thanks in advance and I will keep the community posted.PRIVATE: Members Only
Posted by KipMcC on 2009-08-28
The next time you talk to your law firm, let them know they should pioneer (be the first, take credit) the following concept:
Early-stage, cash-efficient start-ups increasingly require an equally efficient supply chain in order to make it work. Take for example Capital Factory, Y-combinator or even micro-style investments from more traditional VCs. A start-up raising $20k – $250k simply cant afford traditional legal costs associated with:
* equity and option plans,
* option grants,
* convertible debt agreements,
* all docs associated with being INITIALLY funded (term sheets, standardized series-A docs),
* separation agreements and release paperwork,
* contractor agreements, and so on.
I propose the following: forward-thinking law firms should create a FREE legal library that includes AT LEAST the items listed above. The should GIVE this library to start-ups that agree to become clients after a funding event of a particular size…maybe $250k or more. To be clear: I’m suggesting that law firms loss-lead with this free legal library and win clients that may become the next Google (or, realistically, may also go out of business). It’s time for the supply chain to evolve. we're starting to see some standardization of termsheets...now let's continue the thought.
Posted by TylerDurden on 2009-08-28
Good deck from Joe Beninato who's been a very successful startup Founder.
Posted by KipMcC on 2009-08-26
Recently, I shared this outline & pitch deck example with the Capital Factory companies in Austin, Texas; you may find example slides, download the PPT template file, and read descriptions / discussion for each here:
1. Title Slide
* The get everyone in the room and sitting down slide; Don’t roll forward from here until you have everyone in the room and paying attention if you can help it.
2. Agenda + Company Overview
* Make sure you’re covering what they want to cover; ask if you’re missing anything before launching into the pitch
* This is also the slide to give a quick summary of your company. This summary is important because it will give any other partners at the firm you talking to a “snap shot” of you’re company after you’re gone; it’s helpful for other partners in the firm to have at-a-glace info on what you do, in what market, company details, and so on.
3. Market + Market Context
* Why is your market interesting? Are there any compelling dynamics currently at play?
* How do you fit in? This can help set up your unique competitive advantage / “secret sauce” slide.
4. One-slide company overview: THE SLIDE
* In many cases, your entire pitch will be an interactive conversation while sitting on a single slide; this should be that slide.
* Done right, this allows you to describe what you do, who you do it for, why that’s important and your vision for the future.
5. Business Model; How we make money
* How, exactly, does your company make money? Do you have any examples of this working so far?
* Does any part of your business act as a “loss leader” for another, more valuable part?
* Do you have two models running simultaneously? is that good or bad & why? Make sure you clearly describe and delineate between them…and hopefully describe how they benefit and support each.
6. Progress, Mile stones, look into the future
* What you’ve accomplished so far?
* What you plan to do in the near future? In what timeframe?
7. Competition & your company’s “Secret Sauce”
* You relative to others in your space.
* The question that you must answer well: if your company is successful, how will you defend its business from competitors who see your success and want some or all of it for themselves? What can you do differently? What can you do uniquely and realistically for how long? What CAN’T (or is really really hard to) be duplicated? What is your special tech, model, process, team advantage or unique solution?
8. Current Partners, Customers & Pipeline
* Who are you working with today? Who will be your customer tomorrow?
* How, exactly, do you acquire customers? How much does it cost to acquire them? What is your average deal size? How could your business increase the average deal size? What is the average deal size of other companies in this same market? Does this information align with the Market Size / Market Context data from Slide #3 ? (hint: it should) Once you have a customer, can you sell them MORE stuff more easily? Why / why not / how much / when will you have it to sell? What is the expected life-time value of a customer (be careful to think about this relative to the cost to acquire a customer)?
9. Financial Details (revenue, expense, HC, projections)
* What is your current and future headcount (this equates to your burn rate as headcount is almost always the biggest expense)?
* what is your current monthly/quarterly burn rate and how does that ramp over time?
* what is your current revenue and how does that ramp over time?
* How quickly are you approaching a cash-flow breakeven point?
* What’s your revenue run-rate 12 months from now? What’s the net loss / gain over the same period?
