Allowing Employees To Sell Stock on the Secondary Market
Startups that take a long time to reach an exit should consider allowing employees to sell stock on the secondary market. While many startups launch an exit in the five to seven-year range, many more are still running well past this timeframe. Founders compensated employees with stock options. Employees signed...
How To Handle an Exploding Term Sheet
An exploding term sheet is one that comes with a specific deadline, including a time of day and date. It often gives the founder very little time to make a decision. For founders receiving an exploding term sheet, consider the following: Most of the time, the investor will invest beyond...
Key Factors Impacting Investor Returns
Startup investors seeking higher returns should consider the following factors: Due diligence — there must be a meaningful amount of due diligence performed on the startup before investing to increase the returns. At least twenty hours of diligence should be done for any investment. Diversification — it’s important to invest...
Building a Startup Portfolio
Startup investing requires a portfolio approach. Here are some best practices for building a startup portfolio. Determine how much time and investment dollars to allocate to startup funding. This could be done on a total allocation basis or on a time basis such as annually. Determine how many startups to...
What To Include in a Due Diligence Report
The due diligence report is written by the due diligence team. It covers the financial, operational, legal, and strategic aspects of the startup. A due diligence report for a startup investment contains the following: Market analysis This includes the size, growth rate, sectors, competition, and the startup’s target customer. Product....
Using the Four-Quadrant Slide
In pitching the startup, the founder shows how the business will be positioned in the market. The four-quadrant slide is one tool to show how the startup compares to the competition. Here’s how to set up the four-quadrant slide. Start by identifying the key criteria for customers. This could be...
Why Build a Financial Forecast
Startups should build a financial forecast for their business. Even if the future is uncertain and all the data is not known, it’s still important to build one. Here are the reasons why: It validates the founder’s hypothesis. A founder should have a hypothesis about the business. A financial projection...
Be Founder-Friendly To Gain More Dealflow
Founders live in the center of the startup world and thus see many companies raising funding. A startup investor will do well to tap into the knowledge of founders about other startups raising funding. An investor who treats founders well will find they are often amenable to making referrals. Here...
Founderflow vs Dealflow
Startup investors spend their day looking for quality deals. There are business plan competitions, demo days, and other formats where founders pitch. Then there’s warm introductions and referrals. The quality of these deals tends to be higher. Most investors don’t take time to refer a low-quality deal. Instead of looking...
How To Qualify an Investor for Your Startup
Founders searching for investors need to qualify the investors for their deal. Here are key questions to ask an investor before pursuing your fundraise: Are they currently investing? What was the most recent investment made? How many of your funded companies achieved an exit? How many of those exits were...
