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Archive for the ‘Startups’ Category

AngelList’s Ravikant makes urgent plea for changes in new crowdfunding rules

Vicki Thompson

Naval Ravikant grew AngelList into the world’s™s foremost meeting place for founders and funders. Now he is laying plans to broaden its mission and make money.

Senior Technology Reporter- Silicon Valley Business Journal

AngelList co-founder and CEO Naval Ravikant sees potential disaster in proposed new crowdfunding regulations and is urging others on his founders and funders networking site to speak up.

In a letter to the Securities and Exchange Commission this week and an interview with me on Friday, Ravikant warned that the agency’s new Form D filing rules set to take effect on Sept. 23 could bring “disastrous unintended consequences for the startup community,”

“The proposed rules appear to be tailored to how Wall Street raises funds, not the startup community,”Ravikant said in his letter.

“My sense is that the SEC knows that this is an issue and is not going to put into effect some of these rules,” he told me in an interview late on Friday.

The agency last month voted to allow startups and private investment groups to openly solicit money, with restrictions that Ravikant and others in the angel investor community are very unhappy about. Ravikant’s letter was sent when the agency solicited feedback before enacting the new rules.

One of Ravikant’s biggest concerns centers around the proposed penalties. He worries that proposed sanctions may be too draconian, resulting in severe punishment for unintended violations. He notes that violating the rules could result in startups being banned from fundraising for a year and that AngelList could get swept up in those penalties.

“Rules that may be easy for Wall Street are a death sentence for startups. They are easy to break accidentally and the penalty for noncompliance is severe,” Ravikant wrote.

Businesses like AngelList, incubators, and VCs that surround startups are built to avoid getting in the way of a startup’s autonomy, Ravikant wrote. “they should not be penalized for activities that a startup undertakes on their own that the business can’t control.”

He also urges the SEC not to reduce the costs of compliance and keep filings confidential.

“Startups often want to control the timing of their financing announcement and prefer not to reveal amounts raised for competitive reasons,” he wrote. “If more of the Form D information was confidential rather than public, compliance rates would jump dramatically.”

Ravikant proposes that third parties like AngelList be allowed to make SEC filings on behalf of startups and serve as a repository where startups can update information about their fundraising.

The Angel Capital Association, which represents 200 investor groups and 10,000 accredited investors across the country, last month also strongly protested the new rules.

AngelList has 100,000 startups and about 20,000 accredited investors on its platform and Ravikant’s views are quite influential among them.

The new rules are coming to implement the federal JOBS Act, which was passed and signed into law more than a year ago.

They retain the requirement that only accredited investors (those with a liquid net worth of more than $1 million) can make equity investments in private companies. They also require private companies and funds to document that their investors meet that net worth standard.

The new rules also require anybody doing a general solicitation to file a Form D with the SEC at least 15 days before starting their campaign. They must file a followup within 30 days of ending the solicitation.

Ravikant wrote in his letter that the requirements probably won’t hinder startups that can afford the bankers and lawyers that will be needed to comply.

But, he warns that “the same rules applied to early stage startups will prevent them from forming. Since young companies are responsible for most of the job growth in the US, we believe this is against the spirit of the JOBS Act.”

“Startups are constantly raising money, sometimes before they have even hired a lawyer,” Ravikant told me. “With tech startups, it’s all loose-goosie. You raise money as you go, often from friends, family and investors. These companies will trip all over these rules and break them left and right.”

Ravikant’s specific complaints:

1” “The requirement to file a Form D 15 days prior to the financing, or at the close of financing even if a financing doesn’t close, is meaningless in our world. Startups are always financing.”

2” “The requirement to formally file all written materials provided to investors with the SEC is not feasible in a world where the materials are updated continuously.”

3” “The requirement to include disclosures every time you mention a financing doesn’t™t work for most places those appear (try tweeting boilerplate legal text in 140 characters, or requiring reporters to include it in stories).”

4” “These technical legal requirements place burdens on startups at a stage before they may have legal advice, and the very severe penalty for non-compliance (not fundraising for a year) is a death penalty for a not-yet-profitable business.”

Click here to read the profile of Naval Ravikant and AngelList that was the July 26 cover story in the Silicon Valley Business Journal.

