Venture Deals

A "round" refers to a specific instance of funding that a startup company raises from external investors. For example, a company may raise money in a "seed round," a "series A round," and so on. These rounds of funding represent distinct...

A "round" refers to a specific instance of funding that a startup company raises from external investors. For example, a company may raise money in a "seed round," a "series A round," and so on. These rounds of funding represent distinct stages in a startup's growth and development, with each round aimed at securing capital to fuel various aspects of the business, such as product development, marketing, scaling operations, and more.

An implementation demonstrating a product for feasibility demonstration but generally not ready for customer deployment (which would be the Minimum Viable Product).

An implementation demonstrating a product for feasibility demonstration but generally not ready for customer deployment (which would be the Minimum Viable Product).

A Minimum Viable Product (MVP) is the most basic version of a product or service that can be created and released while still providing value to early users or customers. The primary goal of building an MVP is to quickly validate assumpt...

A Minimum Viable Product (MVP) is the most basic version of a product or service that can be created and released while still providing value to early users or customers. The primary goal of building an MVP is to quickly validate assumptions and test hypotheses about the product's viability, market demand, and potential for success with real-world users.

A follow-on investment is investing in a subsequent company fundraising round.

A follow-on investment is investing in a subsequent company fundraising round.

A flat round refers to a funding round in which a startup company raises capital at a valuation that is roughly the same or very similar to its previous funding round. In other words, the company's valuation remains "flat" or unchanged f...

A flat round refers to a funding round in which a startup company raises capital at a valuation that is roughly the same or very similar to its previous funding round. In other words, the company's valuation remains "flat" or unchanged from the previous round of investment. While a flat round may indicate challenges or cautious sentiment, it's important to note that securing funding, even at a consistent valuation, can still provide valuable capital to a startup. However, for startups seeking substantial growth and aiming to increase their valuation significantly, a flat round might not be the ideal outcome.

An exit is the sale or exchange of a significant amount of company ownership for cash (or for debt and/or equity of another company). Exits are a fundamental part of the venture capital investment cycle and allow investors to monetize th...

An exit is the sale or exchange of a significant amount of company ownership for cash (or for debt and/or equity of another company). Exits are a fundamental part of the venture capital investment cycle and allow investors to monetize their investments and generate returns on the capital they have deployed. For VCs, an acquisition and an IPO are the two basic exits of an investment.

What the investor does to evaluate a potential investment opportunity.

What the investor does to evaluate a potential investment opportunity.

A down round refers to a funding round in which a startup company raises capital at a lower valuation compared to its previous funding round. Down rounds can occur for various reasons: performance concerns, market fluctuations, financial...

A down round refers to a funding round in which a startup company raises capital at a lower valuation compared to its previous funding round. Down rounds can occur for various reasons: performance concerns, market fluctuations, financial pressures, etc. It's important to note that while down rounds can be challenging, they are not necessarily indicative of a startup's long-term potential. Some successful companies have faced down rounds at various points in their history but managed to recover and achieve significant growth.

A spreadsheet that breaks down who owns what in a startup. This may also include the calculations for ownership, dilution and liquidity for previous and future rounds. A well structured cap table is extremely important and should be revi...

A spreadsheet that breaks down who owns what in a startup. This may also include the calculations for ownership, dilution and liquidity for previous and future rounds. A well structured cap table is extremely important and should be reviewed by investors as part of a due diligence process: • Capital journey:  is there adequate equity for future rounds of fundraising, do the founders and key stakeholders maintain meaningful ownership, or will some significant dilution be required? • Transparency - who are the current and previous investors, are there any with controlling positions (how are thier interests aligned?), are there any indications of disproportionate ownership positions or inconsistent valuations? • Is there an adequate employee option pool? • If the cap table is sub-optimal it can be a significant barrier to investment - it is better to fix this sooner rather than later. A useful resource is the Cap Table and Exit Waterfall Tool Excel model from https://foresight.is/cap-table/

Rate at which a company consumes cash, typically expressed monthly. Gross Burn Rate is total  each month, including all operating expenses: salaries, contractors, legal, rent, marketing, R&D, software licenses, cloud/hosting etc. Net Bur...

Rate at which a company consumes cash, typically expressed monthly. Gross Burn Rate is total  each month, including all operating expenses: salaries, contractors, legal, rent, marketing, R&D, software licenses, cloud/hosting etc. Net Burn Rate is Gross Burn Rate minus any earned revenue.

Describes the rate at which business proposals and investment pitches are being received by a firm.  Inbound opportunities may come from pre-existing networks or relationships, word-of-mouth within the startup community, investor referra...

Describes the rate at which business proposals and investment pitches are being received by a firm.  Inbound opportunities may come from pre-existing networks or relationships, word-of-mouth within the startup community, investor referrals, proactive research, conferences and events, or old inreach from the web, social or professional networks. Dealflow to investment ratios vary widely by geography, market segment, stage and channel. A typical US-based VC firm will see approximately 100 deals for every investment.

