Author: Ryan Roberts
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Outsourcing Software Development: Riding the Elephant
“Technical co-founders are hard to find.” This is a phrase that is likely said daily in any startup ecosystem. Thus, many startups choose or are simply forced into outsourcing software development. But a startup’s outsourcing software development at such an early stage is like riding an elephant in a horseback polo match…sure, you are on a big beast, but…
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Convertible Note Interest: What is the Range?
While most startups and investors focus on convertible note terms like the discount and price cap, one important but overlooked term is convertible note interest. Since a convertible note is in fact a debt interest, it follows that the convertible note investment should accrue interest. However, startups should be mindful that but the rate of…
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Avoid Offensive Liquidation Preferences
In most equity financing rounds, an investor will ask for (and get) a term called a liquidation preference. A liquidation preference is the amount that must be paid to a preferred stock holder before any sale proceeds may be paid to the holders of common stock (i.e., founders, option holders, etc.). The amount of the…
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Delaware Franchise Taxes
If you haven’t already received your Delaware franchise tax statement in the mail, then it’s probably on the way. You have to give credit to Delaware — they make paying your corporation’s franchise taxes “thrilling.” For example, if you authorized 10,000,000 shares of common stock in your certificate of incorporation, you will receive a franchise…
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Top 5 Worst Seed Round Terms For Startups
Here’s a list of the top 5 worst seed round terms that cause harm to startups at the seed financing stage and therefore should be avoided: 5. Control “Control” of a startup can manifest itself in various forms such as equal (or investor-favorable) representation on the board of directors or a requirement of obtaining seed…
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Non-Dilution Rights are Wrong
I hate non-dilution rights and if you are an entrepreneur you should, too. I’m not talking about price-based anti-dilution protection that is typical in an angel or VC round. What I’m referring to is a right given to a particular stockholder so that such stockholder’s equity in the company is not diluted by any future…
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How to Evaluate a Startup Accelerator Offer
Great news — your startup just got accepted to an accelerator! But before your startup signs up and cashes that $[25,000] check, your startup’s co-founders should sit down and evaluate the accelerator offer. The following are some issues to consider and actions to take before accepting an the accelerator offer: (1) Calculate Valuation and Determine…
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Term Sheet Purgatory
There’s plenty of advice on (1) how to attract VCs and (2) how to negotiate a venture capital term sheet. What gets less attention is the messy middle, the period between an investor expressing interest and you actually receiving a term sheet. I call that waiting period term sheet purgatory. Term sheet purgatory is an…
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The $10,000 Sentence
You’re building a startup, and everything is scarce, especially capital. So when a legal issue pops up (like incorporation), it’s normal to do a cost-benefit analysis before hiring a startup lawyer. I understand the instinct to make sure you’re getting value for a small budget. I did the same thing when I hired a large…
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November Rain
Axl Rose started working on “November Rain” in 1983, about eight years before Guns N’ Roses released it. Early on, he had a piano-only version. By 1991, the final track was a full-scale power ballad that fit the moment and the band’s sound. What worked as a concept in 1983 still worked in 1991, but…