Both Sides of the Table

OCTOBER 12, 2014

All the confusion you hear from friends or read in the press is related to this nuance that early investors demand prorata rights and sometimes fight like hell to maintain them (Facebook problem) and sometimes prefer not to take them (overvalued company that they perceive isn’t doing as well as new investors coming in think).

Technical Review 336

Technical Review Later Stage Early Stage LP 336

This is going to be BIG.

MAY 17, 2012

2) Supply and demand of capital willing to invest in your company. Getting less dilution than standard means that you have to have made fantastic progress, have a world class team, etc. The other way to move that number is much more simple-- generate more demand for the round than there is supply of allocation.

Venture Capital 118

Venture Capital Framework Dilution Equity 118

Both Sides of the Table

JUNE 5, 2011

But the reality is that you’re faced with two problems: 1) the earlier the stage the riskier and thus more write-offs so you need to have enough ownership percentage in your winners to make up for the losers and 2) the earlier stage your check the more likely the company will need many more funding rounds behind you and thus you face dilution.

Pre-Money Valuation 336

Pre-Money Valuation Valuation Silicon Valley Stock 336

Both Sides of the Table

NOVEMBER 14, 2017

and we were met with weak demand, slow growth and high costs. Raise too soon and likely take on more dilution, wait and get valuation up (as our metrics continue to rise) but then run to a point where you have a lower cash balance and place more risks on the business.

Operations 286

Operations New York City Technical Review Startup 286

Both Sides of the Table

FEBRUARY 20, 2019

For starters, the incoming CEO will demand between 4–6% of the company so shareholders will immediately face dilution. That’s the implicit trade you’re making as a founder when you assume tens of millions of dollars in other people’s money to grow your business more rapidly and assume less personal financial risks.

Venture Capital 236

Venture Capital Startup Angel Investor Silicon Valley 236

YoungUpstarts

SEPTEMBER 23, 2017

Also, determine the market demand to make sure what you’re doing is sustainable. Nonetheless, many entrepreneurs don’t do this because accepting ownership dilution when it isn’t necessary, is too painful. If you tend to over-fund your start-up, you’ll perhaps suffer some unnecessary ownership dilution as a consequence.

Cofounder 124

Cofounder Sweat Equity Equity Dilution 124

Berkonomics

OCTOBER 10, 2024

Second, almost no professional investor will consider putting that much into a startup until there is proof of market demand, product viability or some other mitigation of failure. Third (if you’re keeping score), it is not wise to dilute the founder’s ownership greatly in the first round of financing.

Dilution 127

Dilution Startup Retention Valuation 127

YoungUpstarts

OCTOBER 16, 2016

As your business thrives, the providers who support you with banking, marketing and other services should change as your demands change. Growth places new demands on business, and with this comes an opportunity to reevaluate core functions and operations. Re-set the vendor and partner paradigm.

Cofounder 100

Cofounder Balance Sheet Small Business Administration Technical Review 100

Startup Professionals Musings

JANUARY 15, 2021

This is called stock dilution control. Investors typically demand preferred stock to give them more control and first payouts, but these advantages can be at least partially offset (up to 20 percent) if you plan ahead. Minimize your own loss of ownership as major investors contribute.

Vesting 298

Vesting Dilution Stock Founder Vesting 298

Startup Company Lawyer

MARCH 14, 2010

If new investors get better rights in a future equity financings (such as registration rights, price-based anti-dilution, redemption rights, etc.), Anti-dilution protection. Deleting anti-dilution rights saves several pages of text in the Certificate of Incorporation. Future rights. Right of first offer on future financings.

Finance 70

Finance Software Review Term Sheet Liquidation Preference 70

Both Sides of the Table

FEBRUARY 17, 2011

For many businesses you should keep your costs low & your capital raises low until you discover whether you are really on to a big idea where there is market demand. If you are able to raise money from credible sources at a reasonable dilution percentage then I personally favor getting the round done now and building your business.

Pre-Money Valuation 303

Pre-Money Valuation Dilution Valuation PR 303

YoungUpstarts

MAY 9, 2017

Lean organizations are lightweight and nimble enough to pivot based on shifting demands. individuals dilute their focus and slow their productivity. Also related to business agility is the ability to synchronize efforts in the midst of changing priorities. 4 Better Project Visibility at the Team Level.

Lean 124

Lean Agile Technical Review Dilution 124

The Startup Magazine

AUGUST 9, 2022

One of the most underrated jobs of a leader in a scaling organization is making sure the culture doesn’t get diluted. TSM: How do you handle the challenge of balancing the demands of entrepreneurship with personal life responsibilities and parenthood? I would also put culture in the top 3.