Crowdfunding is the process of raising capital for a venture or a startup via smaller amounts from many investors (“the crowd”). The capital can be provided without the expectation of financial return, or in exchange of a specific good o...

Crowdfunding is the process of raising capital for a venture or a startup via smaller amounts from many investors (“the crowd”). The capital can be provided without the expectation of financial return, or in exchange of a specific good or service. Successful crowdfunding campaigns often require effective marketing, storytelling, and engagement to attract a sufficient number of backers.

Bootstrapping refers to the practice of starting and growing a business without external funding. Instead of relying on external investors, entrepreneurs use their own savings, personal funds, revenue generated by the business, and resou...

Bootstrapping refers to the practice of starting and growing a business without external funding. Instead of relying on external investors, entrepreneurs use their own savings, personal funds, revenue generated by the business, and resourcefulness to fund the company's operations and growth.

Independent formal appraisal of the fair market value (FMV) of a private company’s common stock (the stock reserved mainly for founders and employees). Named after Section 409A of the U.S. Internal Revenue Code, it's required by the IRS ...

Independent formal appraisal of the fair market value (FMV) of a private company’s common stock (the stock reserved mainly for founders and employees). Named after Section 409A of the U.S. Internal Revenue Code, it's required by the IRS to ensure that stock options and other equity-based compensation are being issued at fair market value.

Yes, you can call that markup

Yes, you can call that markup

This is market specific. Here are some VERY general #s of what we have seen: In developed markets, it’s not uncommon for Series A tickets to be $5m+ In emerging markets, Series A tickets tend to be $2m+.

This is market specific. Here are some VERY general #s of what we have seen: In developed markets, it’s not uncommon for Series A tickets to be $5m+ In emerging markets, Series A tickets tend to be $2m+.

This is basically an LOI developed by one of our Alumni who will join us on Wednesday’s webinar. 1. The SAFE that you can find online 2. No. But you will need to be pretty close to closing to use this strategy…

This is basically an LOI developed by one of our Alumni who will join us on Wednesday’s webinar. 1. The SAFE that you can find online 2. No. But you will need to be pretty close to closing to use this strategy…

your example is ok to warehouse

your example is ok to warehouse

I recommend that you don’t sign term sheets (binding or non-binding) unless you are confident that you are going to wire. It creates a very bad dynamic between you, and the entrepreneur (who may have an unrealistic expectation here also)...

I recommend that you don’t sign term sheets (binding or non-binding) unless you are confident that you are going to wire. It creates a very bad dynamic between you, and the entrepreneur (who may have an unrealistic expectation here also), and if the deal does not happen you may have reputation risk which is not good for your brand. If you hold yourself to the highest ethical standard, you will win in the long run. :muscle:

You need to have your own Deal Pathways that generate high quality dealflow that are unique to you and to your VC firm. Then, you need to test and refine your Deal Pathways to help you find Rockstars. You need to be reviewing a couple v...

You need to have your own Deal Pathways that generate high quality dealflow that are unique to you and to your VC firm. Then, you need to test and refine your Deal Pathways to help you find Rockstars. You need to be reviewing a couple very high quality deals per week to find one that will stand out with LPs. The difficulty level closing your fund depends on the dealflow that you have. If you have two or three exceptional companies in your Deal Warehouse, this will make closing easier. Sharing what gets someone unique dealflow in biotech won't really help someone with SaaS or FinTech.

This depends on whatever process you want and whatever your LPA says. Most new managers make all of the investment decisions unless there is a conflict of interest, and then an LPAC (Limited Partner Advisor Committee) needs to approve. A...

This depends on whatever process you want and whatever your LPA says. Most new managers make all of the investment decisions unless there is a conflict of interest, and then an LPAC (Limited Partner Advisor Committee) needs to approve. Again, this is dependent on the LPA. Read the Cornerstone LPA if you are interested in learning more.

If you are going to make a personal investment, you can use it. If your plan is to invest from the fund, you can't because you don't have a fund.

If you are going to make a personal investment, you can use it. If your plan is to invest from the fund, you can't because you don't have a fund.

This is the industry standard, as it allows you to memorialize why you do a deal. Deals often take many years to create liquidity, and it is important to be able to analyze your decision making process many years in the future. They are...

This is the industry standard, as it allows you to memorialize why you do a deal. Deals often take many years to create liquidity, and it is important to be able to analyze your decision making process many years in the future. They are not required. However, Limited Parrners do expect them and often ask to see them.

For SAFE rounds, in many cases the SAFE itself is the term sheet. For priced rounds, NVCA model documents include a term sheet https://nvca.org/model-legal-documents/ . The more standard deal documents are, the more streamlined and lower...

For SAFE rounds, in many cases the SAFE itself is the term sheet. For priced rounds, NVCA model documents include a term sheet https://nvca.org/model-legal-documents/ . The more standard deal documents are, the more streamlined and lower cost the legal process will be. References "Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist" and "The Business of Venture Capital: The Art of Raising a Fund, Structuring Investments, Portfolio Management, and Exits" provide detail on all aspects of term sheets.

