Thoughts on startups by investors that
fund them & entrepreneurs that run them

Category Archives: Investing For Beginners

Who are the Angel Investors and Venture Capitalists with a focus on early-stage businesses started by minorities?

Although that’s probably not the right question to be asking (because the right investor is one who is investing in you as a businessperson, not you as a minorityperson), some firms and groups specializing in this sector are NMAN, the National Minority Angel Network (http://www.nmanetwork.com/), MAIN, the Minority Angel Investor Network (http://www.minorityangelinvestor…), and Jalia Ventures(http://www.jaliaventures.com/).

*original post can be found

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How do angel investors typically deal with the legal agreements and similarly how would they help deal with legal issues for a startup they’ve invested in?

All investments by angels (and everyone else) in a company are made according to detailed legal documents that specify everything about the relationship among the various parties, the terms of the value exchange and the various rights and responsibilities of everyone involved. The paperwork can range from 5-10 pages for a pretty straightforward convertible note, up to 120 pages or

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How do venture capital firms make money by investing in startups?

The venture capital fund itself makes money…

…by investing early in a startup company’s life, when success is not at all assured. In exchange for investing capital to help the company grow, the fund receives an ownership interest in the company. Because in the early days a company will not be worth very much, the fund’s ownership interest will be

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As a VC or angel investor, how has your approach to investing changed over time?

The biggest change is the one that ALL serious angel investors eventually arrive at: no matter how smart or experienced you are, there are simply too many exogenous factors affecting outcomes for you to be able to pick only winners.

Can Fortune 500 executives also be angel investors?

Sure! There are quite a few senior executives of large companies who are angel investors. Unless there are specific competitive or ethical issues with a particular investment, there is nothing different from their employer’s viewpoint about investing in a private company rather than a public one.

What is appropriate for Investor’s Contracts?

There is no standard thing called an “Investors Contract”, and it sounds as though you are trying to re-invent the wheel here. It also sounds as though you are doing all of this yourself, instead of using an experienced lawyer…which is a very, very bad idea.

How does equity dilution work for startups?

Equity dilution works when the same pie is divided among more people. The founder of a company starts by owning all the shares representing ownership of the company. Over time, other people receive pieces of equity in exchange for work (employee stock options), money (seed, angel and venture investors), or services (attorneys, directors, etc.)

When should a convertible note be treated as a replacement for an equity round, and take on characteristics of an equity financing?

It doesn’t work that way. A convertible note and an equity round are two different things, done for different reasons. In most cases, the former is a quick way to get some money in the door in anticipation of the latter.

Founder’s Stock Is Gold, If You Know The Rules

In reality, so-called “Founder’s” shares are simply common stock, issued at the time of startup incorporation, for a very low price, and normally allocated to the multiple initial players commensurate with their investment or role. But that’s only the beginning of the story.

These shares are allocated and committed, but not really issued and owned (vested) until later. Typically, vesting

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What are the average terms for Angel Investors’ seed fundings?

There is no average, because every company and situation is different. But as a general rule of thumb, the investors in each round of financing will get somewhere between 15% and 35% of the equity in the company, and the total amount raised in each round should be enough to get the company to a significant increase in value.