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Archive for September, 2012

Investors Weigh In With Convertible Note Caveats for Start-Ups – Venture Capital Dispatch

Posted in Entrepreneurship, Investments, Venture Capital, Venture Capital Dispatch on September 15, 2012| Leave a Comment »

  • September 13, 2012, 6:45 PM

Investors Weigh In With Convertible Note Caveats for Start-Ups

By Lizette Chapman

Tech entrepreneurs take note: Convertible notes are not free money and, if not structured properly, can prevent you from raising additional financing.

Investors speaking at the TechCrunch Disrupt SF 12 conference in San Francisco this week had this gem and a few other choice observations about early-stage financing for start-ups.

“We’ve had companies come in for their Series A and not realize  that  they’d already given up 25% of their company” in the seed round,” said Sequoia Capital Partner Alfred Lin, referring to the fact that convertible notes are unpriced, but convert to equity stakes when founders go on to raise a priced Series A round. He added: “That you raise money at a higher valuation than your friend? That’s a false milestone for you.”

Another false milestone, according Google Ventures Partner Joe Kraus, is thinking that raising a bigger round is better for the company when a smaller one will do. While Kraus said he “had no bones to pick” with the convertible note structure, he cautioned it can lead to companies over-raising their seed round and then  ending up with a “weird” cap table that makes  backing a  company at the Series A level difficult  for new investors because there’s  not enough equity left to go around.

While none of the investors speaking (Cowboy Ventures Partner Aileen Lee, SV Angel Managing Director David Lee and Greylock Partners Partner James Slavet were also on the panel) mentioned Y Combinator companies specifically, they might as well have.

Many of the 75 companies who graduated from the three-month accelerator program last month have been talking to investors to raise capital on top of the $150,000 offered to all YC graduates by the Start Fund. Along with the note structure, valuation (which sets expectations for the Series A round) has become an unusually public discussion, with YC co-founder Paul Graham last week accusing Google Ventures of lowballing YC companies on valuation and following up on a prediction last spring that valuations may be dropping.

Although the Start Fund (which is backed by Yuri Milner, SV Angel, General Catalyst Partners and Andreessen Horowitz) offers the cash at no cap and no discount, other early seed investors have been unwilling to offer a similar blank check lest their equity gets washed out in a later round.

And, judging from investor comments–Lee said he’s now seeing down valuations in more sectors than previously–the amount and valuations of convertible notes are becoming more disciplined.

“It’s feast or famine,” said Slavet, of start-up  funding. “Seed valuations fluctuate on the ability of seed companies in the previous months to set Series A funding. Seeds, in many ways, are a lagging indicator of Series A valuations.”

Write to Lizette Chapman at lizette.chapman@dowjones.com. Follow her on Twitter @zettewil

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500 Startups Accelerator Is Taking Applications For The First Time, And AngelList Is Helping Out

Posted in Uncategorized, tagged , , , , , , on September 13, 2012| Leave a Comment »

Article from TechCrunch.

Dave McClure’s 500 Startups is looking for participants to join its next incubator program, which will run from October through January. And for the first time ever, it’s going to open the process up to allow anyone to apply. To help it get through the process, 500 Startups Accelerator will be using AngelList, making it the first incubator to leverage the platform for applications.

McClure told me that historically, the program has avoided having an open application process and instead has taken on Accelerator startups only through referrals. So far, that has worked out just fine for 500 Startups: It’s had four successful incubator programs, usually with 20 to 35 startups participating.

As a result, McClure & Co. have been able to avoid the frustrating, time-consuming process of reviewing applications. That said, McClure told me that, while referrals have helped it to find a ton of interesting startups — and avoid sorting through a lot of crap — he also recognized that he’s probably missed a few that might not have been part of his network.

That’s where AngelList comes in. The professional network for startups and investors will help 500 Startups vet applicants through a mix of algorithmic ranking and curation from mentors and others. The AngelList platform will help speed up the process by weeding out unqualified applicants. It will also allow 500 Startups to scale up the application process without having to manually review all the applications by hand.

Not everyone in the next class will come from AngelList — 500 Startups expects to choose between five and 10 startups through this process. It’s already picked a few to participate and is reviewing several others. But McClure said that it was important to open up the applications process in a way that would allow it to review companies that it might not have seen. That’s especially important because so much of 500 Startups’ focus is on startups that are somewhat non-typical, for instance those that are in international markets.