10. Funding “ask” + use of proceeds (timing, other firms)
11. Team Overview
12. Thank you, questions, contact info (no example slide)
* Create your own deck! Create a deck that allows you to tell your story according to your style; name the slides what you want; tell your story with text or pictures (within reason)
* Don’t leave out critical information! This outline is my suggestion of a “critical information” list; no rational investor will fund your company without knowing the information suggested by this outline.
* Proactively answer big-ticket questions! If there are obvious, elephant-in-the-room sort of questions regarding your business: address them before they get asked. This is always a better way to go.
* Be passionate and informed! Investors invest in the team – show them your passion and be sure to know data from adjacent or competitive markets, companies, and models.
* Finally, it’s really important to have enough white space in your presentation format. I like a white background because it prints and projects cleanly. I like titles that are single-line and as few words as possible; and I try to keep the text/image area “middle part” of the slide as open as possible. In general, right angles are easier to make look clean than circles but your mileage may vary. Less is more when it comes to the presentation template.PRIVATE: Members Only
Posted by CEO for a while on 2009-08-10
Guys and Gals,
I'd like to recommend that we entrepreneurs band together to stop an inexcusable practice among VCs. I've done a few startups, sold a few companies, bought a few companies. Been active in the publicly-traded and private arenas. Something that completely irks me about VCs today is that they want entrepreneurs to open their books pre-term sheet (on top of the ridiculous gymnastics we already do to get capital.)
After a pitch, and untold number of follow-up discussions, a VC should be able to put down terms. We should not have to introduce them to any 3rd party (our valued business partners, customers, etc.) because its taxing to them UNTIL there's a term sheet on the table.
A later stage company would never let an investor or buyer in the door unless there's a term sheet. Why should an early stage company abandon this discipline?
My view is that we can make claims pre-term sheet. And if they find our claims to be exaggerated post-term sheet (during diligence), they can walk. It's non-binding anyway.
Thoughts?PRIVATE: Members Only (524 Characters)
Posted by raisecapital on 2009-07-14
In California, 25501.5 of the Corporations Code gives any person who purchases a security from, or sells a security to, a broker-dealer that is required to be licensed, but is not, the right to bring an action for rescission of the purchase or sale, or if already sold, for damages. Five year statute of limitations, or two after discovery, which ever is first.
1029.8 of the Code of Civil Procedure was amended to cover people who should be licensed as a broker-dealer, but who are not and take a commission for selling securities.
The purchaser can sue the "finder" for damages, and may recover treble damages (limited to $10,000 above the purchase price) and may be awarded attorneys fees and costs.
Most important, the law give the investor the right to rescind their investment (get their capital back) for two years, which puts the capital at risk for that period of time. That may make additional rounds more difficult to raise.
So the finder is, in fact, guaranteeing the investment.
Has anyone run into this in fund raising? Have they asked the finder about it? Has anyone recouped their investment or known of someone who did using this law?
By the way, it is my understanding that this doesn't apply to officers of the corporation.PRIVATE: Members Only
Posted by Anonymous on 2009-07-02
Entrepreneurs always talk about the pitch. A Mike Tyson knock out pitch can get you another meeting, but what about after the pitch? How about before? Hell, how about from the moment you step off your front porch to the second you return?. A 24/7 game face will drive you to the promise lands 3x faster than simply wielding the magic when you've got the mic. Here are 3 tips I've found to work wonders before, during, and after the pitch.
1. Smooth entry. VC's and angel's alike will judge you from the second the tip of your polished shoes crosses that door jam. Chin up, calm stride, and eye contact from the moment you have a line of sight. If you've done your research you'll know exactly what their hobbies are, portfolio consists of, and hopefully a mutual acquaintance you can reference off the bat. Don't hold it for longer than a minute. They want to see that your personable, but professionalism and punctuality are key. Make a point to note that you have another pitch later that day that starts 2.5 hours from now. They need to know that you're sought after, busy, and they aren't the only duck in the pond.
