Dilution and Investors and Tension

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:

  1.  It is impossible to issue stock to investors without existing shareholders (founders, employees and prior investors) being diluted.
  2.  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.
  3.  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

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VC Backed Alumni Ranking

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:

  1. 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.
  2. Page 4:  Cornell ranks 6th for undergraduate programs for the number of VC backed entrepreneurs.
  3. Page 7:  Cornell ranks 6th for dollar volume of VC dollars raised.
  4. Page 9:  Cornell ranks 5th for female founders.
  5. Page 10:  Cornell ranks 14th for MBA programs.
  6. Page 11:  Cornell ranks 3rd for undergraduate founder unicorns (companies with over $1 billion in valuation)

Good reading.  Enjoy!


Upstate NY’s Strongest Economy

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! Woohoo!

Accelerate or Not Accelerate….That is the Question

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.

How to Start a Startup at Cornell

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.

The Importance of Boards

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

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Answering the question “What do I need to know about investing in a startup?”

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:
  1.  How much is Friend A looking to raise in total?  Let’s pretend the target raise is $750,000.
  2.  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,
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