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Advice

This section is for entrepreneurs to post general advice on the fundraising process for other entrepreneurs to use. Topics include terms, tactics, and strategies that have proven either effective or ineffective. Help other CEOs succeed with some sage advice from your own experiences.

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The Term Sheet Shuffle

TheFunded.com Advice

Posted by Anonymous on 2007-06-22

Tags: Negotiation Terms

PUBLIC:

So, most VC's will draw out the period between initial diligence and offering a term sheet. It's just part of the game. Every day that goes by is another day to judge your success or failure. However, when you get your first term sheet from a lead, it normally has a cascading effect to get other funds that you are talking with to move, either to be a follow-on investor to the first lead or to issue their own terms.

Members, read on for some tips and tricks to get that first sheet...

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"Home Run" Insanity, but There are Perks

TheFunded.com Advice

Posted by Jon on 2009-01-20

Tags: Venture Business Crisis Economy

PUBLIC:

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!

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A Round Valuations Down 25 50% While B and C Rounds Non Existent

TheFunded.com Advice

Posted by fnazeeri on 2008-12-10

Tags: Venture Business Valuation Venture Debt Convertible Debt

PUBLIC:

More here.

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Adeo Rocks!

TheFunded.com Advice

Posted by fnazeeri on 2008-11-08

Tags: TheFunded.com

PUBLIC:

Earlier this week I spent several hours in a couple of meetings with Adeo Ressi, the Founding Member. Adeo is a very cool, very smart guy and it was both enlightening and fun meeting with him.

More here.

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Triage

TheFunded.com Advice

Posted by fnazeeri on 2008-10-12

Tags: Operations Crisis

PUBLIC:

http://www.altgate.com/blog/2008/10/triage.html

I just wrote this post on how venture investors decide which companies in their portfolio to let die, continue to fund or leave alone.

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Email From Ron Conway

TheFunded.com Advice

Posted by Mr. Smith on 2008-10-08

Tags: Venture Business Crisis

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10 Tips on Negotiating with VC's

TheFunded.com Advice

Posted by fnazeeri on 2008-08-18

Tags: Negotiation Pressure

PUBLIC:

I saw a question on TF about negotiating w/ VCs which prompted me to write this blog post yesterday.

So you have just finished months of grueling investor presentations and due diligence and finally one (or hopefully more) VCs have signaled their interest in negotiating the terms of an investment in your startup. This interest may be in the form of an actual term sheet that they've sent to you or a call/meeting/email indicating they would like to make an offer but want to talk about terms before shooting something over the transom.

First, congratulations, you are now in a *very* select group of startups. Having been on both sides of the table, here is my list of tips for entrepreneurs negotiating with VCs:

[Full article is here: http://www.altgate.com/blog/2008/08/1...]

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How to "Connect" | Things to Remember When Using the Funded

TheFunded.com Advice

Posted by MikeGlanz on 2008-06-18

Tags: TheFunded.com Connect

PUBLIC:

For those of you who are experimenting with the new "Connect" feature on TheFunded... I have put together a few recommendations that might make your life a little easier and/or answer some questions you may have...

Login to view the recommendations (in the private sections)

To see my final result view:
http://thefunded.com/member/pitch_det...

Feel free to post all the criticism you can muster up - it'll only make me stronger!

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Avoid VC's with an Enterprise Background for Web Deals...

TheFunded.com Advice

Posted by treeman on 2008-03-30

Tags: Funding Sources Experience

PUBLIC:

i am astonished to find that some VC's still dont understand that ad networks pay their publishers. the worst of the lot seem to be those VC's that have an enterprise background.

So unless you are pitching a conventional deal where buyer pays seller, just avoid these and you will say a lot of time and hassle.

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Get Screened in Not Out

TheFunded.com Advice

Posted by MedTech Expert on 2008-02-27

Tags: Pitching Busines Plan Materials

PUBLIC:

Part of the science of getting in the door of a VC is to stand out from the crowd. Unfortunately, inertia is often a big factor in business plan screening. Contrary to popular opinion, every word of every plan is not read. First the plan gets a glance. Then it gets a skim. Then it gets a more detailed read. But every step is contingent upon the reader finding a reason to go the next one.

