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Want to Know How VC’s Calculate Valuation Differently from Founders?

Want to Know How VC’s Calculate Valuation Differently from Founders?
Back in 1999 when I first raised venture capital I had zero knowledge of what a fair term sheet looked like or how to value my company. Due to competitive markets we ended up with a pretty good term sheet until we needed to raise money in April 2001 and then we got completely screwed. It was accept the terms or go into bankruptcy so we took the money. But the truth is that I didn’t really understand just how screwed I was until years later when I finally understood every term in a term sheet and more importantly I understood how each term could actually be used to screw me. Back then VentureHacks didn’t exist. I don’t feel that as a VC sneaking in nefarious terms into a term sheet that the entrepreneur doesn’t understand is a good way to build a long-term relationship nor to build a long-term reputation but this does happen and more frequently than we all would like. This starts with understanding how VCs and entrepreneurs often see valuation differently. I turned them down. Related:  Funding

» Guide pour présenter votre Business Plan de Startup  (Ce post sera mis à jour en fonction des retours de mes lecteurs, n’hésitez pas à en laisser en commentaire) Depuis le lancement de Kima Ventures avec Xavier Niel en février 2010, nous avons reçu via notre site plusieurs milliers de business plans en provenance du monde entier. La grande majorité des business plans sont reçus via notre site internet, lui-même relié à notre base de données de startups. Nous avons investi dans plus de 130 startups (une partie apparait sur notre site) dans 18 pays, de la Chine au Nicaragua en passant par le Pakistan, Israël, la Norvége ou la Suisse. Lire des business plans peut être une activité agréable mais, pour que cela soit vrai, il faut que celui-ci réponde clairement aux questions que se pose un investisseur sans développer de détails inutiles. Pas la peine donc de présenter l’évolution de la taille du marché du e-commerce au cours des 10 dernières années quand vous présentez un dossier de vente de pin’s sur Internet Parlons donc contenu désormais.

Behind the Scenes: How Fab Raised $40 million with a lot of data and not much pain Let’s face it, fundraising can be a real pain in the ass for the entrepreneur. It takes up a ton of time that can be otherwise spent managing the business. Sure, it’s a necessary evil, but it’s also typically a big distraction. It’s also a lot like dating. You have to go on a lot of first dates before you can move on the to the second, third, fourth, and then hopefully marriage. When we decided to raise a large round of financing for Fab in October, my biggest concern was that it would divert our management team’s time and attention away from running the business at a critical time, as we were simultaneously scrambling to prepare for our first holiday season at Fab. As our “one thing” at Fab.com is design, I put a lot of thought and consideration into how we might design our fundraising process differently from the norm, so as to optimize around time spent fundraising vs. running the business, and to quickly hone in on who we wanted to marry. Venture Growth Capital. One final note. p.s.

Burn Rates: How Much? In the comments to last week's Burn Rate post, I was asked to share some burn rates from our portfolio. I can't do that. But an alternative suggestion was to write a post suggesting some reasonable burn rates at different stages. I can do that and so that's the topic of today's post. The following applies to software based businesses, and most particularly web and mobile software businesses. It does not apply to hardware, life sciences, and energy startups. Building Product Stage – I would strongly recommend keeping the monthly burn below $50k per month at this stage. Building Usage Stage – I would recommend keeping the monthly burn below $100k per month at this stage. Building The Business Stage – This is when you've determined that your product market fit has been obtained and you now want to build a business around the product or service. A good rule of thumb is multiply the number of people on the team by $10k to get the monthly burn. One final caveat – there are outliers.

Raising Money On AngelList: 21 Tips From Two Active Angels The following is the result of a collaboration between Ty Danco and Dharmesh Shah. Ty is an angel investor and startup mentor (you should be reading his blog). Dharmesh is founder and CTO of HubSpot, runs OnStartups.com and is an advisor to AngelList. AngelList (AL) connects promising startups to a sterling network of early stage investors. 1. AngelList may be a game-changer, but most of the same rules are still in place. 2. "How to Hustle with AngelList", by Brendan Baker is the definitive how-to guide discussing how to make it onto AngelList, how to set up profiles, etc. 3. With over 400 companies having raised money on AngelList in its first 18 months, this is easy. Quora has many dozens of questions on AngelList, as does OnStartups Answers and of course Venture Hacks, whose founders run AL. 4. The first anchor investor is the hardest. 5. Whens the best time? 6. If you cant dream it, you cant build it. 7. 8. 9. 10. No one can tell your story better than you. 11. 12. 13. 14. 15. 16.