Exits were possible as early as the Series A for total success stories through secondary transactions when the overall startup market was frothy. Frothy times are gone for the time being. Assume that you need to hold until the company i...

Exits were possible as early as the Series A for total success stories through secondary transactions when the overall startup market was frothy. Frothy times are gone for the time being. Assume that you need to hold until the company itself exits, which will be 8 to 12 years out for a startup studio. Lemons will ripen first, as they saying goes, so you may have some 2x to 3x returns in 3 to 5 years. Startup studios take a loooooong time to get any liquidity, since they are so early in the formation and funding process.

It's generally not appropriate to ask if fund x is investing, but it is appropriate to ask if others are investing. However, most good founders will not disclose for the same reason you wouldn't disclose your LPs.

It's generally not appropriate to ask if fund x is investing, but it is appropriate to ask if others are investing. However, most good founders will not disclose for the same reason you wouldn't disclose your LPs.

You need to apply a very consistent rule to which of your previous investments are warehoused into the fund, you can't pick and choose.

You need to apply a very consistent rule to which of your previous investments are warehoused into the fund, you can't pick and choose.

Your costs will be higher because you will need local counsel and probably local tax advice (in addition to counsel for your fund). Legal agreements may be differently drafted, require different procedures, etc. Your LPs may also face si...

Your costs will be higher because you will need local counsel and probably local tax advice (in addition to counsel for your fund). Legal agreements may be differently drafted, require different procedures, etc. Your LPs may also face similar challenges. 

cap adjusted projection

cap adjusted projection

You don't necessarily need an IC. If you want it, you can build it however it's up to you how you build it. Some have only the GPs. Others have an LP and others have a set of key individuals that are uniquely qualified to do well. That...

You don't necessarily need an IC. If you want it, you can build it however it's up to you how you build it. Some have only the GPs. Others have an LP and others have a set of key individuals that are uniquely qualified to do well. That being said, you don't need one, and it depends on your investment strategy and pace.

Offering the opportunity for your LPs to invest along side your fund (if there is additional room in the round) or in following rounds can provide additional value to both your LPs and portfolio companies. In these cases, you may want to...

Offering the opportunity for your LPs to invest along side your fund (if there is additional room in the round) or in following rounds can provide additional value to both your LPs and portfolio companies. In these cases, you may want to consider an SPV to roll up these investments and take carry. This should be clarified in advance.

VCs typically don't sign NDAs. Given how many deals they see, it's just not prudent to so usually. There are exceptions to all of this of course, but it's uncommon.

VCs typically don't sign NDAs. Given how many deals they see, it's just not prudent to so usually. There are exceptions to all of this of course, but it's uncommon.

For investors, it’s definitely post money SAFE because they set a fixed ownership percentage.

For investors, it’s definitely post money SAFE because they set a fixed ownership percentage.

It’s reasonable for you to invest in companies that are incorporated in Delaware. A lot of companies in LATAM do this because it gives them access to international investors. That being said, it really depends on your strategy and deal f...

It’s reasonable for you to invest in companies that are incorporated in Delaware. A lot of companies in LATAM do this because it gives them access to international investors. That being said, it really depends on your strategy and deal flow. If most of your Columbian deal flow is incorporated locally, you may not have a choice and they you may have to choose for efficiency purposes. Please be sure not to provide any tax advice to prospective portfolio companies or LPs alike. 

The amount is not as important in warehouse deals, what’s more important is markups. Let’s say that you invested 10k in warehouse deal, but now that position is up 30x. That’s a meaningful markup for your LPs that they would get at cost....

The amount is not as important in warehouse deals, what’s more important is markups. Let’s say that you invested 10k in warehouse deal, but now that position is up 30x. That’s a meaningful markup for your LPs that they would get at cost. And, if you can follow into deal or have pro-rata, that’s even better.  You are going to need to set clean and consistent rules about the deals you warehouse because you can’t cherry-pick. So, for example, you can say, all deals in 2022 will get moved into the fund. You CAN NOT warehouse an SPV.

You should try to invest in personally. Investing with an LP doesn’t usually work and it’s not that beneficial for the LP.

You should try to invest in personally. Investing with an LP doesn’t usually work and it’s not that beneficial for the LP.

You should offer the LPs in Fund 1 the opportunity to invest first. You will also need LPAC approval if Fund 1 has reserves. 

You should offer the LPs in Fund 1 the opportunity to invest first. You will also need LPAC approval if Fund 1 has reserves. 

Unfortunately, you will not be able to calculate a markup here.

Unfortunately, you will not be able to calculate a markup here.

The Taylor Davidson Runway Budgeting Tool can help plan. As an investor, you're looking for this investment to bring the company to a significant milestone where next round investors will be motivated to invest. Investment usually takes ...

The Taylor Davidson Runway Budgeting Tool can help plan. As an investor, you're looking for this investment to bring the company to a significant milestone where next round investors will be motivated to invest. Investment usually takes longer than planned, so having next-round conversations earlier and lining up those investors is a key value of pre-seed/seed stage VCs.