I was at a gathering of most of Canada’s VC fund managers a few weeks ago in Vancouver. One of the fund managers talked about something I have seen firsthand. He referred to it as the “oh shit” board meeting.
This meeting is typically the first meeting after the funding round has closed. No longer having to sell and spin, the management team can speak candidly about what’s going well and more often, what’s not.
Fundraising is a delicate balancing act. Investors generally discount your projections, which creates a temptation to inflate them (and the discount because companies inflate. It’s a vicious circle). But, they can get upset when you miss your projections. What do you do?
If you create realistic projections, you run the risk of investors still discounting them, assuming you’re not a high growth business, and passing. If you pump up your forecasts, then you run the risk of inflating expectations and not meeting them.Continue reading The “Oh Shit” Board Meeting
All VC deals come with features and provisions that are designed to help investors get comfortable making a multi-year, completely illiquid investment into your highly risky startup.
Typical protective provisions include things like:
Liquidation preference: On exit, the investor has the choice of getting their capital back or converting their pref shares into common and just getting their portion of the exit price.
Redemption: Some kind of mechanism to enable the investor to get their capital back after some period from time. This could range from the benign (you agree to convene a committee of the board X years from now to determine – with no obligation to act – whether it’s time to sell the company), to the non-trivial (the investor can force the company to buy back their shares, likely triggering a variety of unnatural events up to and including the sale of your company).Continue reading Managing Investor Protections: What you need to know
If you want advice, ask for money. If you want money, ask for advice
I had a call this morning with a young entrepreneur. Like many founders he has a seed stage startup and is not sure about the best path to get to series A.
As we talked about where his business was at and how he’s thinking of approaching investors, I shared some advice that I’d like to share here. That advice is based largely on the above pithy, but true quote.
There are a lot of seed funded companies out there. Not all will get to the next level of funding. The best way to maximize your chances of getting more venture capital is to know exactly what the next stage of capital is looking for. Continue reading How to raise your next venture round
One of my companies is doing the tour of Sand Hill Road this week, meeting with the best of the best firms. I woke up this morning to read an email they had shared with their entire company highlighting who they’d met with, what had been discussed, questions, issues, possibilities, etc, etc. I love this!
So often the fundraising process is the big elephant in the room. Everyone knows it’s happening and that it’s super important. But they have no idea what’s happening, who you’re meeting with, etc. And of course, we fear what we don’t know. So, when we know something important is going on but don’t know how it’s going, then we fill that void with speculation.