Discussion Topics

Advisors can be helpful to your startup. Here are some key points to consider to determine if you need one: – If you haven’t run a startup before you’ll most likely need an advisor. – If you plan to raise funding, you’ll find advisors add gravitas to the team as well as potential contacts. – […]

The Convertible Note is a commonly used investment structure for funding startups. It’s a short-term debt instrument that converts into equity later. If the issuer wants a debt instrument without conversion to equity, a promissory note would be a better option. With a Convertible Note, the investor receives accruing interest while holding the note. It […]

Equity is used for investment purposes to give the investor an ownership stake in the company. To calculate your ownership percentage you take the number of shares you are purchasing and divide it by the total number of outstanding shares. Another way to calculate your ownership is to use the pre-money-plus-investment-equal-post-money valuation equation. Each share […]

SAFE stands for Simple Agreement for Future Equity. SAFE notes were created to provide a convertible note-like structure for startup funding but without interest rates or maturity dates.  The SAFE note operates like a warrant which gives the investor the right to buy shares in a future-priced round. SAFEs are similar to convertible notes as […]

The traditional method of going public with an IPO is being challenged by a new model called a Direct Listing.   The IPO is typically run by an investment bank which hypes the new offering to investors to create a market. This oversubscription creates artificial demand for the stock.   After launching the IPO, the issuing company’s […]

In raising funding or selling your business you may consider using an investment banker.  Here are some key points to consider in making the decision: They can build out the dataroom and do the appropriate research of competitors and comps.  An investment banker can create competition for your acquisition thus raising the buyout value.  Fees […]

In negotiating the exit with an acquirer, you’ll need to know the following: 1. Key metrics about your business, both those that show the company in a positive light as well as a negative one. 2. The total addressable market for your company. 3. The top three opportunities your company can attack. 4. The company’s […]

Most startups are launched with the idea of selling the business for a substantial gain in five to seven years. Many companies reach that stage and find they can’t sell the business, at least not for the price they want. Here are some options: – Reduce your burn rate to zero and keep running the […]

In setting the exit, most investors look to maximize the exit value. It’s important to remember that the metric investors use, IRR or Internal Rate of Return, has a time component to it. The faster the exit, the higher the IRR. As an investor, consider pursuing the highest IRR and not just the biggest dollar […]

Most exits come from another company buying the startup.  It takes six months to a year to complete a buyout. Delays often come from the startup not being prepared or ready for the M&A process. Also, setting a valuation and final terms can take substantial time for research and negotiations. To shorten the time consider […]

In selling a business there are two types of buyers: strategic buyers and financial buyers. Strategic buyers look for companies that can enhance their current business. Financial buyers look for companies that generate cash. Their motivations and careabouts are different. The strategic buyer will look to see how closely the acquisition is to the buyer’s […]

Startups should start planning for an exit after they achieve product-market fit.  Here are some key points to consider when planning your approach to an acquirer: – What are the key metrics the acquirer will look for? – What are the company’s metrics and how do they currently look? – How big is the market […]

There are several ways to exit a business. You can sell the business to another company or investor. This provides liquidity to the owners.    The downside is, it’s not clear what happens to the employees and the direction of the company. You can develop an employee stock ownership plan. This transfers ownership to the employees […]

Most startup exits come through acquisition by another company.  In planning for an exit, you need to develop a strategic plan that prepares your business for the target acquirer. Here are some key steps: Identify the target acquirer and make contact with the CEO and VPs of the company to discuss a potential acquisition in […]

Investors should gain alignment with the startup about the exit before making the investment. This includes the size and timing of the exit. There needs to be some clear thinking and research about who will buy the company and how much they will pay.   The investors and the startup need to work together to achieve […]

There are several options for selling your business. Here are some of them: Strategic – This is a buyer that buys your business as it provides strategic value for their company. Financial  – This buyer looks solely at the financials, in particular, the cash flow, and buys the company without consideration to the strategic implications […]

Even in the early days of the startup, the CEO must keep in mind the exit.  The investors funded with the anticipation of a return. While the vision of an exit may seem like a distant future, the decisions taken at the beginning often impact the exit at the end. Selection of business model and […]

