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With the growing number of startups seeking funding, it’s easy to increase your corporate VC fund to capture more deals. Fund sizes in many corporate VCs increase almost every year. For many startups, too much funding can bring unexpected problems. It’s best to start small and grow the fund organically….

Corporate venture capital is venture funding from a company, rather than a fund raised from limited partners. Most corporate venture capital invests for strategic reasons rather than financial ones. Reasons for corporations to invest in startups include the following: – Gain market insight through their startup portfolio companies – many…

Corporate VCs follow the startup cycle with many launching their programs at the peak of the cycle. Most Corporate VCs last about 4 to 6 years, at which point the economic cycle creates a challenging environment for the company. To be successful at running a corporate VC, you’ll need to…

Overall, corporate VCs invest more than traditional VCs by about 2%. Corporate VCs operate the same as traditional VCs with some exceptions: – Corporate VCs seek a strategic advantage rather than a financial return – Many don’t lead funding rounds but only follow them – They bring strategic support to…

Corporate venture capital is an existing business utilizing venture funding to further the company’s strategic objectives. The firm takes an equity stake in startups either through an internal fund or off the corporate balance sheet.  Unlike traditional venture capital, corporate VCs look to gain a competitive advantage for the company…

Corporate venture capital is an existing business utilizing venture funding to further the company’s strategic objectives. The firm takes an equity stake in startups either through an internal fund, or off the corporate balance sheet.  Unlike traditional venture capital, corporate VCs look to gain a competitive advantage for the company…

To ensure an advisor engagement is successful, make sure you set up an advisor agreement. This is a contract between the advisor and the company and defines the work to be done. Here are some key points to consider: Make clear what the advisor will do — bring experience, contacts,…

For family and friends funding, sometimes a promissory note is used to set up a loan. Here are some key points to consider in reading a promissory note: 1. The note summary section establishes the relationship between the borrower and the lender, the date of the note, the total loan…

In negotiating the valuation, it’s important to understand the impact of that valuation on follow-on rounds and the exit. A waterfall analysis maps out the cap table with subsequent rounds of funding. To run a waterfall analysis, create a spreadsheet with the cap table owners and the current fundraise round….

The Cap Table is an important part of any diligence process. In reviewing a startup’s Cap Table, look for these signs of a problem: – The current team has little equity and thus little incentive to see it through to an exit. – The Cap Table is complicated with multiple…

Investors review the cap table as part of their diligence process.  They look for the following in the cap table: The founders have a large enough stake that keeps them motivated. Those who have very little ownership will most likely not stay with it for the long haul. The right…

A fully-diluted cap table shows the impact of the conversion of convertible notes. A convertible note has a date of issue, an interest rate, a discount rate, a valuation cap, and a maturity date.   Upon maturity, the debt typically converts to equity. The conversion is based on the principal amount,…

It’s important to manage your cap table as you go. Fixing it later will cost you time and money. Here are some key points for managing your cap table: Consider setting up your cap table with a provider that keeps track of all transactions in one place. Founders should take…

It’s important for investors to see your cap table in its fully diluted form. The total number of shares issued or outstanding will determine the value of each share from which the shareholder can determine their percent ownership. For startups, issued shares and outstanding shares are the same thing.  Authorized…

If you have too many former founders with stock who no longer work at the startup, then you may need to clean up your cap table.  Due to a lack of a vesting schedule, those founders took substantial tranches of stock without staying long enough to build meaningful value. If…

So, who gets access to the cap table? In general, the CEO, CFO, the board of directors, and investors with information rights get access on an ongoing basis. Attorneys, auditors, and other financial professionals may get access to the cap table for specific projects. Employees generally don’t get access to…

The cap table stands for capitalization table and tracks the equity ownership in a company. It’s important to be able to read a cap table and understand what it says. The key terms to know include the following: – Pre-money – the value of the shares before the investment. –…

Term sheets tend to favor the founder over the investor or the other way around.  Here is how to tell if you have a founder-friendly term sheet: – Valuation skews to the higher end of the market in favor of the founders. – There’s no liquidation preference for the investors….