Click here to subscribe to TechFlash Silicon Valley, the free daily email newsletter about founders and funders in the region.

Cromwell Schubarth is the Senior Technology Reporter at the Business Journal. His phone number is 408.299.1823.

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Ben Horowitz warns startups: You’re worth less today, and you need to be OK with that

Andreessen Horowitz Partner Ben Horowitz says the fundraising environment for startups is particularly tough today. He says investors are increasingly pushing for more equity for less capital, and founders need to be OK with that.Andreessen Horowitz Partner Ben Horowitz says the fundraising environment for startups is particularly tough today. He says investors are increasingly pushing for more equity for less capital, and founders need to be OK with that.

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Contributing writer- Silicon Valley Business Journal

Legendary venture capitalist Ben Horowitz (who makes up the second half of Andreessen Horowitz) has a particularly bleak message for entrepreneurs raising money in the Valley right now: You’re probably worth less to investors today than you were the last time you raised money.

“If you are burning cash and running out of money, you are going to have to swallow your pride, face reality and raise money even if it hurts,” Horowitz wrote in a blog entry Tuesday. “Hoping that the fundraising climate will change before you die is a bad strategy because a dwindling cash balance will make it even more difficult to raise money than it already is, so even in a steady climate, your prospects will dim. You need to figure out how to stop the bleeding, as it is too late to prevent it from starting. Eating s— is horrible, but is far better than suicide.”

He’s partly talking to founders raising an A or B round—entrepreneurs who’ve been to the table at least once before, and raised earlier rounds at a particularly high valuation. The fundraising climate is tougher now, he says. Investors have more leverage and they’re increasingly pushing founders to accept “down rounds,” defined as funding that values their company for less than they were worth in a previous round.

“After, God willing, you successfully raise your round and it’s a down round or a disappointing round, you will need to explain things to your company,” Horowitz writes. “The best thing to do is to tell the truth. Yes, we did a down round. Yes, that kind of sucks. But no, it’s not the end of the world.”

Horowitz knows the feeling.

Twelve years ago, he and Marc Andreessen were entrepreneurs themselves, running a red-hot startup called Loudcloud. In June 2000, they raised $120 million from investors, at an $820 million valuation. By the end of the year, the dot-com bubble was popping fast, and they couldn’t raise another round. To stay afloat, they were forced to take the company public in 2001, at a $560 million valuation.

Describing that experience, Horowitz writes, “In some sense, you are like the captain of the Titanic. Had he not had the experience of being a ship captain for 25 years and never hit an iceberg, he would have seen the iceberg. Had you not had the experience of raising your last round so easily, you might have seen this round coming. But now is not the time to worry about that. Now is the time to make sure that your lifeboats are in order.”

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Jun 26, 2013

Whoever’s behind ‘My Startup has 30 Days to Live’ is hitting a chord

Senior Technology Reporter- Silicon Valley Business Journal

A Tumblr author claiming to be a startup entrepreneur is hooking techies, investors and the press with his My Startup Has 30 Days to Live blog.

Whether the anonymous author is telling a true tale, or whether he’s uncovered as the 2013 version of 2006 YouTube hoaxer “lonelygirl15,” his sad story of dashed entrepreneurial dreams is gripping Silicon Valley.

The writing has a ring of truth. The author claims to have been on the hamster wheel for about two years, getting into a top accelerator. He “hit the top of TechCrunch” and became viewed as a “rising star in the technology world,” the blog claims.

After compromising some vision for funding, the author claims to have gotten traction — but it didn’t keep the funders happy.

“I found myself sitting at my desk, afraid, alone and overwhelmed,” the blog says.

The first day’s blog ends with the author realizing he or she can’t make payroll and needing to fire the company’s first employee before he leaves on a planned vacation.

The second post, which went up today, is headlined “We’re killing it bro.”

“One of the first things you learn as an entrepreneur is that on some level, you’re only as good as your pitch,” it starts out. “The accelerators reinforce this by teaching you the art of storytelling, a skill that helps an investor sign a term sheet as much as it helps the father of a young child decide to take a pay cut to be part of something that’s amazing.”

This one could be the work of a writer hoping for a TV, movie or book deal. There is a lot of entertainment industry industry focus on Silicon Valley, evidenced by Mike Judge’s new HBO show and Bravo’s “Startups: Silicon Valley.”

