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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“We took the approach of wanting to get to know the different partners and the different possibilities and to see where there was the best fit. Partnerships take a lot of work—you want to go out on a few dates before you get married. Yes, we dated a few people but didn’t get married… and [...]

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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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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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Several wildly raving lunatic fans have requested a condensed version of the term sheet hacks they should apply before signing a deal.
And so, we hereby present, a work in progress:
Term Sheet Hacks: The Cheat Sheet
We’ll keep it up-to-date with the latest hacks.
For optimal results, apply the hacks liberally before you sign a term sheet. Apply [...]

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Our previous vesting hacks have discussed getting vested for time served, acceleration upon termination, and acceleration upon a sale. This article is a collection of four vesting microhacks you can use to supersize your vesting.
1. Reclaim a terminated co-founder’s unvested shares.
A terminated co-founder’s unvested shares are typically cancelled. The resulting reverse dilution benefits the founders, [...]

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“We talked to a lot of different angel investors and venture capitalists, but no one really ‘got’ what we were doing — that is until we met Google.”
– Dennis Crowley, Founder of Dodgeball, May 2005
“It’s no real secret that Google wasn’t supporting dodgeball the way we expected. The whole experience was incredibly frustrating for us [...]

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“During the whole funding process they said, ‘We’re interested in you guys because of your management team; we think you’re fantastic…’ Two weeks later they pull me into the office – before even the first board meeting – and say, ‘We want to replace you as CEO.’”
– Mark Fletcher, Founders at Work
Summary: You made a [...]

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