Cofounder 158

Cofounder Founder Miami Marketing 158

ReadWriteStart

JUNE 1, 2020

In very few specific cases, depending on the nature of the business, the business model might demand a considerable gestation period or extensive research and development. Raising higher capital at an early stage means more equity to be diluted to the investors. Point number 2: Do not raise funding more than what you require.

Startup 150

Startup Entrepreneur Elevator Pitch Seed Stage 150

Startup Professionals Musings

JANUARY 31, 2020

In fact, they may fear team leadership as a burden, or a potential dilution of their ownership. Good entrepreneurs are often diluted in their potential by trying to attack too many new market opportunities or customer requests concurrently. Certainly interfacing to the outside world may not be an inventor forte.

Founder 312

Founder Intellectual Property Dilution Startup 312

The Next Web

SEPTEMBER 13, 2013

This is driven both by supply and demand. Finding the right partner is a much bigger win than the extra cash or minimizing dilution. In most markets, there are very few VCs and a ton of entrepreneurs chasing them. Thus, VCs have the upper hand. Finally, don’t over-optimize on valuation.

Asia 132

Asia Silicon Valley India Term Sheet 132

K9 Ventures

JUNE 12, 2012

Founders typically get their equity in a company once — at the time of founding and then get diluted with each subsequent round of financing. Then the same company gets encouraged to spend that money to accelerate and to grow quickly, which in turn means it runs out of that money more quickly, and then needs to raise even more money.

Venture Capital 117

Venture Capital Silicon Valley Founder Seed Stage 117

Startup Lessons Learned

AUGUST 24, 2009

The other revels in the world as we all know it will be someday: limitless distribution enabled by new technologies, the importance of collaborative filters, and on-demand availability of all content for end-users. And as everyone’s attention starts to focus on those same indicators, their value is being diluted.

San Francisco 113

San Francisco Lean Technical Review Distribution 113

YoungUpstarts

MAY 6, 2019

If there is a gap in the market, there will be demand. If you are getting funded for the first time, which means that you have not diluted the shares of your company, you will be receiving Series A funding. It will be in millions and you will have to dilute your shares even further if you are aiming for another funding round.

Startup 113

Startup Technical Cofounder Merger Early Stage 113

K9 Ventures

JUNE 12, 2012

Founders typically get their equity in a company once — at the time of founding and then get diluted with each subsequent round of financing. Then the same company gets encouraged to spend that money to accelerate and to grow quickly, which in turn means it runs out of that money more quickly, and then needs to raise even more money.

Venture Capital 105

Venture Capital Silicon Valley Founder Seed Stage 105

Startup Professionals Musings

SEPTEMBER 27, 2023

This is called stock dilution control. Investors typically demand preferred stock to give them more control and first payouts, but these advantages can be at least partially offset (up to 20 percent) if you plan ahead. Minimize your own loss of ownership as major investors contribute.

Stock 240

Stock .Net Vesting Founder Vesting 240

David Teten

JANUARY 21, 2021

Jonathan Bragdon , CEO, describes Capacity as “a team of founders-turned-funders making non-dilutive, founder-aligned investments of $50-$300k in post-startup, post-revenue businesses planning to 2X revenues in 12-24 months. Capacity Capital , based in Chattanooga, Tennessee, was launched in 2020 with a primary focus on the Southeast.

Equity 78

Equity Revenue Cofounder Colorado 78

Both Sides of the Table

OCTOBER 7, 2014

My speculation is that entrepreneurs had more options and wanted to take less dilution so the old $5 million for 33%-40% of your company no longer made sense and on the VC side it made no sense to pay $20 million pre ($25 million post, which implies the VC gets 20% of the company = 5/25). Why the latter? and there''s always a but].

Cap Table 399

Cap Table Silicon Valley Term Sheet Finance 399

Both Sides of the Table

JUNE 17, 2017

They hired a biz dev team to work on deals where their product could be embedded in other people’s products as a way to increase customer demand. If there was strong market demand for their product then this investment might pay off handsomely. Stock option grants dilute your ownership in the company.

Stock Options 227

Stock Options Startup Dilution Venture Capital 227

Startup Professionals Musings

JUNE 13, 2020

VCs tend to demand more control of your spending and strategic decisions, with required board seats and lower valuations. Angels will likely agree to simpler term sheets, better valuations, and less restrictive terms on potential dilution, voting rights, exit options, and executive roles. How big is your startup opportunity?

