What are the different types of instruments VCs use to invest? Thirty third in a series of weekly posts by myself and Nicholas Lovell of Gamesbrief which answer the fifty questions you should ask before raising venture capital. We expect the series to run for a year after which we will collate the posts into a book. You can find the rationale behind the series here, and the list of questions here. We welcome your comments on any and every aspect of what we are doing. You won’t be surprised to hear that VCs don’t use banjos, guitars or any other musical instrument to invest, rather we use ‘investment instruments’. Put slightly differently investment instruments are legal documents which determine how much an investor invests and how much they should get back, when, and under what circumstances. The vast majority of VC investments are in one of three categories of investment instrument: Preferred shares are the favoured option of most VCs. There is a common confusion in terminology that is worth noting.
Convertible loans are common in two situations:
A Compilation of the Web's Best Advice for Entrepreneurs. Fred Wilson [ by Babak Nivi. Is Late Stage the New Early? Behind the Staggering Return of the $1B Venture Fund. In Silicon Valley it’s not just who you invest in that matters– it’s also when you invest in them. The earlier the investment, the riskier the bet. But the more jawdropping the returns if the company hits it big. It’s so lopsided, that typically just 5% of those unsure, early bets create some 95% of the entire venture industry’s returns. Miss one of them, and it haunts you for years. Snag it, and you can brag for even longer. This simple reality is precisely what makes the venture business hard, and the justification for why partners make such huge fees. So what’s up with the surge of the strongest early stage firms jumping so heavily into late stage mega-deal fray? Earlier this year, we wrote a lot about the shift in power at the early stages with the rise of super angels, but you could argue there are far greater ripple effects to this new late stage frenzy.
Super angels move small chunks of money, hedged across thousands of startups. This chart shows dramatic comebacks. What We Can Learn from Justin Bieber. The best place to set up your startup. John Backus is a co-founder and managing partner at early-stage VC fund New Atlantic Ventures. He blogs at Now’s a good time for startups: VCs are investing more money now than they have since the recession hit. But do you have to be in Silicon Valley to get the contacts, staff, and VC attention you need to build a venture-backed company? There’s no doubt, Silicon Valley is frequently the first choice for startups. And there’s a reason why: 39 percent of 2010 venture capital dollars were spent there, according to the National Venture Capital Association and PricewaterhouseCoopers.
But the second largest region is along the I-95 corridor on the east coast, which attracted $6.8 billion, or 31 percent in 2010. And there are several great places for venture-backed startups there. The best place to start your particular business ultimately depends on the field you’re in, but clearly, it’s best to stick to the coasts, because that’s where the money is. 1. 2. 3. What Every Entrepreneur Could Learn from Justin Bieber. I know what you’re thinking – link bait title, right? Wrong. I will stand 100% behind my assertions in this post. Justin Bieber is unbelievably entrepreneurial and most of you will never know it because he serves a target demo that doesn’t include you.
I promise you can learn from him and this movie. I’m also betting that in 10 years he’ll be a mainstream talent rather than a pre-teen girl wonder. Read on . . . On Sunday I took my 8-year-old son for a manly outing at the batting cages with his baseball team. With my son on the DL list, I offered him a movie. No, it’s not lost on me the amount of crap I’m going to get for saying that I loved the movie. For the same reason I loved the much more flawed story of Anvil, who interestingly came from Toronto, about 100 miles away from where Justin Bieber grew up. With my son we were able to talk afterward about how hard Justin worked to achieve his dream.
It’s about “Never Say Never.” Here’s what you could learn from the movie: 1. 2. 3. 4. 5. 6. Quigley Report: A Venture Capital Revival is Upon Us | The Quigley Report. The Top 20 VC Power Bloggers Of 2010. There Aren't Many Exits Over $100mm. I was reading Mark Suster's latest blog post (actually its a presentation embedded into a blog post) and I came across this slide. I don't know what the source of this data is and I don't know if this is just M&A exits or if it includes IPOs as well.
