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

Blog Archives

Due Diligence Is A Two-Way Street

Investors regularly confuse entrepreneurs with their various approaches to validating deals prior to investment (a process called “due diligence”).   A few seed stage investors (angels, super angels or seed stage VCs) have coffee with an entrepreneur and quickly learn enough to write checks.  Other investors or groups of investors study deals for months before investing.  Why do some investors take

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Why Sweat Equity Often Stinks

Posted by on March 6th, 2013

Somebody asked for standard boilerplate for sweat equity via the ask-me page on my website.

I am looking for a contract template which states an agreement for services in exchange for equity. I was hoping that you would have a template that you can share.

That’s not going to happen. Fundamental sweat equity is beautiful, blisteringly clear, and real. It needs

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Raising Your Hand as Due Diligence Lead for Angel Groups

Through Rob Wiltbank’s ground-breaking study in 2007, angels in groups learned that collective due diligence on new deals really pays off.  The 538 angels included in this study enjoyed 2.6X returns over the life of their investments.  However, for deals on which collective due diligence totally less than 20 hours, returns were only 1.1X.  But, deals on which angel put

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What? Avoiding Undue Diligence? Seriously?

I suspect this is one of those provocative posts that gets misquoted, misaligned and misunderstood, and definitely not to be taken at face value. Still, read  Avoiding Undue Diligence: My Strange Approach To Angel Investing, in which Dharmesh Shah argues against due diligence in angel investment.

Angel Investors Do Make Money, Data Shows 2.5x Returns Overall

I began studying angel investing returns about 10 years ago as a result of a problem I couldn’t resolve: The investing world seemed certain that angel investors were rubes. Conventional wisdom dictated that they made reckless investments in very early-stage ventures mostly doomed to fail. And whenever they might come close to succeeding, savvy “professional” investors would just swoop in,

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Convertible Debt, Priced Equity Rounds and Deal Timing

An impromptu Twitter debate arose among Fred Wilson, Dave McClure, Mark Suster, Chris Dixon and others about convertible debt, priced equity rounds, and the nuances of early stage financing. It was such a good discussion that Fred asked that someone Storify it. I’ve done that here and expanded it with some additional references, background info and light commentary.

http://storify.com/antonejohnson/convertible-debt-priced-equity-rounds-and-timing

Convertible Debt: Worst Form Of Seed Financing — Except For All The Others

How to finance a new seed-stage startup?  Equity?  Convertible debt?  Convertible equity?

As of August 2010, Paul Graham famously proclaimed, “Convertible notes have won. Every investment so far in this YC batch (and there have been a lot) has been done on a convertible note.”  Yet in my little corner of Wonksville, Founder Institute CEO Adeo Ressi and Yoichiro “Yokum”

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Sideways Startups: Donating Private Stock

Typically, Americans give cash when it comes to charitable contributions. However, for investors and founders, it may be helpful to think outside the box when it comes to giving.

Donations of private stock enable investors, founders and employees to support charitable causes and contribute to the community while receiving simultaneous benefits in the form of substantial cash savings from

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2011 Halo Report :: US Angel Group Activity

At the Angel Capital Association (ACA) Summit in Austin in March, the Angel Resource Institute reported on angel group activity in 2001 in the first annual Halo Report.  I found some of the results quite interesting.  For example:

The median round of investment by group was about $700,000 but less than $300,000 was invested by the local group leading the

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The Problem with Private Placement Memorandums (PPMs)

The sale of equity in private companies is regulated by the Securities Act of 1933, which requires that the company either register with the SEC or meet one of several exemptions (Reg D).  A Private Placement Memorandum (PPM) is a special business plan defined to meet an SEC exemption.  In most cases, those entrepreneurs choosing to raise capital using PPMs

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