EQUITY FUNDING Week 8

1. EQUITY FUNDINGWeek 8

2. Words and Information • Polynomially • Tim O’Reilly • The website del.icio.us • Accredited Investors • Incubators • Convertible loan • Vesting for Founders • Inscrutable • Term Sheet • Pre-money valuation • Liquidity Event • VisiCalc • Viaweb • Y Combinator

3. Webb’s 10 Top For Funding! • The toughest problems are from investors not the customers or competition. • Do due diligence on investors like they do on you is critical. Be sure there is a fit. • It is the person not the product at the heart of it. We have heard this often. • Personal introductions from reliable sources account for 99.9% of venture fundings. Cold calls, internet send plans or a letter virtually never works. • Do not approach a VC until you know you can convince them!!! If great resumes and the idea isn’t hard to understand then can do early. If not great resumes and idea is more difficult wait until can show users that love it.

4. Webb’s 10 Top For Funding! • Don’t get intimidated. You know more than they do. Proceed deliberately and question anything that seems odd. Don’t accept industry standards or at least evaluate closely. • Careful about getting cheated, get an expert to work with you and good council. See Business Week article and Paul’s thoughts. • If choice, spend on the demo not the business plan. The product is convincing. • Take care of early employees, don’t lie to them, don’t promise them, produce and be exact. • Assume every element of a deal can fail at some point. As Paul Graham said the example he gave was a skeleton, to get a complete picture just add in every possible disaster! • Run out of money, started too late. • During due diligence finds problems • Your beliefs and VCs don’t match • Buyers remorse Paul Graham said this is not bad. The terror scares away almost everyone! Deciding to do it is half the battle, the other half is on the day to the race and most of the other runners don’t show!

5. Webb’s Top 10 That didn’t make the grade! • No one wants you until everyone wants you. • Investors follow the crowd. There is a very clear pecking order among VCs. They don’t like each other, they hate angels. • Careful of legal boilerplate from non-expert lawyers. If you can keep control, get your lawyer to draw up papers especially at angel stage. • Accredited investors are important, if not lots more regulatory work. But who would have guessed Wozniak and Jobs would do anything. • Fear of failure is a big motivator. On both sides of issue. • Funding issues • Exit Strategy. Why, they want their money, employees also. All want a “liquidity event”! • Valuation. The first real money in for what % of ownership determines value. Early it is voodoo. • Vesting not all bad, protection for founders against founders too. Deals with what happens if a founder quits.

6. The Notes at the End!How many of you read them? Some of the best stuff is here! • [1] Good regulations discriminate against the middle class and benefit rich. • [2] Consulting companies [and old professors and businessman] is where you go to die. • [3] Where you have to live to get VC • [4] Investors are sheep, don’t forget that. Rich sheep but still sheep. • [5] Err on the side of better product • [6] He is down on government grants – time, restrictions, reporting, delays, social engineering. • [7] Great description of difference between stock options and restricted stock. [earning the right to buy vs. getting it an earn the right not to give it back] • [8] Careful of who does the due diligence, may not be capable. Be nice to them. • [9] VCs are not nice to angels and can screw them and do. • [10] Watch out for all terrible terms like “down rounds”. Most tough terms are if things go bad. Founders MUST consider this an not be so optimistic that they say it can’t happen. Lose it all