2. Practice your pitch in front of a mirror starting with the entry. Everyone looks foolish when they're putzing with the projector, so practice the pitch from the top with a computer and projector handy. It detracts from the great introduction you just made, and allows them to push their pencils and think about how badly they want to get home to watch Jack Bauer in 24. From the moment you've loaded the deck you should be on fire. Eyes lit, smile wide, and rotating eye contact the entire show. VC's and angels invest in entrepreneurs, not companies. They need to feel your fire, align with your mission, and ultimately know that you are the captain that can navigate their $ to $$$$$. Vary your tonality, conduct the tempo of the pitch, and ultimately you will command their attention and peak their interest. Mr. Smith has a great post on the 5 rules of pitching. I highly recommend it.
3. Do not, and I repeat, DO NOT leave right after questions. Get your business cards into their hands, have a quick chat, and get that 2nd meeting. How many VC's or angels can acutely assess how bad ass your opportunity is in one 10-20 minute pitch? Very few. If you didn't give them enough kick in the pitch, that's your fault and they'll simply want you out the door as quickly as possible. But if you did your job in the pitch, they've either got a "yes" in their head and you'll be invited back anyhow, or they have a "well we've got a ton of other deals to look at. This one's good, but I need more." More often than not it's the second one, and that's a result of the massive entrepreneurial talent here in the Valley.
A 24/7 Game Face can make the difference between getting the 2nd meeting and being shown the door. If you can't stand behind your vision with pride, confidence, and flare, no one else will, even if they'd like to.PRIVATE: Members Only
Posted by Mr. Smith on 2009-06-26
Getting a meeting with an investor is hard these days, but it can be done. Once in a meeting, here are five strategies to make the meeting go well:
>> STICK TO THE FACTS
Sell your idea on factual information only. Avoid adjectives and superlatives whenever possible. You do not have the best, the most, or the greatest anything. Most investors see 2,500 deals per year. They need basic information to determine interest. Suspect information is a red flag, and it only takes one red flag for an investor to lose interest.
>> KEEP YOUR PITCH SHORT
You should be able to explain your company in 10 slides that take about 20 minutes to present. If you want to succeed, then videotape yourself giving the pitch. Watch the video and write down everything that you want to improve in a list. Repeat this process until you are happy with the results. At the end of your pitch, say: "does anyone have questions that I can help you with?" The shorter your pitch, the more questions that will you have, and more questions are good.
>> ANSWER EVERY QUESTION BRIEFLY
Answer every question with one or two sentences and with as few words as possible. Uncomfortable silence is a tool that you can use to elicit another question. If you do not have or know an answer, say: "I don't recall the answer to that off the top of my head, can I look it up in my files and get back to you through email." Questions are an excellent sign of interest and engagement. When an investor gets into 'question mode,' they usually have a series of 5 to 10 questions that they need answered quickly to evaluate the opportunity. You are doing well in a pitch when the investors are talking.
>> ASK FOR FEEDBACK AND TAKE NOTES
Make sure to leave a few minutes to collect feedback. Ask the investors, 'do you have any recommendations for the business?' Have a pen and paper out, and write down everything that the investors say. It's a common courtesy to take notes, and it is expected. After an investor says something, say 'thank you.' Do not get defensive. Nothing sours a relationship faster than getting into a debate.
>> BE AN EXPERT IN YOUR INDUSTRY
You should read every recent blog post and know about every key development in the primary industry and all related industries to your idea. It is very likely that an investor will have seen and researched a very similar idea within the last 45 days. It is also very likely that this investor will ask you about mundane developments or other companies in the field as a test of your knowledge and to show off their own expertise. When confronted, you say, 'Yes, I was aware of that. Thank you.' This will lead to more questions.
As a closing point, be confident and assured. A common misperception is that a deal can be done in one meeting. It usually can't. So, the goal of any meeting should be (1) to get another meeting and (2) to specify follow-up items.
Do members have some other suggestions to add in the feedback?PRIVATE: Members Only
Posted by Anonymous on 2009-06-13
Entrepreneurs build companies and hope to make money.
Investors invest and hope to make money.
Customers buy products and hope to make money.
Advertisers advertise and hope to make money.
Employees work and hope to make money . . . . . . . . .
Using a Finder or Consultant to help you raise money is perfectly OK.
A Finder or Consultant who asks for any money upfront is not OK. If the Finder / Consultant doesn't believe in your product or service enough to base his / her compensation on the successful raising of money - then why should an investor believe in what you are doing.