It really doesn't matter for the basic point that Mark is making with this slide. Based on the NVCA statistics on the venture capital industry, there are on average 1,000 early stage financings every year. I suppose a few of those 1,000 financings are for the same company, but I doubt that many are. And somewhere around 50 and 100 of them exit for more than $100mm every year. At at time when the average Series A round is now north of $20mm (based on very anecdotal evidence and not at all scientific), this poses challenges for the VC industry. If the average valuation of a Series A deal is $10mm, then the cost of 20 early stage deals is 20×10=200 which is less than 250.
Chris dixon's blog / Notes on raising seed financing. Last night I taught a class via Skillshare (disclosure: Founder Collective is an investor) about how to raise a seed round. After a long day I wasn’t particularly looking forward to it, but it turned out to be a lot of fun and I stayed well past the scheduled end time. I think it worked well because the audience was full of people actually starting companies, and they came well prepared (they were all avid readers of tech blogs and had seemed to have done a lot of research). I sketched some notes for the class which I’m posting below.
I’ve written ad nauseum on this blog (see contents page) about venture financing so hadn’t planned to blog more on the topic. 1. 2. 3. 4. By far the biggest influence on investors’ opinions of a startup is the opinion of other investors. 5. Make sure you have good Google results (this is your first impression in tech). 6. 6. 7. 8. 9. Have a short slide deck, not a business plan. 10. 11. 12. Redpoint Ventures: Making Money the Old Fashioned Way. Last week we broke the news of the impressive-but-not-jawdropping $200 million acquisition of Cloud.com by Citrix and the stellar year of returns that Redpoint Ventures is having.
What makes Redpoint’s record so unique is that the firm is having a good year despite the fact that they’re not in one of the big five: Zynga, Facebook, LinkedIn, Twitter, or Groupon. Hell, let’s make it a big six and throw in Pandora since the IPO made so much noise. The venture world has never been more polarized between have and have-not firms. There’s talk that Accel is sitting on a fund that will have the highest returns the industry has ever seen, thanks mostly to Facebook. Meanwhile, Greylock must be sitting on one of– if not the– best funds in its history between early stakes in LinkedIn, nicely priced stakes in Facebook and Pandora and a late stage investment in Groupon. Meanwhile, there are dozens of venture firms on the other side of this divide who are going out of business. Watch out, Silicon Valley: Europe's next billion dollar start-ups. This article was taken from the October issue of Wired magazine. Be the first to read Wired's articles in print before they're posted online, and get your hands on loads of additional content by subscribing online Two veteran rock stars are sharing a joke under the late-afternoon June sun as around them American- and Chinese accented money men sip cocktails and glance towards a Tesla Roadster being driven silently across the manicured lawns.
Nearby, a huddle of senior executives from the likes of Facebook, Google and Amazon is debating AOL's disastrous disposal of Bebo, the business opportunities offered by the iPad, and where the venture-capital titans here tonight will be investing their next billion dollars. The talk is of "hundred-million-dollar exits" and start-up "burn rates" -- yet despite all the aggressive deal-making, this is no Silicon Valley power powwow. We're 9,000km from California -- at a charmingly English Four Seasons Hotel in rural Hampshire.
Earlybird Europe Venture Capital Report. WITN: New York State of the Tech Industry [TCTV] This week, Sarah is in New York doing various book-related things – but WITN is all about life outside the valley so she dialed in via Skype to give us an update in what’s happening on the East coast. Spoiler alert: NY is still no Silicon Valley, but it’s increasingly proving that it doesn’t have to be. We also discussed whether New York’s status as a multi-industry town is a pro or a con when it comes to technology startups. Video below. (Next week Paul will be in LA, a trip which he vehemently denies is about finding a new American girlfriend/wife. Instead, he claims he’ll be on the look out for interesting start-ups to rival Machinima and – uh - MySpace. If you know of a company that fits the bill, let him know.)