I have posted a few times on management carve out plans (back in February 2011 and November 2011; wow, time flies!!).
Our portfolio companies routinely adopt carve out plans when the founders/employees equity values are not likely to provide enough incentive to get a company to an exit. This typically results when the company has raised a lot of money and the preferred stock liquidation preference would absorb an out sized portion of the exit proceeds. It can also result from straight forward dilution. Regardless, I am a big fan of carve out plans. There is just no way to get a good exit without a motivated management team and employee base.
Some great carve out plan materials were recently shared with me so I thought best to “memorialize” them in a blog post. Law firms often make startup “legal issues” materials available Continue reading "Management Carve Out Plans"
Howard Morgan (co-founder of First Round Capital and currently chairman of B Capital) spoke at Cornell this past Wednesday. Howard received his PhD from Cornell in operations research in 1968 (I was 3 years old!). He has a wonderful experience set (see this Cornell article).
I have seen Howard speak a bunch of times, and I enjoyed this recent one the best. He gave some really interesting data driven insights on VC and startups, like that timing is the #1 factor in startup company success, with team being the #2 factor. So…..the element of luck is huge as timing is often a factor of luck. I have seen many companies that have almost failed, then struggled to survive for a few years and then hit it out of the park as the market ultimately caught up to the company’s product offering. Continue reading "Its all about the relationships….."
It is highly typical for a startup to have small investors on its cap table. Founders often raise money from friends and family and other angels. That is all well and good….and 100% normal. Without friends and family and angels there would not be many companies for VCs to look at!
The treatment of the friends, family and angels (FFA) as the startup matures and raises larger rounds of financing over time is interesting. And sometimes founders want to protect the financial interests of FFAs. This is completely understandable but not always possible. Here is a quick guide.
- If FFAs only invest at the beginning and do not make any follow on investments as the company raises more $$ then the only real way FFAs make money when the company is ultimately sold is if the company keeps raising future rounds at higher Continue reading "Small Investors"
Hope you are staying warm!
CollegeMagazine just ranked Cornell #10 in group of “top schools for female entrepreneurs.” See https://www.collegemagazine.com/top-10-schools-female-entrepreneurs/.
What is most interesting is that Cornell is the only Ivy in the group….and that the group does not include Stanford or Berkeley….and that 3 of the schools in the list are very small colleges (Babson #1, Mt. Holyoke #6 and Smith #2).
I am not sure of the criteria for the ranking, but like the result non-the-less.
Enjoy your weekend.
Happy Thanksgiving!! Or as I like to say “GobbleGobble!!”.
A friend of mine just sent me this “all in one” resource published by the NYSE called “The Entrepreneur’s Roadmap – From Concept to IPO”. I first saw that it was 321 pages and thought to myself that it would be indigestible to most entrepreneurs. But then I saw how it is was organized and who wrote the various sections. Very digestible!
So here is it. Great reading and resource for any entrepreneur.
I am going to try to address a complex problem in a concise way.
Here is the big problem with investors – they dilute the founders’ ownership in the company. Is this actually a big problem? Well, that answer depends on your point of view.
Let’s cover some basics:
- It is impossible to issue stock to investors without existing shareholders (founders, employees and prior investors) being diluted.
- It is impossible to do a stock for stock business combination without existing shareholders being diluted. But now the diluted shareholders own a smaller piece of a larger pie hopefully.
- If you have issues with dilution then raising outside investment will give you heartburn every time. That is not a good situation to endure.
Given the basics, here is one key subjective data point that I always like to keep in mind: what exit value is going to make
Continue reading "Dilution and Investors and Tension"
Each year Pitchbook runs an analysis of which universities/colleges have the most VC backed alumni. In theory, this should be a measure of the entrepreneurship heft of the given school. Here is their just published report. Highlights:
- Methodology: Pitchbook tracked founders of companies that received a first round of venture funding between January 1, 2006 and August 18, 2017. Large data base.
- Page 4: Cornell ranks 6th for undergraduate programs for the number of VC backed entrepreneurs.
- Page 7: Cornell ranks 6th for dollar volume of VC dollars raised.