Angel Investor 314

Angel Investor Entrepreneur IRR Valuation 314

Startup Professionals Musings

MAY 8, 2022

Don’t wait for the harsh reality of the demanding business world to start thinking about these tradeoffs. The downside is loss of control and financial dilution. That’s not an attractive statistic if you crave control and power. Should you start a company solo or find co-founders to help you? The co-founder relationship dilemma.

Founder 325

Founder Hockey Stick Cofounder Liquidity Event 325

Feld Thoughts

MARCH 24, 2017

They’re a rare venture fund that doesn’t exercise pro-rata rights over the lifetime of an investment, meaning they dilute alongside company founders, which they believe better aligns their interests as seed investors with the entrepreneurs. But they didn’t take advantage of that demand. The only problem was they didn’t have any room.

Founder 77

Founder LP Technical Review Seed Stage 77

Startup Professionals Musings

NOVEMBER 6, 2020

Once you accept equity investor money, or go public with stockholders, you won’t believe the things they demand, and the legal rules you have follow. With major investors, your equity and return is diluted and delayed. You want to be your own boss, and do things your way. Take pride in your leadership role in the local environment.

Small Business 311

Small Business SBA Small Business Administration Equity 311

Startup Lessons Learned

JUNE 15, 2009

As a consumer internet company with millions of customers, it may seem to have little relevancy for an enterprise software company with only a handful of potential customers, or a computer security company whose customers demand a rigorous audit before accepting a new release.

Continuous Deployment 167

Continuous Deployment Software Review San Francisco Lean 167

Austin Startup

JULY 6, 2018

Re: cash, the more “unbundled” types of accelerators (less formalized, less equity) tend to not provide any cash upfront, but also typically “cost” less in equity, often just 1–2% of your fully diluted capitalization. Anti-Dilution. See: Startup Accelerator Anti-Dilution Provisions; The Fine Print.

Dilution 48

Dilution Startup Technical Review Equity 48

Babbling VC

OCTOBER 3, 2011

This is very difficult to do if you constantly have to worry about running out of capital in your fund or not having enough reserves to avoid dilution. Hypothesis 9: The problem is on the demand side . Hypothesis 3: Insufficient diversification in European VC managers’ portfolios . This one is in my mind changing the fastest.

LP 82

LP Europe Germany Venture Capital 82

View from Seed

JULY 15, 2020

These companies are probably burning a lot of cash, seeing headwinds in demand, and have funding needs that are substantial. These companies are ones where demand has fallen by 80% or more, causing their underlying viability to be in question. Other companies are great businesses, but are effectively encountering a dilution event.

Portfolio 215

Portfolio IRR Dilution Distribution 215

Both Sides of the Table

FEBRUARY 22, 2011

Here’s the problem: Let’s say you have 5 VCs (plus angels but let’s ignore that for now) and each one owns 5% so you took 25% dilution to get the round done. This is largely true because most VCs have a 20% minimum threshold in order to invest so bringing in multiple VCs can be very expensive in terms of dilution.

Dilution 314

Dilution Cap Table Due Diligence Option Pool 314

View from Seed

OCTOBER 28, 2019

In other words, the goal of a pre-seed round isn’t to subsequently raise a Series A (which these days requires both product-market fit and meaningful evidence of strong market demand), but to raise another round of seed financing. It really does depend from startup to startup.

Seed Stage 247

Seed Stage Finance Dilution Early Stage 247

Both Sides of the Table

SEPTEMBER 25, 2011

Pro-rata rights are designed to protect investors from being diluted in future rounds of financing, which is an important way for VCs to protect the investments they make early that turn out to be super successful. They might own 8% of your company after the first funding but demand up to 33-50% of your next round of financing.

Entrepreneur 310

Entrepreneur Dilution Finance Silicon Valley 310

Startup Professionals Musings

AUGUST 2, 2014

VCs tend to demand more control of your spending and strategic decisions, with required board seats and lower valuations. Angels will likely agree to simpler term sheets, better valuations, and less restrictive terms on potential dilution, voting rights, exit options, and executive roles. How big is your startup opportunity?

Angel Investor 266

Angel Investor Entrepreneur Venture Capital IRR 266

Tim Keane

JANUARY 12, 2010

.   This is most commonly used when a conversion confers superior economic benefits on the preferred stockholder. ·       Anti-dilution provisions that reduce the price of the preferred shares (using a variety of formulas) in the event that the company issues new stock at a lower price.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68