Eventually, we will likely find out who is behind “My Startup Has 30 Days to Live” and will truly be able to evaluate its worth.

But for now, it has our attention.

Click here to subscribe to TechFlash Silicon Valley, the free daily email newsletter about the region’s founders and funders.

Cromwell Schubarth is the Senior Technology Reporter at the Business Journal.

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Apr 10, 2013, 12:03pm PDT

Foundation’s Paul Holland: Smaller fund, smaller fundings right for times

Foundation Capital Partner Paul Holland says the firm’s latest fund is smaller than the previous ones by design, a reaction to how little startups need these days to get off the ground.

Senior Technology Reporter- Silicon Valley Business Journal

A lot has happened in the year that Foundation Capital started raising money for its seventh fund, according to Partner Paul Holland.

Instead of what had been reportedly planned as a half billion fund, the Menlo Park firm on Tuesday closed a $282 million pool to invest from.

“Startups don’t need as much money now, thanks to the cloud and other factors,” Holland told me. “Startups are using about 40 percent less capital, on average, so we don’t need as much capital to invest.”

He said the smaller fund size was a conscious reaction to the changing startup environment.

“We raised our last fund, which was $750 million in 2008, when we thought we would be doing more cleantech and later-stage deals,” he said. “It took us five years to invest, which is frankly too long. We wanted to have a fund that we thought we could finish investing in three years.”

The new fund will be targeting about 60 percent of its cash at IT startups, about 30 percent to 35 percent at consumer startups and up to 10 percent in cleantech.

“We do about two-thirds of our investments in seed or Series A rounds but we will invest in later rounds when we find something that suits us,” Holland said.

There will be right of the firm’s 13 partners investing from the fund, including new partner Anamitra Banerji, who developed Twitter’s ad platform as one of the micro-blogging company’s earliest employees.

“We have a heritage of partners who stay around for quite a while after they have finished actively investing,” Holland said. “They stay involved with the firm and with the companies they have invested in.”

General Partner Rich Redelfs is the only partner who has newly stepped back from investing, he said.

Despite working with a smaller fund, Holland said he is more excited about the startups he sees now than he was 10 years ago.

“There is a real tailwind behind early stage investing right now,” he said. “The difference between now and 10 years ago is night and day. It’s a lot easier to create returns on small amounts of money now than ever in my experience.”

Click here to subscribe to TechFlash Silicon Valley, the daily email newsletter about startups, venture and angel investors.

Cromwell Schubarth is the Senior Technology Reporter at the Business Journal. His phone number is 408.299.1823.

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Apr 9, 2013, 11:03am PDT

VC, angel solar focus shifts as funding hits 5-year low

Solar funding by venture and angel investors hit a five-year low in the first quarter of this year.

Senior Technology Reporter- Silicon Valley Business Journal

Investments in the solar industry hit a five-year low in the first quarter, according to a new report, as venture funding focus shifts towards startups that do solar financing and installation.

CB Insights said there were just 18 investments in the first three months of the year that gave out $269 million. That contrasts dramatically with the nearly $3 billion in funding in almost 50 deals that came in the second quarter of 2011, just before the infamous shutdown of Fremont-based Solyndra.

Monday’s $37 million funding of Clean Power Finance is the type of activity that is more common these days. The San Francisco-based company’s revenue rose 325 percent in 2012, mostly from transaction fees earned through its online financing marketplace.

That’s because American consumers are still buying and installing solar power in growing numbers. The materials aren’t likely to be domestic, although the financing and installers are.

In another solar financing development this week, California officials told Oakland-based Mosaic that it can crowdfund $100 million worth of solar projects. The company lets state residents invest as little as $25 in projects and get paid back with interest from the revenue those projects generate.

CB Insights reports that despite the overall slowdown in solar deals, there are still early stage deals coming into the pipeline. It said that almost 45 percent of solar investments in the last year have been seed/angel and Series A fundings.

Click here to subscribe to TechFlash Silicon Valley, the daily email newsletter about startups, venture and angel investors.

Cromwell Schubarth is the Senior Technology Reporter at the Business Journal. His phone number is 408.299.1823.

Related links:

San Francisco, Venture capital, Startups, Solar energy

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