When should you get on the VC train?

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I think we can all agree that the startup industry pays too much attention to VC. Our conferences, press, and tweets are dominated by VC-related news. Which fund just raised more capital? Who got funded? Who’s the latest unicorn? I contribute to that fixation in this blog all the time. 

With the rise of accelerators, the holy grail for young startups these days seems to be to get into YC as early as possible and then go on to immediately raise from VCs post demo day. 

There are certainly some massive successes that have followed this hype-laden path: Airbnb, Dropbox and Gusto are some of the biggest winners that come to mind. Closer to home, YC grad Vidyard is crushing it. But they passed on the hype in the Valley. They came back to Canada and took their time. Continue reading When should you get on the VC train?

Managing Investor Protections: What you need to know

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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

The Three Stages of a Startup

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Back when I was a seed VC I was fond of telling folks that they didn’t have a company yet. I wasn’t trying to be mean. I was trying to instill ruthless focus. Seed rounds are small and runway is measured in iteration cycles. How quickly can you iterate till you have product / market fit?

In my books there are three stages to building a startup. And only the last one has anything do with a company.

Stage 1: Project

You have an idea. You research to test and validate hypotheses and find a pain point in the market. You start building wireframes and mockups. You maybe start collaborating with someone. At this stage you have a project.

Stage 2: Product Continue reading The Three Stages of a Startup

The importance of optionality

MatrixBluePillRedPillIt seems like there is no end to the supply of venture capital these days. Funding rounds are getting larger. The time between funding rounds is getting shorter. For the most part this is all good. As a general rule, my advice to founders and CEOs is: raise what you can, when you can. And now is definitely  a time when companies can raise.

But…it’s important to be mindful of the path that you go down by raising more and more capital. In today’s land of plenty it can be tempting to double down before your company is truly ready. That can lead to issues if you don’t live up the expectations that come with all that money.

CBinsights recently reported a huge increase in the number of companies that have raised $3M *before* their Series A. As you can spreseriesa1ee, this trend is not specific to 2014. It’s been steadily rising for the past 3 years.  There’s a similar trend for companies that raise $6M before series A. Continue reading The importance of optionality