Bambi Francisco was at TechStars Investor/Demo Day in Silicon Valley yesterday and did a short interview with me on how TechStars works . Mom – please listen to at least the first 30 seconds as Bambi calls me a technology luminary!
In 2005, my partner Jason Mendelson and I wrote a long series of posts describing all of the parts of a typical venture capital Term Sheet . We started on 1/3/05 with a post on Price and finished up on 8/23/05 with a post on Indemnification and Assignment . Of all of the stuff I’ve written over the past four years, my stats continue to tell me that stuff we wrote in the Term Sheet series is some of the most popular content on my blog. As I was writing my post I Blog, I Tweet, But Why I realized that many of you have started reading my blog after 1/1/06 so you might have missed this series. ...
I love a good rant and Dave McClure has a doozy up titled VC’s & Tech Lawyers: Innovate, Automate, Simplify . Several years ago when Jason and I wrote our Term Sheet series, I often thought to myself (and often out loud) “why is this so complicated?” (ok – there were some adverbs used as modifiers in the sentence as in “why is this so X Y complicated?”) In addition to a delicious rant, Dave has some good suggestions for all of us. Anyone doing a seed or light Series A round (< $1m) should read Ted Wang of Fenwick & West’s article Reinventing the Series A for some additional ideas.
In my first business, we didn’t have a line for EBITDA on our financial statement. We went straight to Net Income. We knew our cash flow from our statement of cash flows (and our bank account which we checked regularly since we were self funded.) We never talked about EBITDA, nor did we ever feel the need to come up with things like “Adjusted EBITDA.” Now – I went to business school so I knew what an EBITDA was – I just didn’t care much about it at Feld Technologies because it didn’t matter. Cash mattered the most. Cash Flow mattered next. Net Income mattered a distant third (as long as it was positive every month – it got more important if it was ever negative, but it was still third.) The list continued. EBITDA was not on it. This was 1987 – 1993. ...
I’ve gotten to know David Cohen and David Brown through our work together at TechStars . DavidC and I have talked a little about Pinpoint (the company that the David’s co-founded) and I’ve had one meeting at ZOLL Data Systems (the company that DavidB runs that is a subsidiary of the company that acquired Pinpoint.) But I didn’t really know their story. DavidB took some time off (left ZOLL but then went back.) During this time he wrote No Vision, All Drive . I love self-told, first person, authentic entrepreneurial stories (one of my favorites was The MouseDriver Chronicles.) DavidB did a great job of telling the Pinpoint story – starting at the very beginning – and sticking to the story rather than veering into the prognostication zone that so many authors of business stories feel compelled to go to. ...
A blog reader (Sam from – well – somewhere) pointed out a critically important new set of accounting principles called SAAP that are a replacement for GAAP and are described on Long or Short Capital .
One of my most popular blog series ever was on Term Sheets. I’ve been pondering another series for a while and a reader inspired me this morning to start one on Financial Statements. I think your post this morning opened up a subject area you might wish to develop further. Your point was start with the cash flow because of the confusing nature of GAAP. In fact almost all sophisticated readers of financial statements start with the balance sheet or the cash flow and read the P&L last. I think some posts on balance sheet and cash flow analysis techniques or working capital management for a startup would be useful, for the following reasons: ...
Bill Burnham has an excellent rant up on GAAP accounting titled Is It Just Me or is GAAP Completely Broken? In case you don’t know, GAAP stands for “Generally Accepted Accounting Principles” and is a term regularly thrown around when staring at an income statement, balance sheet, statement of cash flows, or any other “supplemental information.” I’m not a public market investor so I don’t have the twisted experience that anyone that deals with a public company has with GAAP since I don’t really care about understanding the financial statements of public companies (in any great depth.) Bill is – and he does a nice job of covering why GAAP has become such a mess in the public arena. ...
In 2005, Jason Mendelson (my partner and co-author of AsktheVC ) wrote what has become an extremely popular series dissecting the “term sheet.” The feedback we got from it encouraged us to write several more series of blogs and ultimately led to us deciding to start writing AsktheVC to answer random questions from entrepreneurs. Last Friday I pointed to a post from Dave Naffzinger (Judy’s Book) about Stock Options from an Entrepreneurs Point of View. I woke up today to two more great entrepreneur posts on term sheets. The first is from Dick Costolo (FeedBurner) titled Venture Terms – Liquidation Preferences and Participation*.* The second was titled Term Sheet Hacks was on a new blog titled Venture Hacks and written by Naval Ravikant (Vast.com) and Nivi (EIR at Atlas Ventures.) ...
Rick Segal is in the middle of a negotiation and is having some frustration with his co-investor – a “US VC” – around settling on a few terms that he thinks are silly. I agree with two of them but struggle with the third. Expenses: If the deal doesn’t close, the startup pays. I agree – that’s silly, especially for an early stage company. I can imagine some later stage / VC buyout type deals where this might apply, but it doesn’t make sense in an early stage deal. However, the company should always pay (using their newly raised money) when the deal closes. Exclusivity Term: 90 day exclusivity is too long. I agree – if you can’t get the deal done in 45 days from the signing of the term sheet, something is wrong. Founder Buy Back: This one isn’t simple – it’s very context specific, personality dependent, and linked to stage, capital structure, roles and responsibilities of the founders, existing and future management team, and a whole bunch of other stuff. I don’t think there’s a general case here – I think you have to address this deal by deal. Rick – don’t worry about the “US VCs” – if they are offended by the philosophy of Canadians, just offer to take them to a hockey game.