Is it fair for founders to own about 100% of a startup while employee #1 only owns a few percent? Are founders 10-1000x more valuable than employees? The answers are Yes, it is fair. Value doesn’t matter, timing does. In fact, many employees get better equity deals than the founders. There are two cases. 1. [...]
Entries Tagged as 'Valuation'
Are founders really 1000x more valuable than employees?
February 19th, 2011 · 30 Comments · Employees, Valuation
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Chris Dixon: How much seed money should I raise?
December 29th, 2009 · 8 Comments · Budget, Dilution, Valuation
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 [...]
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"Financings are blowing up"
October 15th, 2008 · Comments Off · Downturn, Valuation
“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 [...]
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How do we set the valuation for a seed round?
April 17th, 2008 · 19 Comments · Budget, Dilution, Valuation
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 [...]
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What's the biggest mistake entrepreneurs make?
October 14th, 2007 · 1 Comment · Auctions, Board of Directors, Protective Provisions, Valuation, VC Industry
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 [...]
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The Equity Equation
July 19th, 2007 · 4 Comments · Equity, Valuation
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 [...]
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How to make a cap table
June 19th, 2007 · 28 Comments · Convertible Debt, Option Pool, Valuation
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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What are supra pro rata rights?
June 17th, 2007 · 3 Comments · Pro Rata, Protective Provisions, Valuation
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 [...]
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Make your debt attractive to investors
May 15th, 2007 · 26 Comments · Convertible Debt, M&A, Valuation
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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What are the benefits of debt in a seed round?
May 14th, 2007 · 19 Comments · Board of Directors, Convertible Debt, Valuation
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 [...]
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