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
Posted by Anonymous on 2009-03-06
Tags: Operations Resources
I (did not) want to share some resources in the Silicon Valley for serial start up CXOs:
http://www.tiesv.org, http://www.vctaskforce.com, http://www.sdforum.org and http://www.svase.org - the last one runs a weekly "pitch a VC breakfast" each Thursday.
Posted by will on 2009-02-14
Tags: Preparation Equity
Now that I have seen the dark side of stock rights and the way they can be wiped out for founders, the new startup is being created differently. I am seeking opinions on how others have done it.PRIVATE: Members Only (819 Characters)
Posted by SevenX on 2009-02-11
[The Founding Member has suggested that this post, originally written in response to a query on the discussion board, be reposted here for broader visibility.]
No web site site can promise to find you money. Period. In fact, perhaps the best way to figure out whether a site is legitimate is the extent to which it DOESN'T promise to find you money!
Of the various possibilities out there, there are realistically four categories, in pretty much the following order:
1) Angelsoft.net: doesn't promise anything, is primarily a site that investors use themselves, doesn't expose any of your information publicly, has by far the best free search engine for legitimate early stage funding sources, and lets you prepare and send applications and videos for free directly to a limited number of screened, legitimate investment groups. If you want to pay $250 extra, you can promote your offering by posting it in a pool that 15,000+ accredited investors (and ONLY accredited investors) can browse through. They publish their stats online, and they show that between 1.3% and 5% of posted deals get funded. So your odds are between 20:1 and 75:1 against. (As Winston Churchill said about democracy: "It's the worst form of government there is...except for all the others.")
2) Vator.tv: the biggest public pitch site, legitimate, but wide open. Good news is that it's free, and that you'll likely get a lot of views of your video. On the other hand, very few of them (if any) will be from legitimate investors. Instead, you'll probably be approached by more than a few service providers, which may (or may not) be what you want, and scammers. But it's good for general exposure, and they are adding a bunch of neat new features, including micro-blogging for company updates so that interested parties can follow your corporate news. So if you're not concerned about the public nature of the site (or if you think that's a good thing), it makes sense. (Just be very, VERY wary of any "funding" leads that result from your posting.)
3) The legitimate attempts at investor matching: there are VERY few of these out there (and virtually all are not in compliance with SEC regulations) including for-profit ones (such as FundingUniverse) and not-for-profits (such as ActiveCapital (the only truly SEC-approved, legit one) and TheFunded's sponsor, IdeaCrossing). They mean well, but have few investors (usually starting from a local group or area: Utah in the case of FundingUniverse, Cleveland, Ohio for IdeaCrossing), and the for-profit ones are not cheap.
4) Everyone else: there are several dozen of these (perhaps even a hundred or more), ranging from out-and-out scams (any one in which you get an instantaneous response promising money, asking for money, or asking for financial information), to sites that function primarily as lead-generators for service providers. I don't personally know of a single company that has had a good experience with FindThatMoney, FundFinder, GoBigNetwork, RaiseCapital, Go4Funding, etc. etc. etc.
The bottom line is that raising capital is very, very (did I say VERY?) tough, particularly in this economy, and only a teeny, tiny fraction of companies will EVER get outside equity financing. The stats suggest that's something like 0.25% for venture money, and 1-2% for angel money.
So anyone who promises you quick and easy money is either well-meaning-but-delusional (the rare exception) or a scumbag-with-a-hand-heading-to-your-pocket (the vast majority.) As a first pass heuristic, if an "angel group" is not listed on either the Angel Capital Association web site (http://www.angelcapitalassociation.or...) or the Angelsoft Group Finder (http://angelsoft.net/entrepreneurs/an...) you should be extremely wary of any claims they make...but then, of course, you would be anyway. Right? Right??
Remember the immortal words of Robert A. Heinlein: "There ain't no such thing as a free lunch."PRIVATE: Members Only
Posted by Bruce Kasanoff on 2009-01-27
Tags: Preparation Strategy Marketing
In the middle of trying to launch a start-up (The Goal Mine), the deepening downturn has pulled me back to a practice (Now Possible) that has become more timely than ever: re-positioning companies.