The cap table tracks the ownership in the company. In applying the company’s equity to the business there are several mistakes to avoid: One – Not vesting the equity over time.  It’s important to set up a vesting schedule for the equity to vest over the duration of the project….

As the startup grows it will add new entries to the cap table including new hires, option pools, advisors, as well as new investors. Here’s a list of potential changes to the cap table to watch for: New hires and options pools must be added. Employees who leave before all…

Cap Table stands for Capitalization Table and tracks the equity ownership in the company. This includes the number of shares each one owns and what percentage of the company it represents. It also lists the total number of shares issued as well as the number of authorized shares by the…

An advisory board is a group of three to five people who provide advice on how to grow your startup. They bring experience, contacts, and domain expertise. Advisory boards help the company grow and succeed. In recruiting for your advisory board, consider the following: Recruit diverse skills, networks, and experiences…

Once you’ve found an advisor you want to bring on board, consider the compensation. It’s important to pay the advisor something for their time and experience. Real work requires real pay. Not all advisors bring the same level of support to the startup. Also, consider that equity increases in value…

In recruiting an advisor, check to see if they have what it takes to be a good one: Have they been through the wringer?   Those who have been tested, such as nearing bankruptcy or going bankrupt will have a deeper understanding of the challenges in running a startup. Will their…

Here are some warning signs you may be talking to the wrong advisor: Their primary business-building experience came two tech generations ago. They have business experience but only in one area such as sales or marketing. They can relate their experience but have difficulty understanding your situation. They have a…

Once you decide you need an advisor, you’ll need to find and select one. Here are some key points to consider: Start with your network and expand out from there. Hold several conversations with the candidate advisor before making a decision. If you need to raise awareness for your startup,…

In working with an advisor for your startup, look for these characteristics: – The advisor has first-hand experience in the industry, running a business, closing sales, and more. – They listen and can relate your problems to actionable solutions. – They have been through the same challenges and experiences as…

In choosing a startup to advise, it’s important to find the right fit. Here are some key points to make sure you are a good advisor to the startup. Spend time with the startup to really understand if you can add value and if they are ready for an advisor….

Advisors take many roles in their work with startups. You can use advisors to fill gaps in the early stage of the startup. Some advisors provide support as informal advisors.  There’s no set goals, meetings, or formal advisor agreement. This is the most common way startups work with advisors. Those…

There are several types of advisors you can choose to help your startup. Here’s a list to consider: The Brand Name – This type of advisor offers their name to your company.   This can be helpful to attract investors, employees, and customers.  They typically bring some value in the form…

Good advisors bring good value to your startup. Great advisors bring great value. Spend time identifying the right advisor. In recruiting an advisor, pose specific questions and gauge the response. How does it rank compared to feedback from other sources? It should be the best or near the best of…

As an investor in a startup, you may want to provide additional value and sign up as an advisor. Here are some key points to consider: – Choose startups that you can help. – Make clear the work you plan to do such as introductions, networking, advising on the domain,…

Advisors can be very helpful to startup founders.  Here are steps to consider in selecting an advisor: 1. Check your company needs for the coming two years and determine what is missing. 2. Look for advisors who add value to the team by bringing the necessary skills and experience the…

Just as you have an ideal customer profile, so you should have an ideal advisor profile. Start with your industry and growth strategy and look for founders who have experience in the same. Look for someone who has already gone through what you are going through now. Start with those…

Advisors can help startups achieve higher growth, avoid problems along the way, and give the founder confidence. Here are some key points in choosing an advisor for your startup: – Avoid the “dabbler”. These advisors want to dabble with startups but don’t have any substantial experience to share. – Avoid…

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…

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…

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…

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…

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…

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…

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…

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…

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…

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….

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…

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? –…

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…

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…

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…

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…