Startup investors look for an exit in the 5-7 year range. As a startup, you need to consider the exit from the beginning as the exit strategy can inform your decisions around funding, hiring, and more. Here are several exit options to consider: – Mergers and acquisitions – most companies exit by being bought by […]

Here are some key steps to take in planning the exit for your company: – Understand why you are exiting the business.   – Is this exit going to be seller motivated or buyer motivated? – Explore the options. Consider who would be the best acquirer or which company would be best to merge with. – […]

There are many reasons to exit the business. Here are some key ones to consider: – The company is ready to go IPO. By taking the company public, new ownership comes into place. – The market has changed dramatically putting the future of the business into question. – The business failed and can no longer […]

For every business, there comes a time to sell it. Ask these questions to find if now is the right time to sell your business. Do you still want to run the business? You may want to move on to new projects and opportunities and the current business may no longer be fulfilling. Do you […]

Startups have a high failure rate. What percentage fails? Out of 100 startups/investments: -75 will fail or turn into a lifestyle business within 2 years  -25 will remain on the venture track after 2 years Of those 25: -half will die or turn into a lifestyle business between years 2-4 -15 will remain on the […]

Running a fundraise with investors is similar to running a sales funnel with prospects. You must take the investor through the stages of awareness, interest, desire, and commitment. Here are the steps you need to take: Stage 1: Awareness – identify and contact an initial list of investors. Start with an ideal investor profile. Categorize […]

After you’ve had an introduction and talked with the investor either in person or on the phone, it’s important to follow up with the investor to answer questions, update about progress, and walk through diligence. Investors are not interested in spending time to hear about your forecast, they are looking for updates about your progress […]

In startups, cash is king. It’s the key financial metric to watch. Growth may be going straight up, customer traction may be better than ever, but if cash runs out then it all comes crashing down. Cash management is a daily exercise.   The first step is to understand every inflow and outflow of cash.   Set […]

Platform products facilitate two-sided marketplaces that match buyers to sellers.   The most common metrics used in platform products are buyer/seller metrics, inventory metrics, and transaction metrics. Buyer/seller metrics include the number of buyers and sellers on the platform. Also, the growth of buyers/sellers and the number of repeat buyers/sellers should be measured. For inventory, metrics […]

Many startups use SAFE notes and Convertible Notes for their early-stage investments. So what’s the difference? A convertible note is a debt instrument that converts into equity later upon an event such as raising an equity round or reaching a maturity date. A SAFE is a Simple Agreement for Future Equity which is a warrant […]

Storytelling is a key skill for any startup raising funding. In the early days of a startup, the product and team aren’t fully developed and customers are typically not fully engaged.   The investors look to the founders to understand the potential of the business.   The founder who can articulate a clear vision of the company […]

In seeking a buyer for the company, there are two basic choices: a strategic buyer or a financial buyer.   The strategic buyer is typically a company in your industry that is seeking to acquire technology, teams, a customer base, or brands. They will look at those aspects of your business for a potential fit with […]

After you complete your fundraise and thanked those who helped you, take time to prepare for the next fundraise. Take the investor prospects, the ones who did not invest, and add them to a list to update every 3 to 6 months about your progress.   Investors are often curious about how the business turned out, […]

After the fundraise is complete, wrap up the current raise by doing the following: 1. Thank those investors who helped you, as many of your contacts made introductions, offered advice, and more. 2. Also, thank team members, friends, colleagues, and providers who assisted you.  3. Close up the due diligence box and store it where […]

I’m often asked what return angels and venture capital investors seek in their startup investments. Angels generally seek around a 30% IRR (Internal Rate of Return). That would be 3X their investment in four years. For longer timeframes, angel investors will be looking for a 5X-10X return for a startup investment. The longer it takes […]

Investors calculate their returns using metrics ROI and IRR. So what’s the difference? ROI is the return on investment without respect to time. IRR is the internal rate of return which is the return on investment with respect to time. If I invest $100K and 5 years later I receive a return of $300,000, then […]