Here's the truth: most investors screen out rather than screen in. Especially if they're overwhelmed and very time constrained as most are.

This means:
• if your business overview looks like it needs to be deciphered - you're out
• if they don't see what they are looking for in a glance - you're out
• if they don't have all the information they need to know -you're iffy

Eliminate objections and pessimism before it arises by explaining in a very well thought-out cover letter what makes your business different - and position it as one that's advantageous to the firm's objectives, if you can.

Your business overview is a screening tool. It's the point person on your investor search. It needs to screen you in, and it needs to do that by being read, not ignored. If you want to get in the door, this is one of the keys that can open it.

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Reduce or Eliminate Founder Vesting

TheFunded.com Advice

Posted by Mr Smith on 2008-02-22

Tags: Negotiation Terms Vesting

PUBLIC:

Most of term sheets added here have founder share vesting, but not mine. Here are a few good tips. First, you should negotiate hard on the number of years and the cliff. Nothing is "standard" with these deals. Second, try to get the VC to grant you "credit" for time served since company inception. Time served happens frequently with hot deals. Third, buy your initial shares with real money to justify your negotiating position. You are in a stronger position to reduce of eliminate the vesting if you have skin in the game.

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When You Don't Get a Response...

TheFunded.com Advice

Posted by zip on 2008-02-01

Tags: Pitching Responses

PUBLIC:

The thing I read over and over on this site is, "He never wrote me back!" or "He didn't call me back!" Let's face it, if you're going to to deal with VCs, you have to play by their rules. Many VCs are not great about getting back to folks when the decision is "pass" or "maybe." So, when some VC doesn't get back to you right away, chalk it up as a "pass" or a "maybe" and move on. If they get back to you belatedly with a "yes," be surprised and enjoy the moment.

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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....

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Glossary of VC Terms: Useful or Not?

TheFunded.com Advice

Posted by anon on 2007-11-20

Tags: TheFunded.com Resources

PUBLIC:

Not trying to make more work for you Ted but...
I would like to see a Glossary of VC terms added to this site. It is something I would have found very useful several years ago and I am sure many people must feel the same way.
Its one thing for a VC to explain that he is going to have a Step-In trigger, its quite another knowing what they could mean for you if it is envoked!

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"Hired Help" in Raising

TheFunded.com Advice

Posted by daithic on 2007-09-06

Tags: Preparation Intermediaries

PUBLIC:

I wanted to agree with the great suggestion of Gronk - it would be great to see a similar site rating Investment bankers. My experience is they are not a value add to the funding process in general but it would be refreshing to hear if anyone has had a good experience.
The other element to this is people's experience in using advisers, i.e., who are the good ones out there.

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References

TheFunded.com Advice

Posted by Anonymous on 2007-07-03

Tags: Closing Due Diligence References

PUBLIC:

A venture capitalist told me today that he passes on a number of investments because of bad references. He mentioned a specific instance where a former employer thought the manager in question was "a criminal" and another case where he learned that the group of founders were "fighting among themselves" to see who would run the company. In addition, the venture capitalist went on to say that in such cases, venture funds generally "just pass" without giving a good reason, since it is difficult to explain the reference context without giving away confidences.

This brings up a very important point that I have learned from personal experience: venture capitalists do both soft and hard references, and these references will haunt you one way or another. The "hard references" are the ones that you provide. The "soft references," which can include dozens of individuals, are people within your industry, potentially competitors, that they call in an off the "record format." In some cases, the calls you get from associates trying to learn about your business may be an industry research or reference call in disguise. So, what can you do" Members, read on...

