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I thought about things I never had to as an entrepreneur: check size, ownership percentage, deal stage, portfolio construction and risk. So I encouraged entrepreneurs to think about raising their funds as quickly as they could because. I have a young entrepreneur friend who IMs me a lot. Unemployment likely to rise.
While some entrepreneurs may think that financial models are just a formality that needs completing in order to placate straight-laced venture capital types, the reality is that models can be essential tools for creating and analyzing the roadmap an entrepreneurial venture should follow. The answer is, almost certainly not.
” And yet we entrepreneurs who will sign up for the journey accept that failure is a possibility and the true entrepreneurs know that they must stick with the ship even if it’s sinking. First time entrepreneurs can fall prey to hubris. But markets don’t generally love failure. Yet failure smells.
When the company hits potholes, Flexible VC investors usually don’t have the nuclear options of firing management and/or doing a recapitalization. See Why Are Revenue-Based Investors Investing in Women & Diverse Entrepreneurs? Their only option is to work with management to try to fix the problems. Emily Campbell, Esq.
So they recapitalize the company. In some cases this turned into nothing, but in a few cases it had magnificent outcomes for me and my gang, along with the entrepreneurs. The entrepreneur and the VC may not care at all, and that’s fine with us, but we’ll remember the behavior for a long time.
Even if you are an experienced entrepreneur, you’ve probably only seen a few founder agreements in your life. The only way to remove their equity holding in the cap table is by buying them out or through a recapitalization of the company. Most partners, be they lawyers or VCs, tend to tweak the standard with their own language.
Normal advisors are also assembled by naive entrepreneurs who think the mere presence of an advisory board will create social proof and help them raise money. A naive entrepreneur hires the wrong business advisor and a major new investor asks the entrepreneur to clean up the dead wood.
Many modern entrepreneurs have limited exposure to the notion of failure or layoffs because it has been so long since these things were common in the industry. This severely heightens the risk of either running out of money or a complete recapitalization that wipes out previous shareholders (founder, employees, and investors alike).
I call it the entrepreneur thesis. I’m not talk about the age old debate amongst investors whether you back entrepreneurs, markets or products (or as people like to hedge – product / market fit). It’s entrepreneurs I back. It’s what I call the “entrepreneur thesis.” So what is the “entrepreneur thesis?”
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