Entrepreneurship

Angel and Strategic Investors While I and others have recently done a number of postings on Venture Capital investors and their relationship with entrepreneurs, I thought I’d do a posting on handling other kinds of investors — angels and strategics. Angel investors. My definition: high net worth individuals who put personal money into a company. The good: they’re typically your friends and family, so they don’t play hardball when negotiating terms. The bad: they’re typically your friends and family, so every dinner party you attend has the potential to morph into an ad hoc investor relations conference. The ugly: you feel awful if you lose their money or dilute them down. Strategic investors. My definition: operating companies (not investment firms)…

Jeff Nolan has a great post entitled Pick Your VC Carefully. A must read for any entrepreneur (or VC for that matter). It’s worth the full read, but his main points are: 1. Pick the right type of investor — big, small and specialized, financial, corporate. 2. Check their references! 3. Make sure you understand how much pull your investor has within his or her firm. All good advice, some overlap with my posting on How to Negotiate a Term Sheet with a VC. My only addition beyond what’s already in that post is that if you’re adding a new investor into a syndicate, make sure you have your existing investors spend time speaking with the prospective investor, both with…

In this Olympic Season, Brad gets the gold medal and possibly world record for longest post with his excellent posting on Participating Preferred securities. Fred gets the silver with his contribution on The Double Dip. Dave Jilk and others share the bronze for their many comments. I won’t add more to the debate but will try to close it by tying together a few of these postings. Fred and Brad both wrote subsequent postings on the related themes of If It Looks Too Good to Be True, It Probably Is and Fantasy vs. Reality. These comments could easily be applied to my thoughts on VCs being silly about bidding up crazy long shot concepts and committing Venture Fratricide. And of…

More thoughts on some of Fred’s and Brad’s points about VC deal algebra, valuation, and liquidation preferences for venture-funded startups. My apologies if this gets a little too technical or too long! On liquidation preference: Preferred stock makes sense, participating preferred makes less sense. Sure, a VC who puts capital at risk in a startup should be entitled to get his or her money out before management and common shareholders who are paid to run the business. But I’ve always had an issue (even when I was in the venture business, although admittedly not as a partner) with the participating preferred security which allows VCs to get their money out first, and then still receive their proportional share of the…

Steve Bayle has a similar posting to my How to Negotiate a Term Sheet posting from a couple weeks ago. While he has a lot of good points, his view is far more cynical than mine. I think an entrepreneur can be friends with his or her investors and board members and that their interests for the company are more often than not aligned. Of course an entrepreneur’s personal career goals may differ from an investor’s goals for the company, but that’s apples and oranges. As long as both parties behave like grown ups, have a healthy dose of self-awareness, communicate openly, regularly, and clearly, and realize that successful business relationships require no less effort than successful marriages, the entrepreneur/VC…