In addition to opening up the application process, 500 Startups is changing the terms of its investment for companies that have already raised some funding. Typically, it provides $50,000 for 5 percent of equity, with an option for up to $200,000 in later rounds. But companies that have raised at least $250,000 will be able to join the program for only 3 to 4 percent of equity.

The fifth 500 Startups Accelerator will begin in October, with Demo Days in late January or early February. Companies interested in applying can do so on AngelList at angel.co/500startups.

Read more here.

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Find the Bubble – by John Backus

Posted in Inetellectual Property, John Backus, New Atlantic Ventures, Venture Capital on September 12, 2012| Leave a Comment »

Find the Bubble – by John Backus, Partner New Atlantic Ventures

The NVCA released a new report today showing that half of all companies funded by VCs in 2011, and the first half of 2012, are early stage. This compares to an average of 38% or so funded companies being early stage over the last ten years. This is good news for entrepreneurs and angel funded companies. But angel funded companies continue to be born, and funded, at a rate that can’t be absorbed by institutional VC. Take a look at the last ten years of data. And find the bubble!

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September 11- “Never Forget- Always Remember” the Brave Firefighters, Police & Emergency Service Personnel

Posted in Police & Emergency, September 11 on September 9, 2012| Leave a Comment »

September 11 – Never Forget – Always Remember the Brave Firefighters, Police & Emergency Service Personnel

Recently I watched the images and replay of video from 9/11.  One can never Forget and must Remember the faces of Firefighters, Police & Emergency Service Personnel as they ascended the steps of the World Trade Center.  We will never know what was in their Mind, but we will always know what was in their Heart.

They are ALWAYS there to Serve & Protect.  To do their Duty in face of Adversity.  They “Walk the Walk” and “Talk the Talk”.

Let us Honor their Bravery, Courage and Devotion to Duty with a song written by Irving Berlin – “God Bless America”.

Irving Berlin wrote this song in 1917 for use during WW1, however the song was never used.  It wasn’t until the Depression and the rise of Hitler that the song was released and sung by Kate Smith in 1940.  The proceeds of the song was donated to the Boy Scouts of America and who to this day, receive royalties from it.

Please listen to how “God Bless America” should be sung and be proud.

http://www.israpundit.com/archives/31462?sms_ss=facebook&at_xt=4d078e57bb39ba8d,0

Let us Honor our Hero’s and in today’s time of need for Hope and Leadership, let us Honor America.  Please say “thank you” to a Fire, Police & Emergency Person today and click on the link below and

“Never, Ever, Ever, Ever, Ever, Forget”.

http://attacked911.tripod.com/

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Consumer, Internet Startups Increasingly Targeted for VC Backing

Posted in Board Of Intellectual Capital, boic, Business models, Economy, Entrepreneurship, Intellectual capital, Investments, tagged , , , , , , , , , , on September 7, 2012| Leave a Comment »

Article from PE Hub.

Venture dollars have shifted to early rounds from late-stage deals over the past several years. It is a shift that proved fastest in quick changing industry segments, such as the consumer Internet, and slowest in segments like semiconductor, which are less dynamic.

Until now, I have not seen a study with an industry-by-industry breakdown of the trend. The work came from Preqin and offers some useful detail. For instance, just 13% of “consumer discretionary” deals over the last four years were late stage transactions and just 15% of Internet fundings, the study found.

Meanwhile, 45% of semiconductor and electronics deals in the four years from 2009 to 2012 were late stage. And a third of transactions in cleantech and health care were, according to the study.

Since the Great Recession of 2008 and 2009, venture capitalists have shifted substantial dollars to the early stage. In 2007, 40% of invested capital went to late stage deals. Nineteen percent found its way to the early stage, according data from the MoneyTree Report. By 2011, early stage spending was 30% of the total and late stage had fallen to just under 34%. The breakdown for the first half of 2012 is almost identical to last year.

According to Preqin, another segment with strong early stage interest is business services, where just 17% of deals were late stage. Preqin draws the dividing line between early and late at the Series C funding, lumping expansion financing into its later stage tally.

Among the latest of the late fundings during the period were the G and H rounds. Several took place. In 2010, Onconova Therapeutics raised a $15 million Series H and the same year saw Zipcar put another $21 million in its war chest with a Series G financing from Meritech Capital Partners and Pinnacle Ventures.

SolarCity this year roped in $81 million in a Series G round with investors including Silver Lake and Valor Equity Partners.
Read more here.

 

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