Venture

Hacks

+

Institutional Knowledge “It’s Standard”

Read a blog post “If Slide is worth $550M...”

Leverage
• Two + termsheets • Independent • Credible investors • Create a market for
your shares!

“Raising venture capital is the art of younger men seducing older men”
- Anonymous

The Timeless Art
• Social Proof - “We’re meeting Sequoia next
week”

• Authority - “Marc Andreesen is an angel” • Scarcity - “Only room for one investor in
this round”

• Desirability...

Five Quick Tips
• Great team (check the mirror) • Pick a big market (now!) • Do something hard • Have a plan for distribution • Stay close to the money

Even angels don’t fund niche plays

The Pitch
Your 50-page business plan doesn’t matter

• One-liner; executive summary • 10 slides • Financials; micro-economics

The Approach
Get introduced... ...to the Partner... ...from someone they respect... ...at roughly the same time.

Synonyms for “NO”
“Maybe” “NO”
“Later”

“We’ll follow a credible lead”

“Come back when you have more progress”
“We need to see a CEO” “It’s not you, it’s me”

“Value Add?”
Smart money

Wisdom, not Intelligence and Energy

Money Dumb Money

Most likely to trumpet value add

Unbundle control, advice, and money advisors are a bargain!

1. The Board of Directors
Valuation is temporary Control is forever

“Trust, but Verify”
- Ronald Reagan

“The line between good and evil is permeable and almost anyone can be induced to cross it when pressured by situational forces.”
Philip Zimbardo, Stanford Prison Experiment

Rules of Thumb
• Make the Board Composition Proportional
to ownership

• Independents usually aren’t • Create a new seat for a new CEO • Control is a one way street, from Common
to Preferred

2.Valuation
Learn to signal gracefully Purely supply and demand Ignore outliers Money has karma too!

3. The Option Pool Shuffle
Convert apples-to-apples Take the post-money option shares out of the pre-money $6M pre-money $4M raised 25% post-money pool = $3.5M pre-money

4.Vesting is Testing
With board control, it’s a founder issue 4 years, some credit, single trigger, double trigger

5. Liquidation and AntiDilution
• “Standard” is 1x, Broad-Based Weighted
Average

• Designed to protect investors from quick flips
and overpriced rounds

• Can change the terms dramatically! • Great potential for mischief in private-private
transactions

6. Protective Provisions
AKA The Fine Print Protect minority shareholders Hack 1: Sale ok above a certain price Hack 2: Fundraising ok above a certain price

7. Expiration and NonDisclosure
“We made a commitment to the other investors to give them time to do their diligence” Either the termsheet is binding or it’s not... ...but it’s very bad form to shop

8. Counsel
Get your own advocate There are “entrepreneur friendly” ones available Draft the docs Cap the fees

9. The New, New Thing
• RoFR - Spend now, pay later • Super Pro-Rata - Huge option value,
negative incentives

• One-sided confidentiality • One-sided binding termsheet (pending
diligence!) - placeholder

• Stock repurchase at FMV

10. Don’t Forget...
83(b) Right to transfer / diversify Founder Preferred

In Parting
• Line up your options • Keep control • Friendly investors don’t deliver hostile
termsheets! it...

• Raising money is the easy part. Returning • nandn@venturehacks.com

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