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May 10th, 2012 Kevin Hartz is sitting this one out.
Sure, Hartz is busy with his day-job as CEO of online ticketing startup Eventbrite, but it’s not a time management thing that keeps him from his usual angel-investing habit. It’s more a money management thing. Hartz doesn’t like to invest his when there is so much sloshing around Silicon Valley.
The last new investment Hartz made was more than a year ago. At the time it was a little company no one had heard of called Pinterest. You’ve probably heard of it now. Hartz also made early bets on Airbnb, Flixster, Palantir, Trulia
. . . → Read More: Angel No More: Why One of Silicon Valley’s Savviest Investors Has Shut His Wallet
May 10th, 2012 Venture capitalists, angel investors and start-up lawyers these days tend to be obsessed with “intellectual property,” or IP.
And for good reason: In the information economy, the core assets of a new venture are likely to be talented people, the IP they create, and little else.
To maximize future value, founders should try to lay a solid IP foundation even before a new start-up is incorporated. Here are five common mistakes to avoid:
1. “Contamination.”
Perhaps the single greatest source of IP anxiety in Silicon Valley stems from the fact that engineers and executives tend to build on what they
. . . → Read More: 5 ‘IP’ Mistakes Start-ups Should Avoid
May 9th, 2012 For the past couple of decades, venture capitalists have had the upper hand. They’ve had the funding and, traditionally, they’ve held most of the power in the startup ecosystem. But, Fred Wilson, managing partner of Union Square Ventures (and beloved blogger), believes that balance of power is shifting (As noted in Stacey’s take on a similar notion advanced by the Kauffman Foundationearlier Tuesday.) And as it does, venture capitalists themselves must rethink their role.
Speaking to a crowd of entrepreneurs at the Grind work space in New York this morning, Wilson said that since the mid-1990s institutional investors have poured $30 billion
. . . → Read More: Fred Wilson: what crowdfunding means for the VC business
May 9th, 2012 The Kauffman Foundation, which has ties to the venture industry, has issued a damning study of the business that addresses long-running concerns about poor performance and concludes that the limited partners who invest in funds have no one but themselves to blame.
The report, “We Have Met The Enemy…And He Is Us,” draws on lessons from 20 years of investing in venture capital by the foundation, which currently has about $249 million of its $1.83 billion portfolio allocated to venture. The Kansas City, Mo.-based organization promotes entrepreneurship and education, and is known in the venture world for creating the Kauffman
. . . → Read More: Kauffman Foundation Bashes VCs For Poor Performance, Urges LPs To Take Charge
May 5th, 2012 A majority of all new, angel-backed companies fail completely, so if you invest in only one company, the odds are that you will LOSE ALL YOUR MONEY, not just “not make a profit”.
Several studies and mathematical simulations have shown that it takes investing the same amount of money consistently into at least 20-25 companies before your returns begin to approach the typical return of over 20% for professional, active angel investing. This means the greater the number of companies into which the angel syndicate invests, the greater the likelihood of an overall positive return. [1]
Angel investing (like venture capital) follows
. . . → Read More: The reality of returns on angel investment
May 2nd, 2012 Convertible promissory notes do not include a stated pre-money valuation. Instead, the convertible note seed investor and startup agree that the pre-money valuation for the convertible note investment will be determined by the pre-money valuation the startup receives at the Series A round. However, the convertible note investor does not receive the Series A pre-money valuation, but rather a lower pre-money valuation as determined by the conversion discount.
The convertible note seed investor gets a lower pre-money than the Series A investors for investing in the startup before the Series A round. Since the convertible note investor made the higher-risk
. . . → Read More: Conversion Discounts in Convertible Notes
May 2nd, 2012 One of the common areas of misunderstanding, and therefore conflict, in financing negotiations has to do with the relationship between the pre-money valuation and the option pool.
Investors want the company to have an adequate option pool for future hiring and it is customary to include the pool in the pre-money valuation. Some entrepreneurs see this as nothing more than a veiled attempt at lowering the value of the company. Well, yes and no. No in that investor aren’t actually lowering the value of the company as the option pool is net new–it comes on top of what they value
. . . → Read More: Option Pool, Post-Money and True Pre-Money. Trade Pool for Valuation.
May 2nd, 2012 Getting financing for your startup is rarely easy, but if you approach the wrong investor, you can make it even harder than it has to be. “How can there be a ‘wrong investor’?” you might be thinking. “Don’t I just go with whoever is willing to give me the money?”
It’s not quite that simple. Approaching the wrong investor is kind of like asking someone who’s married out on a date. Not only will they turn you down, but they’ll probably think you’re an idiot.
Many first-time entrepreneurs mistakenly lump angel investors and venture capitalists together. While these two types
. . . → Read More: Angel vs. VC: Which Investor Is Best for Your Startup?
May 2nd, 2012 AngelList has become a popular way for new startups to raise seed funding. In some ways related to the opening up of investing via the JOBS Act, AngelList is designed to level the playing field for entrepreneurs seeking funding.
The website enables any startup to raise funding by pitching to angel investors or requesting meetings, all online. Entrepreneurs in the past have needed a referral or connection to pitch a top angel. And for investors, they now have a more efficient way of meeting and learning about entrepreneurs and their startups. Investors also “follow” other investors, to see what deals they’re
. . . → Read More: The Most Influential Angel Investors On AngelList
April 25th, 2012 When the Jumpstart Our Business Startups (JOBS) Act passed recently, many columnists and bloggers began weighing in with varying opinions, and some conjecture that may have muddied the waters.
As I’ve written before, thousands of us entrepreneurs will benefit from the law. This could become a very viable and exciting way for small companies to raise capital. But not yet. The Securities and Exchange Commission (SEC) has nine months to draw up the regulations.
As regular readers know, I’ve been writing about crowdfunding to raise investment capital since February 2011. My dream was shattered almost immediately by my trusted attorney,
. . . → Read More: The JOBS Act Is Now Law — So Now What? See Some Details
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