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Software Outsourcing Eye Opening Lessons Learned

TheFunded.com Advice

Posted by Richard on 2011-10-22

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Outcomes of Early Stage Funding Meeting

TheFunded.com Advice

Posted by Anonymous on 2011-06-05

Tags: Early Stage

PUBLIC:

Most folks look at the funding meeting as having a “yes/no” outcome. It is much more realistic to recognize that there are many outcomes:

Funder Doesn’t Get It/ Like It:
1) Don’t get it - go away
2) Don't get it - but I'll learn more

Funder Gets It:
1) Get It, but not are my area of investment – will contact Mr./Mrs. XYZ on your behalf and suggest that they meet with you
2) Get It – I’ll give you some $$ - and I’ll let you run the company until you screw up
3) Get It – I’ll give you some $$ - and I’ll let you run the company until Point XYZ – at which time we’ll bring in a new CEO
4) Get It – I’ll give you some $$ - but I want my EIR to run it from Day One
5) Get It – I won’t give you $$ - but I like what you are doing so much I’ll
a. Tell one of my portfolio companies to do what you are doing
b. I’ll build it myself

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The Gift of Not Getting Funded (Early)

TheFunded.com Advice

Posted by calbin on 2009-11-04

Tags: Funding Sources Recommendations

PUBLIC:

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.

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In Demand: Free Early Stage Start Up Legal Library

TheFunded.com Advice

Posted by KipMcC on 2009-08-28

Tags: Operations Lawyers NDA Legal Incorporating Agreements

PUBLIC:

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:

* incorporating,
* equity and option plans,
* option grants,
* convertible debt agreements,
* all docs associated with being INITIALLY funded (term sheets, standardized series-A docs),
* NDAs,
* 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.

http://kipmcc.wordpress.com/

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Free Online Term Sheet Generator

TheFunded.com Advice

Posted by fnazeeri on 2009-04-22

Tags: Negotiation Terms Tools

PUBLIC:

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.

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Re Position Now?

TheFunded.com Advice

Posted by Bruce Kasanoff on 2009-01-27

Tags: Preparation Strategy Marketing

PUBLIC:

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?

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Wsj Article on Capital Call Crunch

TheFunded.com Advice

Posted by forrational on 2008-12-08

Tags: Venture Business Limited Partners

PUBLIC:

http://online.wsj.com/article/SB12286..."mod=googlenews_wsj

Bootstrapping is looking better and better.

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Understand (And Avoid if You Can) the "Voting as a Single Class" Trick

TheFunded.com Advice

Posted by Nand on 2008-11-04

Tags: Negotiation Terms

PUBLIC:

There is some similarity between this and the elections, so it's a good time to discuss this.

What does "Voting as a single class" means for you (and other small investors) " and don't get it wrong, you may be a big shareholder today, but you must think like the small shareholder you will be down the road.

Here is an example of how a VC with 20% of the shares can force a decision on all the other shareholders and investors, most of which are against that decision.

The lead VC has 20% of the shares (5% B shares+ 15% C Shares)
The lead VC wants to force a decision, the rest of the shareholders are 80:20 against it.

There are 30% series C shares and 20% series B shares. the rest are common and options (who don't vote).

The holders of the C shares vote first, the decision, forced by the lead VC wins (although 40% of the C shares are against). but all of them are now "voting together as a single class", e.g. casting all their votes in favor of the decision.

The holders of the B shares do the same, they are against the decision (80:20) they "vote together as a single class" against the lead VC.

Then there is a second vote. The "holders of the preferred shares", although most of the holders of the preferred shares are against, and although all the B shares votes are against the decision. All "the holders of the preferred shares" are now forced to vote for the decision.

Now all the preferred shares vote together for the decision, although most of the holders of shares and most of the investors were against it.

The VC, with it's 20% of shares, against the will of most of the other investors and most of the shareholders can force a decision.

Try and use the smaller VCs to remove this from the investment agreements.
They will tell you this is only inserted to simplify things, they will describe situations where some retired employee can influence the decisions and so on. Remeber, this is just another mechanism to give power to the biggest shareholder (who, in the long run, is not you).

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2008 Startup Compensation Survey Results

TheFunded.com Advice

Posted by fnazeeri on 2008-10-24

Tags: Operations Compensation

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