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When I first read Paul Graham’s blog post on “High Resolution&# Financing I read it as a treatise arguing that convertible notes are better than equity. As I’m generally a believer in ‘pricing rounds’ I initially didn’t agree with the premise of the post. Photo credit: D. rings true to me.
Both Sides of the Table , July 22, 2010 An updated Digital Trends presentation - Jeff Hilimire , June 2, 2010 I do what I hate - Jessica Mah , January 7, 2010 Startup Equity Allocation - charliecrystle.com , January 11, 2010 When good investment decisions end up backing more women CEOs: Conversation with Cameron Lester at Azure Capital.
” Today I want to talk about how a VC thinks about equitypricing on your round and particularly if you’re coming off of a convertible note. Of course investors care about controls (board, protective provisions, IP assignments, non-solicitation) but these are all pretty standard. Size of my check.
You never got around to agreeing exact equity splits but you had many conversations about it. Shame about not getting it in legal writing that you owned the original IP. Forget to get around to setting up that Employee Stock Option Plan and want to be able to give the early guys their options at a low strike price?
The founders could reinvest this in growth (0% tax, focus on future equity growth) or take the profits of $12 million and divide amongst the founding partners. You own the IP you create. My advice wasn’t to shut down all product / IP initiatives but rather to be clear on their purpose and how to monetize them.
We had a chance to speak with Jerry Fitch , CEO of the firm, about the interest in the electric/smart metering market, his views on where the market is today, as well as a bit about the experience of operating as a private equity backed firm. How has your experience being owned by private equity been? Thanks for the time.
It has the dual technology patrons and yet the consistent story I get is that they’re not actively out embracing the startup community, helping local successes emerge, getting comfortable with the symbiotic benefits of some employees going to startups that innovate at a different pace and then buying up local teams, talent & IP.
Business valuations = the price of the company. Do you see the overlap with the factors that come into play for equity valuations? Recent equity sales i.e., comparables. And there are public market valuations for where stocks trade now and predictions for what they’ll be worth in the future. And then there are 409A valuations.
Me: At what price? Him: It wasn’t priced. So you did raise with a price. It’s just a maximum price. Him: But when I raised my first round we didn’t know how to price the company. How will you price the next round? That way you don’t have a max or min price but you have a price.
Michael is a very accomplished corporate executive in his own right having run Sega Gameworks and helped IPO EuroDisney as well as having been on the founding team of DreamWorks SKG (where he helped them raise their first $900 million in equity). They can also help raise larger rounds of capital and often at higher prices.
Thus, follow the guidelines outlined in IP – Worthless To A Startup and only spend significant time and effort protecting your intellectual property when it is clear what you are trying to protect. Ask them to accept equity in exchange for all or a portion of their overall compensation. 3) Attempt To License An Idea.
So money spent should add equity value or create IP that eventually will. On the other hand, exits at lower prices are easier with these providers of capital. I wanted to call out special attention to valuation in this debate.
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