The only time a Finder or Consultant should be paid is if you need extensive help with your business plan, etc. You can avoid this by creating a Board of Advisors (one of whom can help with your business plan) that would be paid in stock options down the road.PRIVATE: Members Only
Posted by Anonymous on 2009-06-02
Tags: Negotiation Intermediaries
One of my board directors proposed to help us fundraise using his influence in the VC community. He suggested a 3% finder's fee with a few stock options on top for funds raised through his introduction. I understand the typical finder's fee for investment bankers is in the range of 6% to 7%. Is my board director's proposal reasonable?PRIVATE: Members Only
Posted by Anonymous on 2009-05-29
Tags: Operations Meetings Board
Posted by Rogue on 2009-05-14
Tags: Venture Business Busines Plan
The New York Times ran an article on the role of the business plan in venture funding. Seems to confirm the general wisdom, but interesting anyway.
Posted by nkannan on 2009-05-13
Tags: Venture Business CEO
I saw a blog post by Georges van Hoegaerden titled, "Idiot CEOs." Here is the link:
A very amusing post that makes us CEOs think about financing alternatives to VCs.
Your thoughts?PRIVATE: Members Only
Posted by Anonymous on 2009-05-07
Tags: Funding Sources Scams
The vultures are coming out of the woodwork.PRIVATE: Members Only (383 Characters)
Posted by fnazeeri on 2009-04-23
Tags: Operations Compensation
I've mentioned this survey several times before, but this time I bring news of the 2009 survey opening to participants. This year the survey covers five countries (China, India, Israel, UK and US) in two industries (technology and life sciences). If you are CEO or CFO of a startup company in any of these countries/industries then I encourage you to participate in the survey. It doesn't cost anything to participate (other than the 30-60 minutes it takes to complete the survey) and the benefit is that you get the full results once they are published.
In years past, the results were published in a PDF and a hardcopy book, but starting in 2009 the results will be published online via a password protected, members-only site (so participating is really the only way you can get the results). I think the 2009 data will be very interesting as it will reflect the effects of the overall economy as well as provide global comparisons. Don't miss the opportunity to get the 2009 data...take the survey now!
If you haven't seen the results of this survey before, I'm including both of last year's unabridged reports results below. It's actually pretty simple, yet since the data is otherwise so hard to find it's pretty powerful. Basically the survey collects salary, cash bonus and equity information for the top executives in private companies (mostly venture- and preventure-backed companies). The survey also collects information about the background of the executives and of the company (like location, size, funding, industry, etc.). The report is then able to give ranges of compensation based on these attributes.
Read more here including access to the full 2008 compensation survey reports.PRIVATE: Members Only
Posted by fnazeeri on 2009-04-22
Tags: Negotiation Terms Tools
Today Wilson Sonsini is launching an online term sheet generator. It's actually really cool and quite helpful in understanding the key terms. I actually got a sneak peak a few weeks ago and wrote a review here.PRIVATE: Members Only
Posted by Anonymous on 2009-04-11
I would like to get your input and advice on what to do: buy time with unfavorable terms of a bridge / convertible loan, or ???PRIVATE: Members Only (2460 Characters)
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 blitzmedia on 2009-04-06
We are a start-up digital and social media, talent management and branding company. We have at least 9 revenue streams which are viable and are currently producing money. We are projected to turn a profit in year 2 and reach over $20M in revenues by year 5. We have a agreement with a large media company to produce content for their site and network. At this stage, we have a bank that is willing to give us a line of credit for $400K however we need a guarantor to approve the line. We have offered potential investors 10-20% of company equity and to pay off the line within 3yrs on a 10 yr loan. In year 3 we'll even offered to buy any investor out with a 25% ROI on the $400k line. Furthermore, any investor wouldn't have to put any money down but its a case where the bank will look at an investors company or personal assets to insure the line. We have came close to sealing the deal with few a investors but we haven't closed on any yet. Is there anything we can do to sweeten the deal?PRIVATE: Members Only
Posted by RichieBlueEyes on 2009-03-28
Tags: Operations Lawyers
This is a repost from a blog that is going live on Monday morning on Bootstrapper.com, I figured I would post it here first...