European startups: Here’s how to (not) raise capital in the US Editor’s note: This is a guest post by Stefano Bernardi, who is on the founding team of Betable, where he heads Customer Development. Previously, he worked in venture capital in Europe. He is a part-time hacker, angel investor, and product advisor, and was selected from more than 300 people to “shadow” Dave McClure at 500 Startups. You can check out his blog and follow him on Twitter. If you’re a European and work in tech in San Francisco, every summer you’ll be inundated with dozens of emails from friends, contacts and unknown European entrepreneurs who will ask you for advice and introductions to US investors for their classic VC fundraising trip. I’ve been in San Francisco less than two years, but I’ve met with countless entrepreneurs during their fundraising trips and I believe I now have a statistically significant pool of data and experiences to analyze, in order to save time and money to the ones who’ll follow. But it’s not all doomed. Put yourself in the shoes of a US investor

How We Raised $1.3 Million As First-Time Founders When Jim and I quit our finance jobs to start the next big thing, we were really unprepared for our startup journey. We didn’t have startup experience, we had no real domain expertise (our startup wasn’t going to be about finance), and we didn’t know any investors in the tech community. There was very little reason for them to want to invest in our startup. Exactly three years later, we raised $1.3 million for Yipit, a daily deals aggregator, from Ron Conway and David Lee’s SV Angel, RRE, DFJ Gotham, IA Ventures, and a handful of other amazing tech investors. This post isn’t about the tactics we used once we started getting interest — I’ll share that with you later and you should check out VentureHacks. Note: We didn’t think of raising money as a goal. Below are the the key moments in our journey: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Getting Traction was HUGE As you can see, getting traction was huge for us.

Does Your Startup Have a Good Story? Never underestimate the importance of having a good story when pitching your startup to potential investors, clients, partners, and journalists. As Seth Godin writes in his 2005 bestseller All Marketers Are Liars, "Either you're going to tell stories that spread or you're going to become irrelevant." Godin's book addresses a shift in marketing - away from simply presenting factual information and towards telling great stories. As Godin suggests, these stories make us want to believe - in a product, in an idea, in a company. As you craft a story for your startup - whether it's to be used in marketing, in a pitch to investors, or in conversation with friends and family - here are some things to keep in mind. Your story should be short. Your story should be easy to tell. Your story should be memorable. Your story should make an argument. Your story should be strategic. Your story should be relevant. How to Tell a Good Story You startup should have a good story.

Inside versus outside financings: the nightclub effect cdixon.or At some point in the life of a venture-backed startup there typically arises a choice between doing an inside round, where the existing investors lead the new financing, or an outside round, where new investors lead the new financing. At this point interesting game-theoretic dynamics arise among management, existing investors, and prospective new investors. If the company made the mistake of including big VCs in their seed round, they’ll face this situation raising their Series A. If the company was smart and only included true seed investors in their initial round, they won’t face this issue until their Series B. Here’s a typical situation. This is what I call the nightclub effect*. Now the inside investors have 3 choices: 1) Lead the financing themselves. I’ve come to think that the best solution to this is to get the insiders to explicitly commit ahead of time to either leading the round or being willing to back down from their pro-rata rights for the right new investor.

5 legal mistakes startups make while raising capital | VentureBe (Editor’s note: Scott Edward Walker is the founder and CEO of Walker Corporate Law Group, PLLC, a law firm specializing in the representation of entrepreneurs. He submitted this column to VentureBeat.) A reader asks: We’ve been bootstrapping our startup and have pretty much run out of money. We have a few friends and family members who said they would buy some stock to help us out. We also thought we could put something up on our website and tweet about selling our stock. Answer: Any time you are raising capital you need to make sure you’re complying with applicable securities laws, which are very complex. Advertising or soliciting investors. “General advertising” includes any ad, article, notice or other communication published in a newspaper, magazine or on a website or broadcast over television, radio or the Internet. Based on this, don’t add anything to your website about your startup selling its stock. Selling securities to non-“accredited investors”. Issuing preferred stock.

How to nail the five-minute pitch Editor’s note: Chuck Dietrich is chief executive of online presentation startup SlideRocket. Startup CEOs wear many hats. None, perhaps, is more important than that of “company pitchman.” In today’s competitive funding climate, CEOs often present at events like Under the Radar, South by Southwest, and DEMO –- where they have five minutes on stage to ‘sell’ their company to potential investors, partners, and customers. Getting these presentations right leads to financing, buzz and growth; getting them wrong doesn’t. In my role as CEO of SlideRocket, I view hundreds of presentations a week and thousands over the course of the year. So how do you make a great startup presentation? 1. Critical questions to answer during your presentation include: What is the company vision? 2. 3. The Basic Pitch Outline Following is a sample outline that I have seen many successful startup presentations follow. At pitch events, you have just five minutes to stand out from the other presenting companies.

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