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

Category Archives: Startup Investing

What happens when a company is acquired for less money than it raised in funding?

Every investment round in a company is made on the basis of extensive paperwork (often upwards of 100 pages in total) specifying *precisely* what happens when it comes time to pay out the proceeds (if any) from the sale or dissolution of the company. And since all prior investors sign such agreements—or are otherwise legally bound by them—there is never

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What should I include in an investor provisions summary?

Original question on Quora: “I was asked to summarize the provisions of the operating agreement that an angel investor would want to know prior to (or at) the term sheet stage. What should I include (or what should I exclude, given that on first pass I have 8 pages excerpted from the operating agreement)?”

From the question it sounds to

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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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What’s a typical day like for a full-time angel investor?

There is no such thing as a full-time angel investor (or if there is, I’ve never met one.)

If you mean someone investing mostly other people’s money through a seed fund, they are venture capitalists, and their days are spent like other VCs, meeting with prospective investments, mentoring portfolio companies, raising money from limited partners, negotiating deals, and so forth.

If

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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.

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.

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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Why Startups Face Increasing Competition In Raising Series As And Bs

By Tomasz Tunguz, Partner at Redpoint Ventures

Has it become harder to raise money? is a question I hear all the time. On one hand, the total dollars invested by VCs is relatively flat at just under $30B per year, according to the NVCA. On the other hand, the stories of difficulty raising series As and Bs have become a steady

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