- Page 9: Cornell ranks 5th for female founders.
- Page 10: Cornell ranks 14th for MBA programs.
- Page 11: Cornell ranks 3rd for undergraduate founder unicorns (companies with over $1 billion in valuation)
Good reading. Enjoy!
A Buffalo-based business publication just published an article called “Which parts of Upstate New York have the strongest economies? (And which are trailing the pack?)”. Here is a PDF of the article: Upstate NY Strongest Economies
I am obviously delighted with Ithaca’s ranking and proud to be part of this great and growing ecosystem. Things are hustling and bustling here and startups are leading the way!
Personally, I am a fan of accelerator programs. There is a healthy debate on this topic, but I think that being intensely pushed by good mentors for 3 months or so can only improve the chances of success!
This morning I came across an interesting accelerator ranking. A group of professors (from strong programs) created something called the Seed Accelerator Rankings Project
. The lead is Yael Hochberg, who used to be at Cornell and is now at Rice. Definitely research and stats oriented and produced. You might enjoy taking a look, particularly as the presentation is very nonacademic!
I read about the project in Term Sheet, which is a great daily on VC. You can subscribe here
Cornell MBA student Mike Annunziata recently published a great article on starting a company at Cornell from the perspective of a student. Mike has in fact started a company called Natural Cuts https://www.natural-cuts.com/, and no, it is not a hair cutting salon!
Mike hits the steps (getting started, course work, getting involved with entrepreneurship, taking ideas to market, and getting funded) and identifies which Cornell resources might be useful.
Here is Mike’s full article
Hope you have a great weekend.
I have written quite a few posts on the topic of Boards of Directors. Just put in “board of directors” into the search bar. As a quick review, it is the Board of Directors or “Board” that literally by law makes all critical decisions for the company. The Board has to vote on issuing stock, approving the annual budget, setting the company’s strategy, changing the company’s by-laws and certificate of incorporation, selling the company, merging with another company, hiring officers like the CEO, shutting the company down, etc. The list goes on and on. Good corporate governance is critical at startups and other companies alike!
The importance of the Board is why institutional investors (like VCs) often get a seat on the Board after an investment. The Board discusses and agrees on strategy. Discussion is critical. But don’t be fooled, there is an element of control as investors want a
Continue reading "The Importance of Boards"
Once in a while I get the question “What do I need to know about investing in a startup?” The context is typically where Friend A has asked Friend B to invest in Friend A’s startup business. Then Friend B asks me the question. This happens multiple times a year.
It is a fair question. And one that is hard to answer definitively. But, here are some basic
things that I would recommend to Friend B to start with:
- How much is Friend A looking to raise in total? Let’s pretend the target raise is $750,000.
- Is there a minimum amount needed to “close” the round of financing. This is a critical question. If Friend B wants to invest $25,000, then there better be some larger minimum amount going into to the company at the first closing. If Friend A took $25,000 from Friend B and nothing else,
Continue reading "Answering the question “What do I need to know about investing in a startup?”"
First Round Capital just released its State of Startups 2016. It is chock full of interesting stuff! No need for me to recap it here. Just view it for yourself. Here is the link
PS: 2 prominent team members at First Round Capital are Cornellians (Bill Trenchard and Howard Morgan)!
Warning: this is a non-profit fund raising email!
I am on the board of Upstate Venture Connect (UVC). UVC is a non-profit focused on helping build the upstate NY startup community. Among other things, UVC (i) connects people via events and newsletters, (ii) helps groups create seed/angel funds, which then invest in NYS companies, and (iii) maintains an ecosystem map and calendar.
As you plan your year end giving, please consider UVC. It is worth the support. All donations are fully tax deductible.
I have set up a simple way to give via GiveGab (yes, GiveGab is a CVF portfolio company). Here is the link
. Thanks in advance!
I am on the board of a non-profit called Upstate Venture Connect. Nasir Ali, a good friend of mine, heads the organization. Here is a guest post from Nasir sharing summary findings from a recently completely survey of upstate NY CEOs. Enjoy!
