Venture Hacks

A reader asks:
“My question is how do we value a company with no sales? I understand it’s an arbitrary valuation but is there anything we can possibly base it on? Is there a “default” valuation for companies in a seed round?”
We’ll answer this question with some questions (and answers) of our own:

How much money do [...]

[Read more →]

Summary: Raise as much money as possible. With these caveats: (1) maintain control at any cost, (2) monitor your liquidation preference, and (3) act like you don’t have a lot of money. Also understand that if you do raise a lot of money, you will have to (1) “go big or go home” and (2) [...]

[Read more →]

“Trust, but verify.”
– Ronald Reagan
Summary: Investors trust the entrepreneurs they back. But they verify their expectations with contracts and control. You should do the same—with the same tools investors use: contracts and control.
Why do investors want to control their investments through board seats and protective provisions? Shouldn’t they just give entrepreneurs bags of money and [...]

[Read more →]

Summary: Here are 2 more microhacks for finding a lead investor: (4) Incent followers to lead by telling them the truth: there probably won’t be room in the round for followers. (5) The best way to find a lead is to build something that attracts a lead: keep building your company and reducing risk.
In parts [...]

[Read more →]

Summary: Here are 3 microhacks for finding a lead investor: (1) If followers have good reasons to not lead, ask them for introductions to potential leads. (2) If you’re early stage, find seed investors who invest in people and high risk startups. (3) If every prospective investor says “we don’t know the market,” find investors [...]

[Read more →]

“Those kind of ‘sit on the sideline’ investors are worthless to you if you want to get a financing done… if you are raising a financing of any kind, spend all of your time looking for a lead investor.”
— Fred Wilson, Union Square Ventures
Summary: Financings happen when you find a lead investor, negotiate a term [...]

[Read more →]

“Nearly 100% of the investors interviewed believe that they add value to their portfolio companies. Unfortunately… only 45% of the entrepreneurs interviewed indicated that they believe that was the case.”
— Matthew Louie and Cali Tran,
Harvard M.B.A. Students

Every investor claims to add value. But how much value do they really add? In particular, how well do [...]

[Read more →]

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 [...]

[Read more →]

Summary: When lawyers defer their legal fees, they expect equity for the risk of not getting paid. If their risk is low or they’re not deferring fees, you can say no. In any case, offer them the right to invest $25K-$50K in your financing instead of giving them free equity.
A reader asks:
“I wonder if I [...]

[Read more →]

“I know plenty of VCs that behave the way I do and plenty that don’t.”
— Brad Feld, on keeping decks to himself
Summary: A deck can help you get a meeting but it can also get in the hands of the competition. Whether you send a deck depends on who wants the meeting most. If you [...]

[Read more →]