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Showing posts from July, 2005

Board Behavior Tips for VC-backed Firms

Brad Feld points to an article by Dennis Jaffe (Saybrook Graduate School) and Pascal Levensohn (Levensohn Venture Partners) titled "After The Term Sheet: How Venture Boards Influence The Success Or Failure Of Technology Companies."

"Written in 2003, this is one of the best articles I've ever seen of the issues and dynamics surrounding the board of a venture backed company," Feld says. I agree.

An Extract:The Board, and the roles and behavior of its members, evolve with the venture in three developmental stages:
• Start-up/Seed: An embryonic Board assembles as soon as capital is invested and VCs join the Board as preferred shareholders. Their first joint task is to recruit talented employees and define their roles. The optimal size of a start-up Board is between three and five people.This breaks down into one management representative and two venture investors, or two management representatives and three venture investors.
• Early Commercialization: A typical comm…

"Bring new investors in, build value with each round"

Fred Wilson has great advice on what entrepreneurs need to do to protect from investor deal fatigue: Bring new investors into the syndicate every time you raise money. The investors who wrote the checks in the A round might be tired by the E round, but the D round investors will have fresh legs.

Third, start with a low valuation and slowly and carefully build it in each investment. The investors will be less tired if they see the value of their investment increasing in each round. But if you start at too high of a price and then get stuck there or worse, go down, then you are in for trouble. There is nothing worse than a tired investor with a paper loss on his or her hands.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

"Have a downside scenario in your financing strategy"

Fred Wilson has great advice on how start-ups should plan for their next round of financing:

So how do you go about hoping for the best and preparing for the worst?

I think its best to start with the downside scenario. What happens if your company can’t get anyone to step up and do the financing on terms that are acceptable?

Well there are a couple approaches to this. The first is to do the financing when you don’t really need the money. That’s a great strategy. Maybe you’ve got nine months of cash left in the bank. Maybe you go out and talk to three or four potential investors to see if you can get something done with them on terms you’d like. If you can’t, you stop the process, go back to work, and come back to market in another six months.

If you don’t have that luxury, then you need to turn to your existing investors as your downside scenario.

There are a couple of ways to think about this.

The first is to get the existing investors to tell you on what terms they’d be willing to do an i…

Tips for Recruiting

Adam Shah has some good tips for recruiting - especially on interviewing and checking references:
# recruiting. [Apr'04] Recruiting is the single biggest determinant for success, with the people you hire literally being the DNA of the company. The challenge of recruiting is often under-appreciated by people who've never been responsible for it. First, you need to "sell" people on joining your venture, which isn't easy. Remember the old adage "good help is hard to fine"-- that's because smart, reliable, hard-working, no-nonsense people are never without work, so you have to lure them away. Here's some basic tips: (1) strategize: list reasons why people would join your venture instead of others, including reasons they wouldn't. Then, use this to source candidates. For example, when talking with recruiters, let them know these things. When considering how to source candidates, emphasize channels that tend to fit your criteria. (2) treat hiring l…

Is your idea a project, product, or a company?

Adam Shah has some good advice:

Before getting too excited about your latest idea, ask yourself if it's a project, a product or a company.
A project is some useful and innovative tool or service, but unlike a product, it's unclear if anybody will enough pay for it to justify its manufacture (and delivery, i.e. through channels) -- much less whether this is still true in the presence of substitutes and knockoffs. Products are projects that are sellable-- they have financing, designs that incorporate feedback from prospects or customers ("people who can pay enough"), reasonable quality controls and processes, legal representation, etc.
A company is a product with headroom: infrastructure to grow, a fleshed-out management team, the ability to create multiple products, etc. Since companies can be tiny and have one product, the real distinction between "product" and "company" is whether the financial returns of the product justifies the corporate structur…

Reading List for High Tech Startup Entrepeneurs

Adam Shah has a good "must read" list, including:

# High Tech Startup . Some financial and legal subtleties of the game. It is worth noting that the normal rules of business simply don't apply, and you need startup specialists to help you in HR, accounting, legal, office management-- and of course, financing. Nesheim's book explains many of the important details.

# Crossing the Chasm . How to get a general-purpose, new technology to be embraced by a mainstream audience. This is the startup playbook, read by virtually everyone in silicon valley.

# Selling the Wheel . A light-hearted, fictional account of how the wheel was brought to market. A great complement to the Moore books above -- but an easier, faster read.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.