Brad Feld

Month: July 2011

I’ve been on a number of board calls this month while I’ve been in Paris. About half of them have been via Skype; the other half have been standard audio conferencing. I’ve also had a bunch of other meetings, discussions, and pitches via Skype.

The quality of the meeting and interaction – when all attendees are in person or via videoconference (in my case Skype on my laptop) – was 10x better than the ones via audio conference only.

I’ve been vacillating between a “physical attendance at all board meetings” approach or “video conference at all board meetings approach” to life. It’s impossible for me to physically attend all board meetings, but there’s no reason why I can’t attend by video conference. I’m now encouraging everyone I work with – as well as everyone that has a board meeting – to have a physical + video conference approach. It is so much better than having people on audio conference.

In several of the meetings, we simply set up Skype on a laptop and put the laptop at the end of the table. It’s a simple, low cost (free) solution, that works awesomely well. In one case, there was more than one person on Skype. Rather than try to do a Skype three-way (which works well also), the company simply set up two laptops with a separate Skype session on each. Skype audio seemed to work just fine in all cases but one, so we did an audio conference for voice and Skype for video.

While there will always be adhoc conference calls on short notice for boards that need to ratify something, for any meeting over an hour, or any scheduled meeting, putting the effort into getting everyone either physically there or on video makes a huge difference.

I know it sounds trite, but it’s remarkable how much better – even in a one on one conversation – the discussion is when it’s video instead of just audio. The calls are higher impact, body language is apparent, and people pay full attention rather than “minimally acceptable attention + email”.

We’ve been waiting for and talking about video conferencing for a long time. I think it’s really ready this time.


Finance Friday’s gets off the ground with today’s post by introducing you to an imaginary startup, the entrepreneurs that we’ll being following throughout the series, and their first challenges: splitting up the founders’ equity and addressing the case where one of the founders provides the initial seed capital for the business.

We felt like we needed to put some groundwork in place using a case-study like approach, rather than just jumping into looking at balance sheets, income statements, and cash flow statements. Hopefully, by the time we are done, we’ll all have some new friends and a lot of knowledge. Let’s get started.

Jane and Dick worked together at Denver Health, the nation’s “most wired” hospital according to Hospitals & Health Networks Magazine. They have seen first-hand the impact technology can have in the medical field through exposure to a number of Denver Health IT initiatives. Through a series of conversations, Jane and Dick have come up with the idea to develop a social network tailored to the medical community. Through an online platform, doctors, nurses, and administrators would be able to assist each other with complicated diagnoses, collaborate on research studies, and find and fill job openings. After sharing the concept with a number of colleagues and receiving enthusiastic support for the idea, Jane and Dick built up the confidence to quit their day jobs and launch a business together.

Jane and Dick each brings a similar level of skill and capability to the business, making it easy for them to agree to a 50/50 equity split. While they could both go without salaries for a year, Dick had no extra money to invest in the business. However, Jane was in a position to invest some of her savings into the startup. How could they treat Jane’s cash investment in the business in a way that was fair to both of them?

Jane could have covered expenses from her personal account for now, keeping track of the receipts, with the plan of letting an accountant sort it out later. After all, they needed to focus on building their product, right?

Fortunately, Dick and Jane had both read Dharmesh Shah’s piece on avoiding co-founder conflict in Do More Faster and knew it was important to address co-founder issues – including how to handle co-founder investments – from the start. They also knew that it was important to set up proper accounting systems from the beginning and that paying for bills out of your personal bank account and having an accountant sort it out later for you seemed like a recipe for future pain.

Jane and Dick had several options, including structuring this as a debt transaction where Jane simply loaned the money to the company, or as convertible debt transaction where Jane’s investment would convert into equity in the next round. But they worried that future investors would frown on that or wouldn’t give Jane credit for the investment at a later date, since they might consider it as part of Jane’s contribution to her original ownership position of 50%.

That narrowed the possibilities down to an equity transaction, which would in turn require a conversation about valuation. Jane and Dick briefly considered a valuation based on the next external financing round, perhaps applying a discount. For example, if the first round of external investment values the company at $2 million post and, prior to that, Jane had invested $50,000, then with no discount, Jane’s investment would earn her 2.5% of the company ($50k/$2M = 2.5%). If they agreed on a 20% discount, then Jane would be entitled to 3.125% of the company ($2M * (1-20% discount) = $1.6M; $50k/$1.6M = 3.125%).

