Venture Hacks

Chris Dixon, serial entrepreneur and seed-stage investor:
“… You should try to answer the question: what is the biggest risk your startup is facing in the upcoming year and how can you eliminate that risk?  You should come up with your own answer but you should also talk to lots of smart people to get their [...]

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“Financings are blowing up, terms are being renegotiated, venture lenders are getting more conservative, and existing investors are stepping up to fill the gaps…
“I guarantee that there are some financings happening right now that are getting done at valuations which would have made sense nine months ago but don’t make sense right now… I also [...]

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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 [...]

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Q: What’s the biggest mistake entrepreneurs make when they’re raising money?
Entrepreneurs focus on valuation when they should be focusing on controlling the company through board control and limited protective provisions.
Valuation is temporary, control is forever. For example, the valuation of your company is irrelevant if the board terminates you and you lose your unvested stock.
The [...]

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As this nuclear winter of venture hacks continues, I thought you might enjoy our thoughts on Paul Graham’s The Equity Equation. Paul says,
“Whenever you’re trading stock in your company for anything, whether it’s money or an employee or a deal with another company, the test for whether to do it is the same. You should [...]

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Summary: A cap table lists who owns what in a startup. It calculates how the option pool shuffle and seed debt lower the Series A share price. This post includes a fill-in-the-blank spreadsheet you can purchase to create your own cap table.
A capitalization (cap) table lists who owns what in a startup. It lists [...]

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I read, like, and regularly disagree with a great blog called Ask the VC . They recently answered a question about supra pro rata rights—here are our thoughts on the topic.
Q: Can you explain what supra pro-rata is? It seems to be showing up in some VC term sheets now. What’s the impact on the [...]

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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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Summary: Focus on your share price and the number of shares you own — metrics like valuation and percent ownership can fool you.
If valuation is your only pespective on a company’s capital structure, you can get fooled by games like the option pool shuffle which make your valuation seem large but actually depress your share [...]

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