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

Blog Archives

How many start-ups in the US get seed/VC funding per year?

In very general terms, roughly 1,500 startups get funded by venture capitalists in the US, and 50,000 by angel investors. VCs look at around 400 companies for every one in which they invest; angels look at 40.

There are several million “startups” that are formed each year, so one way of looking at it is that there are several million

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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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Incorporate before pitching to VC’s?

While you will definitely need to be a corporate entity before you can accept funding from any investor (or issue stock options to any employees), the specific corporate status of the venture at this stage is much less important to investors than its functional status. That is, if all you have is a good idea, the reality is that you

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Do Venture Capitalists care how the equity is split among the founders?

People who tell you that VCs won’t look at a company with an even equity split are being silly. That has never once, in my experience, been even a slight hiccup, let alone a dispositive factor in a seed investment.

That said, there is a core of truth in the concept that there always needs to be *some* way to

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How do you cross the chasm between commitment to invest in your start-up, to closing a funding round?

By far the hardest step in all this is getting a term sheet. Once you have a term sheet in hand, and assuming good faith, everything else will follow.

The best way to get a term sheet is to concentrate your efforts on an investor who has the ability, history and interest in leading rounds. So one of the very

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What is the “maximum” amount (%) of a startup an investor should have?

It’s generally not a good idea for an initial investor to own more than 50% of a company (although there are always special exceptions), because the odds are that by the time the company is fully funded (and hopefully successful), the entrepreneur/founder’s equity will be reduced to such an extent that it will have effectively eliminated an incentive for him/her

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How does Convertible Debt work?

Let’s start by understanding that because we are talking about something called “Convertible Debt”, it means that whatever it is will start out as one thing, and potentially convert (or “change”) into something else. In this case, what the investor receives in exchange for his or her cash starts out as debt, and potentially converts into equity.

Debt is a

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What do investors consider the most important aspect of a potential deal?

Characteristics of the Entrepreneur Integrity, Passion, Startup Experience, Domain Expertise, Functional Skills, Leadership, Commitment, Vision, Pragmatism, Flexibility, Personality

Characteristics of the Venture Team, Business Model, Traction, Customer Acquisition, Scalability, Defensibiity, Capital Efficiency, Churn, Time to Breakeven, Exit Strategy

Characteristics of the Market Size, Growth, Concentration, Geography, Demographics, Competition, Channels, Regulatory Environment, Technological Developments, Adjacent Markets,

Characteristics of the Deal Valuation,

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Do most angel investors make money?

The reality is that results in angel investing tend to bifurcate:

“Professional” angel investors, who are investing calmly, steadily, relatively-rationally, over a long period of time and with a strong knowledge of both investment math and early stage realities, tend to not only make money, but do quite well: the average return for a comprehensive, well-managed angel portfolio is between

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How do we deal with offers from investors when we have just closed a round?

Very simply, you respond cordially and promptly, letting them know that although you have just closed a round and are not currently fundraising, you would like to keep them updated on your progress, as there might be future opportunities for them to be involved. If you have the bandwidth, offer to meet with them briefly to give them the ‘public’

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