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

Blog Archives

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

Read more >

Thinner Slices of an Extra-Large Pizza: Mathematical vs. Economic Dilution of Startup Equity

Back from a hiatus, it’s time to venture forward once more.  I appreciated hearing from those who asked about upcoming posts.  Thanks in particular to the reader who reminded me that Part II of “Bored” of Directors Can Become Clash of Titans is still in the queue.

Let’s get right down to business: Dilution of founders’ and other early shareholders’ equity in

Read more >

When A Startup Chooses IPO Most Founders Are Out

Many entrepreneurs still dream of “going public,” making billions of dollars, and playing with the big boys. They don’t realize that this option would likely be their worst nightmare, since it costs millions for the road show, usually dilutes your equity to a tiny fraction, and takes away all your entrepreneurial control. Consider the recent example of Facebook and Mark

Read more >

How Reed Hastings’ Facebook Status Update Landed Netflix in SEC’s Crosshairs

Last month, the SEC announced it was taking action regarding Netflix’ (NFLX) securities compliance based on a Facebook status update posted by CEO Reed Hastings.  The move came as a shock to many in the tech business community, in which we’ve become accustomed to real-time disclosure by company executives through social media.  What could be wrong with more transparency?

To

Read more >

Second-Class Investor Citizens: Facebook’s IPO and Dual-Class Equity Structures

Dual-class voting structures are receiving a lot of attention these days along with intense publicity related to the Facebook IPO, following in the wake of other recent tech IPOs with a similar structure such as Zynga and LinkedIn.  This is nothing new; long favored by family-controlled media empires such as Rupert Murdoch’s News Corporation, among Internet firms alone, Google took

Read more >

Forget Crowdfunding: Why JOBS Matters

Posted by on April 6th, 2012

Most all the talk about the JOBS bill is about crowdfunding, seeding, and the ability to advertise private placements.  In my mind, other provisions are the really big news for young companies.

Those are the expansion of the size limits for “Reg A” offerings, and the newly created “regulatory on-ramp.”  Together, these have re-opened a door to capital that’s been

Read more >

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.

IPOs, M&As, Liquidity, & You. (the entrepreneur)

In the “good old days,” angels invested in seed-stage startups and teed up promising companies for subsequent venture capital financing. If the company was successful, this quickly led to an IPO – a very happy ending for the entrepreneur, the angels, and the venture capitalists. My, my…how the world has changed.

A long time ago in an economy far, far away. . .

Listen my children and you shall hear Of IPO dreams once held so dear Our forefathers’ jackpot, guaranteed to arrive Hardly a founder now alive Can remember that famous yesteryear

So begins, of course, one of the most famous poems of the entire startup canon.  And, a bit misty-eyed, this old war veteran can actually remember the glory days: Venture

Read more >

Probable and Improbable Lobbying Wins: The 1,000-stockholder Rule

Talented entrepreneurs are nothing if not resilient in the face of change:  Market forces, competitive threats, technological shifts, you name it.  In recent years, government regulation has emerged as another such force to be reckoned with in the technology industry.  Startups and founders need to come to terms with the stark reality that the rules of the game may be

Read more >