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

Blog Archives

8 Key Questions To Expect In Investor Due Diligence

If you really want to impress a startup founder as a potential employee, or you want to be a smart investor, you need to know the right questions to ask. These are the questions that get past the hype of a founder “vision to change the world,” and into the realm of real business strengths, weaknesses, and current health.

Some

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8 Reasons All Angel Investor Money May Not Be Equal

A few angel investors have slipped or fallen from their lofty perch, so entrepreneurs must take great care to validate the character and reputation of every prospective investor. The entrepreneur’s tendency to be in a huge hurry to obtain the funding can end up being disastrous, and play into the hands of these less scrupulous investors.

Many entrepreneurs believe all

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How We Do the Due Diligence for Our Angel Investment Group

Bill Payne had an excellent post here a few weeks ago, Raising Your Hand as Due Diligence Lead for Angel Groups, which starts with a this:

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

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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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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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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

No, I will not sign your non-disclosure agreement.

Entrepreneurs are often surprised when investors refuse to sign non-disclosure agreements (NDAs) or confidentiality agreement when offered an opportunity to read the entrepreneurs’ new business plans.  After all, every new startup features secret ideas, partnerships, intellectual property and/or technology.

IP & crowdfunding: are 1,000 NDAs better than none?

Angels and venture capitalists will not sign non-disclosure (confidentiality) agreements just to listen to an entrepreneur’s funding presentation, or even to read the entrepreneur’s business plan.  Serial entrepreneurs understand this and write their plans without describing the “secret sauce.”  Investors will eventually want to validate the intellectual property (IP) prior to investing, but not just to hear about the opportunity. 

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Limiting the Number of Shareholders in Private Companies

The US Securities Exchange Act of 1934, section 12(g), generally limits a privately held company to fewer than 500 shareholders. The assumption has been that companies with 500 investors are quasi-public anyway, and for disclosure and other reasons should be forced to go public when the shareholder number approaches this limit.

Entrepreneurs: Due Diligence on Investors is Smart

Due diligence should always be a two-way street. A while back, I published an article on “Startup Due Diligence Is Not a Mysterious Black Art,” describing what investors do to validate your startup before they invest. Here is the inverse, sometimes called reverse due diligence, describing what you should do to validate your investor before signing up for an equity

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