At this stage it wasn’t clear when (or even if) the first round of external financing might occur or what it might look like, which made agreeing on a discount just as difficult as agreeing on a valuation, while adding complexity. After a tense conversation about this, Jane and Dick decided to go out for a beer and try to resolve the equity allocation issue once and for all.

Jane indicated that the most she could invest in the company before they would have to seek other sources of capital was $50k. Dick hated to think that he would be diluted by more than 20% of his stake over $50k and proposed that Jane receive 10% incremental equity for her $50k. Jane felt comfortable with receiving 10% for $50k, but no less, so they agreed on a $450k pre money valuation of their startup.

There are a number of ways Jane and Dick could have executed the equity transaction. The simplest would be if they agreed in the founders documents that they would both commit full-time to the business, Jane would contribute an initial $50k, and they would split the equity 55/45 in favor of Jane.

Dick and Jane have now successfully navigated their first finance challenge: dividing up the founders’ equity, including an investment from one of the founders. A few key lessons from today’s post are:

  1. Invest the time upfront to get the founders’ documents right. This will save a lot of pain down the road. This includes agreeing on how you will handle personal investments in the business, but it also includes many other topics such as founders’ vesting schedules and voting rights.
  1. Every time you put money in the business it represents some form of debt or equity transaction. You can introduce complicated mechanisms for handling these transactions (e.g. warrants or discounts). However, there is a lot to be said for keeping things simple during the early stage of a startup. It helps control transaction costs in terms of both time and money.
  1. You could inject more cash into the business on an as-needed basis. However, this is distracting, even if you are raising the money from yourselves. Each cash injection effectively represents a new round of financing, which can get messy. Try to minimize the frequency of transactions by investing enough money each time to get you to the next key milestone for your business.

Next week, we will address how Jane and Dick put proper accounting systems in place. Oh, and you’ll notice that they don’t yet have a name for their company. They’ve told us they are open to suggestions.


When Jason and I set out to write Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist, we both agreed that we wanted to try to create as useful and durable a reference guide for entrepreneurs interested in raising a round of venture capital as we could. As a result, we created a Resources page on Ask the VC and decided to load it up with legal documents that are part of a venture capital financing.

Now, while I’d like to be able to simply do all of my financings with a handshake, or possibly on a napkin written in crayon, I also wish I had a herd of unicorns, surrounded by rainbows, a balanced US government budget, and agreement on how to address the debt ceiling issue.

As a step in the right direction, Jason and I decided to open source our Foundry Group form legal documents. You can find them on the Ask the VC Resources page. Included are our standard forms for the following:

If you do a deal with us, simply feel free to mark them up. Or use them for other deals. Or study them, in conjunction with Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist, to know what we do and don’t care about (yes – there are some hidden extra-bonus tips in the forms for you to enjoy if you want.) Of course – all of the traditional legal disclaimers apply (e.g. “You take full responsibility for using these documents. We aren’t your lawyers and we give no warranties (express or implied) that they documents are any good or legally enforceable.”) So make sure you have a good lawyer advising you, even if you are smarter than him.

We’ve included plenty of other bonus material on this page, including LOI / merger docs and seed deal docs. We’ve got more coming, including a thorough dissection of a convertible note (and all the various permutations), but we thought this would be plenty to digest for now.

And if you find some unicorns, or typos in the documents, send them my way.


I think AngelList is awesome and I’m a huge fan of what they’ve done. Nivi wrote a great post celebrating their 1.5 year anniversary today: 1.5 Years Of AngelList: 8000 Intros, 400 Investments And That’s Just The Data We Can Tell You About.

One of the powerful constructs of AngelList is social proof. It’s become an important part of the seed / early stage venture process as very early stage investors pile into companies that their friends, or people they respect, are investing in. AngelList does a nice job of exposing and promoting social proof during the fundraising process in a way that is both legal and non-offensive.

