Category: Seed Funding (SAFEs and Convertible Notes)
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X Does Not Always Equal X
I’ve done quite a few recent seed deals using various ‘standard’ seed financing docs (Series Seed, TechStars Series AA, etc.). While using these document sets can help reduce transaction costs and the time to close, a startup can run into trouble by trusting deal documents without verification. For example, a startup requested I review a…
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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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Why a Finder is a Loser
When a startup considers paying a “finder” for investor introductions, I usually have the same conversation with founders. It goes something like this. A typical conversation about a finder Startup: A finder knows a lot of investors and will introduce us if we pay 6% of any capital we raise through those introductions. Me: Is…
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Accelerator Mentors over Money (and Office Space)
With the success of Y Combinator and TechStars, several accelerators have popped up everywhere. Some have done quite well. Here in Dallas,Tech Wildcatters had a strong class recently and is poised to be around for awhile. They key for each is good programming and good accelerator mentors. But this morning I read a Dallas Business Journal article…
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Convertible Note Term Sheets
Just like the preferred equity financing process, the convertible debt financing process can start with a term sheet, rather than a full set of financing documents. A convertible note term sheet is beneficial because it postpones a lawyer from cranking out a full set of docs until consensus is reached regarding the convertible debt offering’s…
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Keeping a Seed Financing Round Open
Startups don’t want to wait until every investor is ready before closing on a seed financing round. First, the roster of investors will not be identified and/or cutting checks on the same day. Second, what startup wants to wait on cash? Therefore, most seed financings allow for an initial close (i.e., that first investor check)…
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Update to Accredited Investor Definition
The Dodd-Frank Wall Street Reform and Consumer Protection Act and later SEC rulemaking changed how the accredited investor definition works in a few important ways. Two updates that commonly show up in startup fundraising paperwork are the exclusion of primary residence from the net worth test and the SEC’s 2020 expansion of additional accredited investor…
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Angels Asking For Control
Occassionally, a startup will get a term sheet from an angel with a pre-money valuation less than the investment amount (i.e., the angel wants control of the startup). And “control” isn’t just defined as a majority of the shares of the company — if the angel asks for approval of all budgets & hires or…
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The Convertible Note Discount and Price Cap
If you follow this blog, you know that I think convertible debt is a good structure for a startup’s angel round. The main feature of the convertible note is that the debt investment made by the angel investor will typically later convert into equity. For this article, let’s assume this equity is the Series A…