Venture Hacks

Happy New Year and here’s to an effective 2008.

Here are the three most effective hacks of 2007. We maintain a Cheat Sheet of all the hacks, but try to apply these three if you don’t have time to apply them all.

Create a market for your shares

You need strong alternatives to hack a term sheet. Create alternatives with focus: pitch and negotiate with all your prospective investors at once. Focus compounds scarcity and social proof, which closes deals. Focus also yields a quick yes or no from investors—either way, you will soon get back to building your business.

Related: You can’t clear the market in series.

Create a board that reflects the ownership of the company

Create a board of directors that reflects the ownership of the company and don’t let your investors control the board through an independent board seat.

The composition of the board of directors is the most important element of the Series A investment. It is more important than the valuation of your company.

The valuation of your company won’t matter to you if the board (1) terminates you and you lose your unvested stock, (2) forces the company to raise a low-valuation Series B from existing investors by rejecting offers until the company is almost out of cash, (3) merges the company with another private company and wipes out your common stock in the process.

Related: Make a new board seat for a new CEO.

The Option Pool Shuffle

Don’t let your investors determine the size of the option pool for you. Use a hiring plan to justify a small option pool, increase your share price, and increase your effective valuation.

Advanced students—here are the next three most effective hacks:

1. Focus on your share price, not your valuation
2. Accelerate your vesting upon termination
3. Unbundle money and value-add

See the Cheat Sheet for all the hacks.