Venture Financing

Your Startup Isn’t Worth Your Valuation Cap

valuation cap goes up in smokeI’ve heard many entrepreneurs claim their startup to be worth $X million, based on the “valuation cap” [Note the bold, underlined, italicized text!] they received in a recent convertible note financing. Don’t make this mistake!

Take a minute to consider how the valuation cap works. In a typical convertible note, investors convert into shares of preferred stock at the lower of (1) a discount to the price paid by preferred stock investors (typically 20%), and (2) the valuation cap. So your valuation cap is really the HIGHEST price a noteholder can possibly pay upon conversion. If I say “the most I’d ever pay for your sh*tty car is $1,000,” your car isn’t suddenly worth $1,000. I simply don’t think it’s worth a penny more than that.

But who cares?! I promise I wouldn’t be wasting your time if it didn’t matter.

Blue Collar Startups

5 Startup Mantras That Are Hurting Entrepreneurship

Startup Mantras Are Hurting EntrepreneurshipStartup culture (and the startup mantras it peddles) has never been hotter.  I recently (and embarrassingly) watched back-to-back-to-back episodes of Shark Tank, West Texas Investors Club and the Profit – all on a single channel. You can thank (read: pay) me later, CNBC.

However, the reality is that entrepreneurship (in the United States) has been steadily declining since the Great Recession. For the first time since the 1970s, more business are dying each year than are being created. (Source: Kaufman Foundation).

We are not creating enough new businesses…or too many business are dying…or both. And these 5 startup mantras are (partially) to blame.

Venture Financing

Land Investor Introductions With This One-Two Punch

294HEveryone knows that you’re supposed to get introduced to angel investors and venture capitalists – before simply cold-emailing (or Twitter stalking). We hear it from entrepreneurs and we hear it from investors (Chris Sacca’s Lowercase Capital has NEVER invested in a company that approached via [cold] email).

What we don’t hear enough about is “how do I actually get introduced?” If you’re a veteran of an established startup ecosystem, this isn’t a problem. But for first-time entrepreneurs or those located outside the established ecosystems, landing investor introductions can be a make-or-break hurdle for your startup.

Here are two tips to land investor introductions…they might be closer than you think.

Team Building

Act Like Big Business to Launch Startup Recruiting

262HAny solo founder who has tried to raise financing knows the conundrum: Investors want to invest in a team and recruits want to join investor-backed startups. It’s the classic chicken-and-egg problem. While this problem is peculiar to early-stage ventures, the solution may come from the Fortune 500.

In big business, experienced executives set strategy and their junior colleagues execute the tactics. There’s a clear division of labor. Founders of early-stage startups are indoctrinated to be “lean,” so the thought of recruiting multiple people to fulfill one particular role seems counterintuitive. We want to hire one rockstar with the experience to guide strategy and the time (and risk tolerance) to execute the tactics. If this is your strategy, I’d advise keeping your day job for now.


Just Another Startup Blog?

282HI know, I know…there’s already too much content floating around, especially when it comes to startups. Trust me, (it feels like) I’ve read it all – from paradigm-shifting principles to shameless self-promotion. At each of these extremes (and everywhere in between), there’s something missing. With authors preoccupied with proving (to themselves) how smart they are or demonstrating (to us) why we’ll fail miserably without them, few dare focus on the lowly blocking and tackling that goes into launching and growing a startup – it’s just not Musk enough (the man, not the grandfatherly scent). I can find dozens of articles on “how to raise venture capital,” all of which recommend that I seek an introduction from a mutual contact before cold emailing. Good advice? Yes. Helpful? Not at all. Now google “how to get introduced to VCs” and see how many articles you find. It’s this gap between theory and practice that I’m hoping to close…inch by inch, post by post.