I’ve seen CEOs pitch and when asked about their numbers, they defer to a CFO or someone else for the answers. This is not a good look for the CEO. Investors want to know you are on top of it, and knowing your numbers is one indication of it. As a startup, you should know […]

In raising funding, you’ll need to propose a value for the equity in your startup. This is called valuation. One way to determine it is to use the liquidation method. Here’s how it works. The exit value is set to the value of the business at liquidation, which means the value of all assets minus […]

In raising funding, you’ll need to propose a value for the equity in your startup called valuation. One way to set a valuation is to use the 5X your raise method. Here’s how it works. Most investors want to see the valuation for their money coming in at 20%-25% of the post-money valuation. This gives […]

In launching your product you have a choice to either set a high price that gives you a high margin, or a low price yielding a low margin for sales. The high price is harder to sell, but you don’t have to sell as many units to make the business profitable. The low price is […]

In running a startup there will be upturns and downturns. Managing a downturn takes a different approach from the upturns. First, seek advice and guidance from others such as investors, mentors, and CEOs. Don’t delude yourself into thinking it’s better than it is and that it will turn around soon. Acknowledge that it’s a bad […]

In a fundraise, one typically uses the same term sheet throughout the raise. From time to time, investors will demand certain rights and conditions.   If there are no investor representations, then you may be able to do so. For some investors, you may need to vary the terms of the raise and use a different […]

In valuing a startup for an investment, it’s useful to find valuations by looking at similar startups. This technique is referred to as ‘comps’ which stands for comparable. This method looks for companies in the same sector and analyzes both exits and investments to determine the current valuation for the segment. This is often a […]

In negotiating the valuation, the investor can use current market comps or comparables to set the initial price. By looking at companies in the same sector and stage, one can find the range of valuations. From there, the investor can raise the valuation based on the values the startup has built already and lower it […]

As an investor, you can often see warning signs of trouble in small ways before they become full-blown in the startup. Here are some of them: – The CFO quits unexpectedly – The paychecks to employees bounce and it’s called an “accounting error” – Information from the CEO becomes limited and they don’t return phone […]

In running a startup, it’s important to focus on the essentials of the business. In your strategy planning, identify the Must-Dos. The Must-Dos have to get done. Beware of the Nice-to-Haves. If you hear yourself saying “wouldn’t it be nice if we did this?”, it most likely will be taking you away from the essentials. […]

Running a startup is hard work. The team must work long hours and often at low pay. This can wear down the team. The CEO should monitor the employees for burnout. Burnout can be caused by several factors: – Work overload — too much work and too little time to do it leaves employees feeling […]

Startups seek to grow as fast as possible. One of the key barriers to growth is the Sales Learning Curve. This learning curve is a combination of the product, marketing, and sales working together to create customer acquisition and a product-delivery system that achieves scale and can be maintained.  In seed-stage funding, the investor looks […]

In launching your startup, you’ll need to determine which sales channel is best for your business. The sales channel is how you reach prospects and then turn them into customers. Most first-time startup founders envision a channel and then assume that’s the best path. Experienced founders know you must research, test, and analyze the channels […]

Choosing a co-founder is an important step in launching your startup. Consider these points before finalizing your decision: – First, understand what are the businesses’ needs and what skills must be recruited. – In the early stages of the startup, you need a complete team — someone building it and someone selling it.   – Choose […]

In planning your startup, consider the challenge you will have in converting users from their current solution to your solution. Customers don’t move to a new product because it’s 10% better. They move because it’s 10X better. Make sure you are positioning your startup to be competitive in the market. To do so, consider 10Xing […]

Pricing the product or service is a key step in running a startup. There are four pricing strategies to choose from: 1. Premium pricing is a price at the upper end of the scale and is used to attract higher-end users. The profit margins are greater here. 2. Low-cost pricing is a price at the […]

I often see founders begin work on their startup by building out their tech platform. Customers will come later they say. I recommend starting with the customer and have them guide you through to the tech platform you need. In the early days, hire a few people to run the process manually.  As the process […]