The Two Percent Rule

Many founders out there that struggle with how much equity to give to executives they want to hire following a seed stage or Series A financing. There always seems to be a huge rush following a financing to hand out equity, which in turn inflates the numbers. In this post we discuss the simple things to do to prevent this from happening to your startup.

How to Save Money on Your Legal Bills

Many startups pay very close attention to their “burn rate,” the rate at which they spend money.  A startup’s burn rate is indicative of how much runway a company will need once it starts looking for outside financing.  One component of the burn rate is legal spending.  Many, many founders lament how quickly and easily they can burn through funds spent on required legal services, such as key customer or partner contract reviews, preparation of funding paperwork and general corporate governance documents.  Below are three major ways which you save some money on legal costs. Be Specific. If you need a contract reviewed or a document drafted, be precise in your instructions to your attorney. …

The SEC Proposes Rule Defining “Venture Capital Fund”

Today, the Securities and Exchange Commission (SEC), announced a proposed rule that would define “venture capital fund.” This definition is important because it basically determines whether or not VCs will have to register with the SEC as investment advisers. First, a little background. On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (known as the “Dodd-Frank Act”) was signed into law.  Prior to the Dodd-Frank Act, a VC would not have to register with the SEC as an investment adviser provided the VC had fewer than 15 clients, did not hold him or herself out to the general public as an investment adviser, and did not act as an investment adviser to…

Rules of the VC Game, Part 2: The Size of the Fund Matters

This is the second article in a series of posts intended to provide entrepreneurs and startups with background knowledge about venture capital financing. Many entrepreneurs and startups nowadays are very skeptical about taking VC money, and with good reason.  Not only do you have to worry about the terms of the specific deal, but also your company’s short and long term goals and how well they align, or don’t, with the VC’s financial interests.  Most of the time, there is no alignment whatsoever.   That doesn’t mean you don’t seek VC money, but instead it means that you have to proceed cautiously when you decide to accept this form of investment.  Specifically, when determining whether a…

Rules of the VC Game, Part 1: The Path to the Door is Important

Do you think you have a killer idea for a new business?  Do you think that’s enough to secure funding for your idea?  Think again.  As the interview with Jeffrey Bussgang, the founder of Upromise shows, the old adage that VCs bet on the jockey, not the horse still holds true. While spending a lot of time on your cutting edge product or service is important, networking and who you know is more important, at least if you would like to secure VC funding.  According to Bussgang, the path to a VCs door is important.  VCs feel compelled to accept meetings with entrepreneurs who come recommended either by a entrepreneur that previously made money for…