So today's post is about a topic near and to everyone in our community, The "inlaws". By that I mean the inherent conflict of interest that tends to occur within the legal community in relation to the venture community. I've gotten to know a number of lawyers in the community quite well over the last few years and have a lot of respect for them and are friends with a number of lawyers, however it is a small community and an interesting thing that occurs is that the same law firm can and often does represent both sides in a transaction (either directly or indirectly). What do I mean? Well, a law firm can represent a fund in one deal and the entrepreneur in another and both be going on simultaneously. It creates a confusing situation.
Outside of the venture sphere, the situation could be seen as a conflict of interest but given our world, it is standard practice. Often times the lawyer may be the one that introduced the company to the investor which is great for both parties but further complicates the question of representation.
The founding member of The Funded always likes to say that the lawyers work for the fund not for you and that the second $ is closed, it is no longer your counsel.
Given that the fund represents (generally) infinitely more business than a single entrepreneur, there is a point in there. On a technical level corporate counsel represent the controlling shareholder or bloc of shareholders but on a practical level it's something to think about.
Overall, it's usually good to have a venture law firm for your company because they do tend to know how to raise money and the process, however it may make sense to have a personal counsel review everything for how it looks from your perspective as the entrepreneur because you want someone looking at your docs that is representing you personally, not your company.
To conclude: Cover Your Ass no matter what you do - I've been screwed out of vesting and know many entrepreneurs who have as well. Protect yourself and make sure you have protections in place.PRIVATE: Members Only
Posted by RichieBlueEyes on 2009-03-12
So the NYC investment climate is going through serious issues. The angel market has drastically changed as most angels are from the world of finance and no longer have disposable investable cash and the few angel deals that are getting done are at far lower valuations. On the venture side, 'risk' is not being funded. Unless you have revenue (and don't need money) or extreme traction it's probably not worth the time raising money. Sure people who have made money for that exact investor in the past can still raise some money but beyond that, unless you're 'perfect' you'll have a hard time. Even then expect 2-3X liquidity preference, restrictive employment agreements and flat to down rounds even for high growth companies. I saw a company that is trending towards $20MM in revenue in a high growth category doing a flat round at a 3X liquidity preference. Times are tough. Time to call on the old friends and family and Bootstrap. It will not be fun. Still talk to investors and get coverage so they know you so if you happen to hit a stroke of luck or genius and take off, you can create some competition and maybe get decent terms but don't expect to easily raise money. Sure, you can get meetings and maybe even some feedback, don't expect an easy check from angels or VC's in NYC. Seed Capital has been crushed, Angel money is crushed and Series A money is trending towards Series B money or to pump into existing companies or entrepreneurs proven to that investor.
With all that said, always keep pitching but Bootstrap your ass off.PRIVATE: Members Only
Posted by fnazeeri on 2009-03-08
Tags: Venture Business Crisis
I wrote this post on how the VC market is imploding which is not news to anyone on TheFunded, but I tried to take it a step further and talk about what it will look like post recovery. I read a great post on Seth Godin's blog about how everyone talks about the "crisis in our face" but not the "crisis in the distance." Anyway, here's a crack...let me know what you think.PRIVATE: Members Only
Posted by Doe on 2009-03-08
Fellow entrepreneurs, most VCs are unable to complete capital calls and, therefore, are unable to make new investments. This includes everyone from name brand funds to small funds, and it does not matter if they recently closed a new fund or not. If you are pitching a venture fund, there are two critical pieces of information that you need to know before wasting time with meetings, diligence, and faux terms:
- First, has the fund made an investment in a company that was not already in the portfolio in 2009, and, if so, which company?
- Second, has the fund completed a successful capital call in 2009?
Is the answer is 'no' to either of these questions or the fund is uncomfortable discussing these matters, then don't bother pitching them and move on. Why? Between the dismal exit history, defecting LPs, worthless secondary markets, and massive position devaluations, venture firms are facing an apocalypse right now. The whole concept of 'venture capital' as an asset class is being re-evaluated by accountants worldwide, and the outcome of that work does not look good for venture capitalists.PRIVATE: Members Only