Understanding How Dilution Affects You At A Startup. Editor’s Note: This is a guest post by Mark Suster (@msuster), a 2x entrepreneur, now VC at GRP Partners.
Read more about Suster at his Startup Blog, BothSidesoftheTable. Everybody knows that when you raise money at a startup your ownership percentage of the company goes down. The goal is to have the value of the startup go up by enough that you own a smaller percentage of a much larger business and therefore your total personal value goes up.
The simplest way to think about this is: If you own 20% of a $2 million company your stake is worth $400,000. If you raise a new round of venture capital (say $2.5 million at a $7.5 million pre-money valuation, which is a $10 million post-money) you get diluted by 25% (2.5m / 10m). But understanding how you’re likely to get diluted over time is a more difficult concept. I’ve had to simplify a bit, but to make it easier to understand I’ve teamed up with Jess Bachman at Visual.ly. And Jess is awesome at his trade. TalkTo Allows Consumers To SMS Any Local Business And Get A Quick Response. Have you ever called a local restaurant, store or service professional and been put on hold for more than give minutes?
Or worse, you can’t get through to a representative and are left leaving a message on an answering machine with no assurance that you voicemail will be checked. The fact is it can be frustrating to communicate with local and general businesses via the phone. Enter TalkTo, a company launching today at TechCrunch Disrupt, which allows consumers to send text messages send messages to any business and get quick responses to questions, feedback, and more. How does this happen? Well, TalkTo uses SMS to communicate with businesses. And what makes the platform so appealing is that a business doesn’t necessarily need to engage with TalkTo to receive the message.
Of coure, the aim is to onboard all businesses onto TalkTo’s self-serve platform so that businesses can take control over responding to consumer inquiries. A: A phone call can be painful and outdated and frustrating. Are You A Pirate? I read blog posts by Don Dodge and Glenn Kelman today about people jumping from Google to Facebook and it got me thinking about entrepreneurs.
Most people have an aversion to risk, my college economics professor told me. Which means they have to be rewarded to take on that risk. The higher the risk, the higher the possible payout has to be for people to jump. We make risk/reward decisions every day, all day. Do I go skiing, and enjoy the rush of flying downhill even though there’s a small chance I’ll blow out a knee?
Every time we do something, or don’t do something, there’s a risk/reward algorithm being calculated in our brain. Entrepreneurs, though, are all screwed up. The payouts for starting a business are just terrible when you account for risk. How I Raised $350k as a Solo Founder using these 4 Email Templates.