However, as one would expect, entrepreneurs focus on taking advantage of every opportunity they have. As a result, I’ve been getting a request on a daily basis to either “follow” or be listed as an “endorser” for various companies. These requests fall into two categories: (a) people I know and am trying to be helpful to and (b) random people.

I’ve decided to say no to both categories unless I’m investing in the company. And I encourage everyone involved in AngelList to do the same. I think the concept of social proof is super important for something like AngelList to have sustainable long term value. I don’t ever want to be on the end of a conversation with someone who invested in a company on AngelList, runs into me, and says “things are sucking at company X – why did you ever endorse them” and for me to say “I have no idea who you are talking about.”

As with many things in life, the key lesson is to do your research. It’ll be interesting to see how AngelList copes with things like this over time – I expect Nivi and Naval will stay one step ahead of the problem. However, if you are an investor or entrepreneur – help by having some discipline on your end – it makes things better for everyone.


When Jason and I started AsktheVC, one of our goals was to have a place where entrepreneurs could ask us questions and get direct answers. We did this for a while, getting to most of the questions which has created a very nice corpus of answers to several hundred questions easily searchable by Lijit.

For example:

Of course, these are our answers and opinions, and many of the questions are subjective, but they form a starting point for any entrepreneur looking for answers to a bunch of random questions from a VC.

Now that we have relaunched AsktheVC with the publication of Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist, we’ve started answering questions again at AsktheVC. You’ll notice a “Have A Question” link just above the Do More Faster image on the right sidebar. We’ll try to answer them within a few days of them coming in. And, if you have a different opinion to any of our answers, please weigh in on the comments.


August 3 and August 4 are busy days in Boulder for entrepreneurs and early stage investors. On the evening of August 3 is Open Angel Forum #4. In the morning of August 4 is TechStars Boulder Demo Day. These two events show off the cream of the crop for new early stage tech companies coming out of the Boulder entrepreneurial ecosystem.

If you are an angel or VC investor I still have a few golden tickets left for each event. The best way to get them is to email me.


Last week I expressed my frustration with the current lack of financial literacy that I see all around me. In the spirit of Fred Wilson’s awesome blog series MBA Mondays, I’ve decided to write a series of posts about this and asked for suggestions. I got a bunch, but one that stood out was from a group of incoming MBA students at the University of Chicago Booth. Their suggestion was to write a series of posts that follows the development of an imaginary startup as the company navigates various events, focusing on how each event will impact not only the P&L, but also the Balance Sheet and Cash Flow Statement.

I thought this was a great idea, so I engaged Jonathan, Simon, Kevin, and Kevin (you can meet them below) to help out. They are going to help me prepare the posts each week, which will include developing excel spreadsheets that we will upload to complement the posts. They suggested we call this “Finance Fridays” to bookend Fred’s MBA Monday’s – I checked with Fred to see if he was ok with this and his response was “Hell yes. The more the merrier.”

We would love to get your suggestions in the comments section for (1) the type of company that we should follow, and (2) the types of issues that the company might encounter (reminder: the goal is to illustrate common difficulties entrepreneurs face when it comes to understanding their financials). At this point we are planning to use a consumer Internet company as an example, but we are also considering using a SaaS-based software company.

As a special bonus for me, I get to work with four students on a project. I love working with and mentoring students, and am especially thrilled when they proactively reach out to me.

Our first substantive post will be up next Friday. In the mean time, please meet the Finance Fridays team:

Jonathan Wolter has been a lead consultant and software engineer at ThoughtWorks working for clients in Silicon Valley, Texas, Chicago, and India. Now he is slated to enter Booth at the University of Chicago in the fall. On the side, he started a company selling accounting training to landlords. Previously he was at FeedBurner, and has never met a side project he did not love.

Kevin O’Leary has spent the past year working as an independent financial consultant to start-ups in the healthcare, telecom and nonprofit industries on projects both domestically and internationally. Prior to that, he was an investment banking analyst in the Medical Devices group at Piper Jaffray. He will be entering Booth as an MBA Candidate this fall.