Seeds of Growth are All Around Us
This year’s Global Entrepreneurship Week follows an election season where economic anxiety weighed heavily on American voters. Nearly a decade of research from the Kauffman Foundation and other sources has confirmed that young, high-growth businesses create almost all the net new jobs. While Upstate NY leaders were busy trying to save (or attract) industrial era giants, a new generation of world-beating founders grew up in our midst, then left to launch companies like Android, airbnb, Priceline, Nvidia, etc. in more startup friendly communities.
As the head of Upstate Venture Connect (uvc.org), I am committed to building Upstate NY’s startup ecosystem. I meet incredibly talented and ambitious founders
Continue reading "Upstate Venture CEO Survey"
A colleague of mine recently told me about a new podcast called “How I Built This”. It goes into the stories of famous entrepreneurs and innovators. Guy Raz (well known radio host at National Public Radio) interviews founders, etc., and turns the interviews into compelling ~30 minutes narratives. GREAT for car rides. I just drove home from Maryland and listened to about 5 of them. I think my 14 year old daughter even enjoyed. I forced her to listen to one so she would better understand what I do with startups.
GREAT stories. Enjoy. Available on iTunes, etc.
Vanity Fair recently published a expose
on Theranos. It is worth reading. Like a mini “page turner” novel.
It reminded me of one of my personal themes in investing: “if you don’t understand the technology then don’t invest.” The understanding can definitely be acquired. In fact, I rarely understand the technology when we first meet with a company. But over our months of due diligence the understanding grows. And sometimes my partners’ understanding is a good proxy. BTW, understanding does not mean being an expert.
So, how about these words that Vanity Fair wrote about Elizabeth Holmes, the CEO of Theranos: “She took the money on the condition that she would not divulge to investors how her technology actually worked, and that she had final say and control over every aspect of her company.” All I can say is OMG. Are you kidding me? Who would
Continue reading "Calling BS"
Guest post today from Steve Yale-Loehr, a leading immigration law expert who lives in Ithaca. Steve teaches at Cornell Law School and is a partner at Miller Mayer, LLP (a law firm in Ithaca). Steve sent me this email today, which I thought was perfect for a post. Immigration hurdles are a serious issue for startups. The proposed rules are a step in the right direction. Here you go:
Zach: Today the U.S. Citizenship and Immigration Services (USCIS) issued a proposed rule to allow certain international entrepreneurs to be considered for parole (temporary permission to be in the United States) so they may start or scale their businesses in the United States.
The proposed rule would allow the USCIS to use its existing discretionary statutory parole authority for entrepreneurs of startup entities whose stay in the United States would provide a “significant public benefit through the substantial and
Continue reading "Immigration Issues"
You all likely know that most VCs consider the management team to be the top measure of potential success of the venture. This post is not about that point, at least not directly.
I want to instead focus on the importance of the entire team (not just management) and the importance of making sure that the team can play together. I am going to use my past weekend’s soccer experience as an analogy.
I organized and played on an Over 40 soccer team this past weekend in a small tournament in Ithaca. There was no Over 50 bracket or I would have played in that! So, there were 4 total teams in the Over 40 bracket. Two teams from Ithaca (one of which was mine) and then one team from Vermont and one from Binghamton. You are going to have to trust me that no matter how
Continue reading "Team, Team, Team"
We all live in a world of conflicts. I am particularly sensitive about conflicts due to the roles I have at Cayuga Venture Fund and Cornell. I think that everyone should conduct business in a way that will not provide fodder for an unsavory newspaper article. All the recent press about Theranos is a great example of this. Regardless of your views on situations like Theranos, it is likely that some of what you might read in the newspaper is true.
You might call me naive, but my approach to competing accounts of juicy situations is that there is probably some truth in both sides. This applies to all sorts of situations, be it feuding companies or feuding people.
So, this morning my wife forwarded me an article on Hampton Creek, “Hampton Creek Ran Undercover Project to Buy Up Its Own Vegan Mayo”
. Now, my wife loves Hampton Creek Mayo,
Continue reading "If it smells bad, it probably is"