Venture Hacks

“C’mon—you have $500M and I am raising $1.5M and you want me to take the first $25K to pay your legal expenses for doing the deal? That’s like your dad giving you your allowance and then asking you to buy him a hot dog. When we were raising money for Flixster I thought that must [...]

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“I assumed my lawyers would have my back on this. I was wrong.”
– Anonymous Entrepreneur
Summary: A cap table shows you who owns what in your company. It calculates how the option pool shuffle and seed debt lower your Series A share price. This article includes a spreadsheet you can use to build your very [...]

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Summary: Convert your debt into equity if you can’t pay it on time. Determine your lender’s return if you sell the company early. Reserve the right to raise more debt. Finally, reserve the right to amend the debt agreement.
Previous convertible debt hacks have discussed

The benefits of debt in a seed round
The economics of debt vs. [...]

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Our comments are now threaded! Click the “Reply” link beneath any comment to leave a response. Here’s an example of a threaded comment.
As usual, we’ve received many mind-expanding comments—here are some of the very best. The very lucky winner of a mug for great contributions in the field of venture hacking is indicated with a [...]

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Summary: Seed investors often argue that debt doesn’t incent them to (1) help the business and (2) increase the share price of the eventual Series A. Actually, (1) debt does incent investors to help the business and (2) equity may also incent investors to decrease the Series A share price. That said, you can make [...]

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Summary: Convertible debt is often the best choice for a seed round. It is convenient, cheap, and quick. It lets you close the financing quickly and turn your focus back to your customers—that’s good for the company and its investors.
When your business is very young, raising a seed financing ($50K-$500K) via convertible debt is a [...]

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“[Our existing investors] had put in a right of first refusal. Since I was a young entrepreneur at the time, I didn’t understand that this basically meant that you couldn’t go to any other VC… We could not get a higher valuation because [our existing investors] wanted to put more money in the company themselves. [...]

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As usual, there were many mind-expanding comments this week—here are some of the very best.
The very lucky winner of this week’s mug for great contributions in the field of venture hacking is indicated with a subtle ball of fire.
Vesting
“Anonymous” discusses his experience with getting vested for time served and how his investors “poked out” two [...]

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Summary: If you raise convertible debt for a seed round, you should negotiate simple and short documents, close quickly and cheaply, and maintain your options for the Series A. But first, determine if you should raise debt or equity—debt is better for small financings with small discounts.
Startups often raise their seed round by selling convertible [...]

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