Simon Zhang spent three years as a financial and tax consultant at Deloitte Canada with a focus on businesses in mining, financial services and technology sectors. He is a Canadian Chartered Accountant. He also lectured an undergraduate tax course at Simon Fraser University and frequently facilitated professional education courses with Canadian Institute of Chartered Accountants. With a strong interest in entrepreneurship and technology, he subsequently joined a technology start up project at Orbis Investment Management Ltd, an asset management firm with over USD $25 billion under management. His focus was to incubate an internal start-up which is built on state-of-the-art technology, novel business model and innovative products. He will be entering Chicago Booth to complete this MBA with a focus on entrepreneurship and finance in the Fall 2011.

Kevin McCaffrey left his job as a strategy consultant in the Chicago office of McKinsey & Company to found Dot-to-Dot Children’s Books, a nonprofit social enterprise that works with children around the world to develop children’s books that are marketed to raise funding and awareness for the authors’ communities. Dot-to-Dot relies entirely on earned income and employs a unique cause-related marketing strategy designed to establish a successful position in the competitive children’s lit market. Kids from eight countries, including Cambodia, Eastern DR Congo, and Afghanistan, have participated in Dot-to-Dot projects. Kevin’s experience with Dot-to-Dot has him hooked on entrepreneurship, which will be his focus at Chicago Booth.


I’ve recently discovered two awesome tools for helping me manage my contacts in Google Apps. One is a TechStars Boulder company called Rainmaker and the other is a Paris-based company called Kwaga that has an app called WriteThat.Name.

I’ve got a large address book in Gmail (> 11,000 contacts). I get numerous new inbound contacts on a regular basis from people reaching out to me and Google automatically puts their email address in Google Contacts, which is cool. However, it doesn’t put any additional info – either from the email body (which often has contact info in it) or from other sources like Twitter, LinkedIn, and Facebook – which often has a lot more contact info, including a photo.

Let’s start with WriteThat.Name. Once you tie it to you Google account, it automatically scans emails, parses out any contact info it finds, and automagically adds it to the contact record. I’ve been looking for this for a very long time (over a decade) – I’ve never understood why Microsoft didn’t build this into Outlook. Sure – there have been plenty of plug-ins along the way, but nothing that “just worked” invisibly in the background. WriteThat.Name does – beautifully. After using it for a week for free I paid for it. I met the CEO Philippe Laval at lunch the other day in Paris and gave him a big hug. Do yourself a favor – try it.

The next app is Rainmaker. This is from one of the TechStars Boulder teams from this year that is just killing it. You connect it up to your social networks and your Google account. You can then selectively, or in bulk, “make it rain” on your contacts where Rainmaker will use all the magic it can to enhance your existing contacts using whatever information it can find. Like WriteThat.Name, this information is going directly into your Contact database, enhancing it dramatically.

While there is a lot more that can be done, both of these applications make good on the promise of “my computer being smarter than me.” I find that I spend almost no time in my Contacts entering data and updating it any more. All the stuff I need is there – all the time – and I can call, email, IM, chat, txt, or whatever I want without having to search around for the info.

One last hint – before you crank up any program that you give write access to your Google App data, make sure you use Spanning Backup to backup your Google Contacts, Calendar, and Docs data (we are investors in Spanning Cloud Apps, the company that does Spanning Backup.) While I’ve had no issues with either Rainmaker or WriteThat.Name, better safe than sorry!


As a VC who has been blogging for a long time I’ve been fascinated by the VC Blogger phenomenon. I’ve been subscribing to, reading, forwarding, occasionally commenting, and setting up networks of feeds for a while.

With the relaunch of AsktheVC we’ve resurrected something we used to do periodically which is highlight a great VC post. However, we are taking a different tact this time around with our new motto.

“We read all the VC Bloggers so you don’t have to.”

It’s not quite the gray lady, but hey, we are just VCs and bloggers, not real journalists. Jason and I already have some great posts up from guys like Jeff Bussgang (Flybridge), Mark Suster (GRP), Fred Wilson (Union Square Ventures), Roger Ehrenberg (IA Ventures), Charlie O’Donnell (First Round Capital) and 500 Startups. We’ll provide a little additional insight, or at least a pithy comment.

We’ve also got a full list of known VC bloggers (at least to us) on the sidebar of AsktheVC. If we are missing anyone (I’m sure we are), please email me and I’ll add them.