As I look around the entrepreneurial landscape, what surprises me is how little substantive re-positioning has occurred... yet. The world has shifted, dramatically. The rules have changed. And yet most firms are pretty much still pitching the business model they developed before last fall. 95% of the time, that's not going to work.
This new world creates its own opportunities. All is not gloom and doom, unless you fail to acknowledge how much the rules have changed. Rents are going down. Lots of talent is available. People are willing to take chances (largely because they have no choice.) But at the same time, everyone has both hands on their wallet.
How should your firm re-position itself today? Whatever you decide, that decision should ripple quickly through your pitches, your sales materials, your product/service offerings, and even your pricing sheet.
One thing to keep in mind: hope is not a strategy. Hoping you'll get funding and find customers even though you did not change your positioning, well, that's not much of strategy. Basically, the entire world is taking a 50% pay cut. So what do you do differently?PRIVATE: Members Only
Posted by Anonymous on 2009-01-25
As it is becoming harder to raise capital from venture capitalists, existing investors are facing situations where they need to lead new rounds in their own portfolio companies. This presents a big problem for valuations, especially if an investor only has convertible debt. Recently, I've heard a few stories about existing investors promising to lead a round, then pulling out or dramatically changing the terms. Worse, investors will sometimes string you along with a singed term sheet until you are out of cash, and then completely change the deal to take control.
Here are some tips if you think that you are going to need money in the next 18 months.
Know where insiders stand: You need to know where if your insiders will participate or lead a new financing event, and you should also ask them what their specific expectations are for your company performance. Assume that any inside round will be flat.
Pursue other options: Even if your insiders agree to lead a round, you should do your best to have an alternative financing option available. You will never get a fair price for your equity from insiders, since they are pricing, selling, and buying the equity at the same time and since they see all the warts and bruises.
Raise now, not later: Don't wait to raise money. Raising will take twice as long and will be twice as hard in this market. Try to raise enough capital to operate for more than 48 months, if you can.
When in doubt, do debt: If things are not moving fast enough and you have only three or four months worth of cash left, press your existing investors to do a convertible debt round that will give you eight to twelve months of low growth operating capital.
Insider sheet to attract outsiders: If everything else is failing, you may want to have your insiders draft a term sheet with a lot of room for new investors to participate. It's often easier to find outside investors with a "legitimate" term sheet in hand.
Good luck!PRIVATE: Members Only
Posted by Jon on 2009-01-20
Tags: Venture Business Crisis Economy
According to VentureWire, the number of venture investments in Q4 2008 fell to the lowest level since after the last crash, and the amount of money invested into the whole private equity sector halved from the same quarter last year. Many of the private equity investments being made are in "secondary funds," which buy distressed portfolio positions, so the story for the relatively small segment of venture capital is probably much worse.
The reality on the street for entrepreneurs raising money is brutal. Funds take meetings, but it's clear that they are not really making investments. With limited cash in the bank and limited prospects for raising more capital, it seems that all the good VCs are waiting for a "home run" opportunity to walk in the door and give them a 50% valuation haircut.
There is a silver lining. Deals perceived as being a "home run" have leverage. We just closed a later stage round after nearly a year of fundraising and pulled out over $1 MM for the founders, selling some of our equity. While our valuation was lower than we would like and the terms had some other unwanted teeth, when we threatened to walk, the deal was sweetened. Our traffic numbers are strong, so we had a few VCs coming to us with offers over the last couple months
From what I can gather, the VCs needs to justify making an investment in the current recession, so they have to issue less favorable terms. They can't explain the deal to their partners or investors otherwise. My advice would be to get as much exposure and traction as possible, have a few funds come to you, then target the best investor and negotiate the secondary perks more than the primary terms. Good luck!PRIVATE: Members Only
Posted by observer on 2009-01-19
Tags: Funding Sources Introductions Fees
Just saw a link to the document about a middleman sues a company for not paying all the fees for help in getting funded. I will leave to other parties make a conclusions about ethics of this. However the important part was disclosing the details of the agreement that company had signed with Warren Lieberfarb.
Young companies, especially a first time entrepreneur should be careful with paying such a fee in first place. But even if there is no choice to avoid, in any circumstances such a fees can be infinite