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How to make money with pro rata rights
by Nivi on July 1st, 2012
How to make money with pro rata rights:
- Exercise the pro rata, no matter the valuation, as long as the company is underpriced. Heuristically: a smart VC is leading an up round in the company.
- Lead an inside round so you can buy more than just your pro rata.
- Get a supra pro rata. Alternatively: convince the company to cut out other investors who have pro rata rights, so you can buy more than just your pro rata.
- Sell the pro rata right.
- Buy so much of the company in the first round, at such a low price, that you don’t need a pro rata. This probably isn’t realistic, but incubator investments are a little like this.
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You can be so bad at so many things
by Nivi on December 3rd, 2011
“You can be so bad at so many things… and as long as you stay focused on how you’re providing value to your users and customers, and you have something that is unique and valuable… you get through all that stuff.”
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The problem with the Internet startup craze
by Nivi on August 24th, 2011
“The problem with the Internet startup craze isn’t that too many people are starting companies; it’s that too many people aren’t sticking with it.”
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1.5 Years Of AngelList: 8000 Intros, 400 Investments And That's Just The Data We Can Tell You About
by Nivi on July 25th, 2011
It’s the AngelList centi-sesquicentennial and we want to share some stats with you. After 1.5 years, AngelList has seen…
- 8,000 intros. An investor has asked for an intro to a startup on AngelList over 8,000 times.
- 400 investments. A startup has been introduced to an investor and subsequently closed that investor over 400 times.
- 8 acquisitions. At least 8 startups on AngelList have been acquired.
But who are these fine folks?
- Closed investors include Andreessen Horowitz, Kleiner Perkins, CRV, Dave Morin, Mitch Kapor, Matt Mullenweg and 200 others
- Startups include Uber, Getaround, Storenvy, Wanderfly, Yipit and 200 others
- Acquirers include Twitter, Google, Facebook, eBay and LinkedIn
See all the startups and the investors they’ve closed here.
This is the data that the startups and investors have kindly reported. The actual numbers are probably 25%-100% higher (especially the investments). We don’t have data on every single intro, investment, or acquisition. For example, startups don’t always add investors to their profiles (hint).
Top markets and locations
The top 5 markets are Mobile, E-Commerce, SaaS, Digital Media and Education. And the top 5 locations are Silicon Valley, New York, Los Angeles, London and Chicago.
Rock on, please get in touch if you have any questions. And thanks to Colleen at GigaOM, Pascal at Business Insider, Jolie at VentureBeat and Brad Feld for the coverage.
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Before product-market fit, find passion-market fit
by Naval on July 17th, 2011
Before product-market fit, find passion-market fit.
Building a product is a process, not a discrete action. And the Internet is efficiently arbitraged. Every single simple thing that can be done is being done, or has been done. The lesson of history is that product-market fit is very precise—one wrong tweak or slightly bad timing and you can miss the whole thing.
So the only way you’re likely to find product-market fit is if you’re almost irrationally obsessed with the market and if you’ve been working on it for a long time. Where the journey is the reward. Then, you’re likely to have unique insights (in the details) and consistent execution, through thick and thin, to find fit.
Often, the best companies are ones where the product is an extension of the founder’s personality, which shouldn’t be a big surprise, since everyone is passionate about themselves.
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But I don't want to follow you on Twitter
by Nivi on July 13th, 2011
We post links to the very best startup advice on Twitter at @venturehacks. We read Hacker News, the best blogs, Quora, and everything else startup-related. Then we tweet about the best content we find.
But maybe you don’t use Twitter. Or you don’t want to follow us there. Or you hate us.
Well then, you can subscribe to a daily digest of the links we post on Twitter via email or RSS. Here’s a pic of the email version:
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Anatomy of an (un)fundable startup
by Nivi on June 22nd, 2011
Naval and Mark Suster recently gave the keynotes at the 7th Founder Showcase. Andrew Chen did a better job of describing Naval’s keynote than I ever will:
“People spend a surprising amount of time on things that will contribute little or no value to getting them to a seed round, and this talk is the best I’ve seen in terms of presenting the issues in its entirety.
“Naval broke down the 5 main qualities of an ‘exceptional startup,’ in the following order:
1. Traction
2. Team
3. Product
4. Social Proof
5. Pitch/Presentation“And while all these qualities are important, Naval explained, the most important thing is to understand that: ‘Investors are trying to find the exceptional outcomes, so they are looking for something exceptional about the company. Instead of trying to do everything well (traction, team, product, social proof, pitch, etc.), do one thing exceptionally. As a startup you have to be exceptional in at least one regard.’”
Here are the video and slides:
Some of my favorite quotes from the presentation:
“If you can’t generate traction, do you really want to raise money?”
