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Institutional Knowledge Read a blog post

“It’s Standard” “If Slide is worth $550M...”

 Leverage
• Two + termsheets
• Independent
• Credible investors
• Create a market for
your shares!
“Raising venture capital is the art of younger
men seducing older men”
- Anonymous
 The Timeless Art
• Social Proof - “We’re meeting Sequoia next
week”
• Authority - “Marc Andreesen is an angel”
• Scarcity - “Only room for one investor in
this round”
• Desirability...
 Five Quick Tips
• Great team (check the mirror)
• Pick a big market (now!)
• Even angels don’t fund niche plays

• Do something hard
• Have a plan for distribution
• Stay close to the money
 The Pitch

Your 50-page business plan doesn’t matter

• One-liner; executive summary
• 10 slides
• Financials; micro-economics
 The Approach

Get introduced...
...to the Partner...
...from someone they respect...
...at roughly the same time.
 Synonyms for “NO”
“Maybe” “Later”

“We’ll follow a credible

“NO” lead”

“Come back when you have more progress”

“It’s not you, it’s me”

“We need to see a CEO”
 “Value Add?”
Smart money
• Wisdom, not Intelligence and Energy

Money
Dumb Money
• Most likely to trumpet value add

Unbundle control, advice, and money -

advisors are a bargain!
1. The Board of
Directors
Valuation is temporary

Control is forever
“Trust, but Verify”
- Ronald Reagan
“The line between good and evil is permeable
and almost anyone can be induced to cross it
when pressured by situational forces.”

Philip Zimbardo,
Stanford Prison Experiment
 Rules of Thumb
• Make the Board Composition Proportional
to ownership
• Independents usually aren’t
• Create a new seat for a new CEO
• Control is a one way street, from Common
to Preferred
 2.Valuation
Learn to signal gracefully

Purely supply and demand

Ignore outliers

Money has karma too!

3. The Option
Pool Shuffle
Convert apples-to-apples

Take the post-money option

shares out of the pre-money

$6M pre-money
$4M raised
25% post-money pool
=
$3.5M pre-money
 4.Vesting is
Testing
With board control, it’s a
founder issue

4 years, some credit, single

trigger, double trigger
 5. Liquidation and Anti-
Dilution
• “Standard” is 1x, Broad-Based Weighted
Average
• Designed to protect investors from quick flips
and overpriced rounds
• Can change the terms dramatically!
• Great potential for mischief in private-private
transactions
 6. Protective
Provisions

AKA The Fine Print

Protect minority shareholders

Hack 1: Sale ok above a certain

price

Hack 2: Fundraising ok above a

certain price
 7. Expiration
and Non-
Disclosure
“We made a commitment to the
other investors to give them
time to do their diligence”

Either the termsheet is binding

or it’s not...

...but it’s very bad form to shop

 8. Counsel

Get your own advocate

There are “entrepreneur

friendly” ones available

Draft the docs

Cap the fees

9. The New, New Thing
• RoFR - Spend now, pay later
• Super Pro-Rata - Huge option value,
negative incentives
• One-sided confidentiality
• One-sided binding termsheet (pending
diligence!) - placeholder
• Stock repurchase at FMV
 10. Don’t
Forget...

83(b)

Right to transfer / diversify

Founder Preferred
 In Parting
• Line up your options
• Keep control
• Friendly investors don’t deliver hostile
termsheets!
• Raising money is the easy part. Returning
it...
• nandn@venturehacks.com