Trust, Friendliness, and Zero-Sum Startup Games – Approach all negotiations from the perspective that, while the best investors are very “friendly,” they are still significantly misaligned economically from the interests of the common stock (founders and employees). Don’t drink any kool-aid suggesting you should let your guard down and just accept whatever advisors/templates they offer on the table.
Negotiation is Relationship Building – The (polite) back and forth of negotiating high-stakes issues is one of the most important ways to get to know who your lead investors really are, and set expectations for the long-term dynamics of the relationship.
Not Building a Unicorn – Raising too much money at unrealistic valuations, and from investors who are designed to chase exclusively unicorn returns (reflective of Silicon Valley culture), can push your company in a direction that isn’t in the common stock’s best interests. Be thoughtful about what your real goals are, and realize that most startup ecosystems in the U.S. and the world are not under any illusion that only unicorns are worth building.
Posts on Seed Round Structure – Convertible notes, SAFEs, and Seed Equity are the main options. Outside of pockets of Silicon Valley that control a lot of the most vocal startup ecosystem microphones, simplified convertible notes with lengthy maturity dates and low interest are the dominant structure, but seed equity is a viable and increasingly popular alternative.
- Why Startups shouldn’t use YC’s Post-Money SAFE – The new Post-Money SAFE is designed with very investor-biased economics, which is a far departure from the original pre-money SAFE; neither of which have become anything resembling a “standard” in most startup ecosystems outside of SV.
- Milestone-Based Valuation Caps – When there’s disagreement as to what the appropriate valuation cap is for a seed round, offering a tiered structure based on various milestones can often bridge the gap.
- “Fixing” Convertible Note and SAFE Economics – a proposed simple fix to make convertible seed rounds more like equity, and thus both fairer to startups and easier to model.
- A Fixed Post-Money SAFE Structure, and a Math Model – A simple redline fixing the worst economic costs of the post-money SAFE, and a math model showing the implications.
- The Best Seed Round Structure is the one that closes – Anyone suggesting that there are only 1 or 2 “right” ways to structure a seed round either has no idea what they’re talking about, or is a shill for a particular fund that prefers one way of doing things. Investors in various geographies and contexts have different expectations. Goal #1 is get the money, but use experienced advisors to protect yourself.
Relationships and Power in Startup Ecosystems – Structuring investment for a startup is a very high-stakes, complex process in which the investors you’re dealing with will usually have 50x the experience that you do. Working with seasoned, independent advisors can be your most powerful “equalizer” in those discussions, but only if you aren’t duped into using advisors who are ultimately controlled by the money, or who behave as if one approach fits all.
Pre-Series A Startup Boards – It’s important to understand how consequential giving a Board seat is, and why most companies don’t give them to seed investors; though there are contexts in which it makes sense.
Podcast on Startup Fundraising – A short podcast for the American Bar Association on which I was a guest speaker, in which I walked through the various fundraising stages of early-stage startups (starting with Friends and Family) and issues founders should watch out for.