“If you need money to recruit the best, you’re not ready.”
“It’s easier to pitch a new investor than to convert one.”
“Capital is mobile, but capitalists are lazy.”
→ 4 CommentsLearn more about:Presentations · Video
Getting Leverage in Hostage Negotiations
by Nivi on June 19th, 2011
“Every time the other party says ‘I want’ in a negotiation, you should hear the pleasant sound of a weight dropping on your side of the leverage scales.”
Most entrepreneurs don’t understand the power of positive leverage. Here’s a typical situation:
After weeks of fund-raising, you find a brave investor who says “Yes, I want to invest.” He says he will give you an offer soon. You’re excited. A few days later he delivers a term sheet that you don’t like. The valuation is really low. Or the non-economic terms aren’t favorable. Your excitement turns to disappointment and frustration. This is the only offer you have so far. What do you do?
First, we hope you’ve been talking to several investors at the same time and creating a market for your shares. With an adroit touch, you can use this first offer to create the scarcity and social proof that drives other investors to say “yes”. At a minimum, you can use this offer to drive investors to make any decision at all — up or down. And keep improving your alternatives until you’ve a signed term sheet.
But let’s assume you don’t have any other offers and you have to negotiate with this investor. Or that this investor is your first choice — whether or not you have alternatives.
Positive leverage
This type of negotiation is similar to a hostage negotiation because you can’t walk away from your opponent. You can’t say, “Yeah, it’s okay, go ahead and kill the hostages, we’re not interested in your demands.”
When you have to negotiate without good alternatives, the tools of positive, negative, and normative leverage are essential. Positive leverage is your ability to provide things that your opponent wants. You have positive leverage when your opponent says, “I want to buy your car”, “I want you to release my friends from jail” or “I want to buy your shares”.
As soon as your opponent says he wants something from you, you have some positive leverage. You control what they want. You can grant them access or deny it. That’s why experienced opponents delay making offers — they don’t want to give you leverage.
In practice
How does positive leverage work in practice?
First, positive leverage should improve your psychology during the negotiation. You’ve gone from a situation where you want something from the investor to a situation where you both want something from each other. Your psychology is critical in a negotiation because “leverage often flows to the party that exerts the greatest control over and appears most comfortable with the present situation.”
Second, you can now identify other things that your opponent wants and deliver them. Maybe you’re working with a partner who is trying to get his first deal done at the firm. Help him succeed and help yourself in the process. Maybe you’re working with a firm who is excited about stealing a deal from a top-tier firm. Help them succeed. Maybe you’re working with a firm who wants to co-invest with a top-tier firm so they can show off to their LPs. Help them succeed.
Third, even before investors makes an offer, you gain a little bit of leverage every time they ask for something. Don’t try to use it after the first meeting. But if you’ve been talking to them for three weeks and they’re getting deeper and deeper into diligence, you should recognize and use your leverage. At a minimum, you should ask for information about their process and thinking at every step of the way.
The prime time to negotiate is when your opponent says, “I want.”
“If they’re talking to you, you have leverage.”
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Reading your legal docs
by Nivi on June 16th, 2011
Go read Elad Gil’s You Should Read Every Word of Every Legal Doc.
Some docs are too long and boilerplate to read, so this is how I read financing docs:
- Read and understand everything in the term sheet. But when it comes to the closing docs, ask your lawyer to explain all the terms that he has seen written, or could have been written, more favorably to the startup. The closing docs are too long and boilerplate to read.
- Get a good lawyer because you probably don’t have one. You really won’t know what a good lawyer is until you’ve fired a few. I regularly run into lawyers at big firms who give bad advice alongside good advice. Don’t assume your lawyer is good just because he works at a big Silicon Valley law firm.
- You probably can’t tell the difference between good legal advice and bad legal advice. So you will need a great advisor like Elad.
You should subscribe to Elad’s blog. It is consistently great.
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"A" players write the playbook
by Nivi on June 14th, 2011
Eric Paley’s Curve of Talent is a brutal must-read. I’ve remixed it a bit to come up with the following definitions; the word’s are Eric’s, I’ve just re-ordered them:
F performers are not at all productive.
C performers struggle to competently fill their role, but are somewhat productive with sufficient coaching. Hard to admit, but most people in the business world don’t have a particularly clear idea on how to do their job well. Startups need to help C players transition out of the organization.
B players understand their objectives well and deliver them competently with minimum coaching. Coach B players on the need to not just competently deliver their function, but drive toward innovation within that function.
A players write the book and not just read it. They not only have a clear idea how to competently accomplish their functional objectives, but actually lead the organization to innovate and be world class within their functional area. They raise the bar on the entire organization. One way these candidates can be identified during an interview is when they actually teach the interviewer something about how the company can win.
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