finally! getting to a common term sheet on series A funding

this has become a big topic in the past week with fred's post and now a techcrunch story. also, thx to adeo ressi for all his great work with the funded and the entrepreneur foundation to help spur more amazing startups. 

this is a comment i posted in response to fred wilson's great post about converging on a common term sheet for first round venture financing of startups. 

i will add a few points.

1. pre money valuation should value the company as it exists today. if investors want to ask for an option pool that is reducing the value of the company as it exists today and is therefore a lower pre money. i've always thought this was a bs way for vc's to sell you an emotional value but make you take a third less.

2. if a company is profitable the entrepreneur should NEVER give up control. if it's not, the vc's can negotiate for that. control is hire/fire the ceo and set budgets. 

3. msg to vc's. if you like an industry, company, team back them. if you dont dont. entrepreneurs - dont work with vc's that demand anything beyond normal preferred with 1x liquidation. if they ask for 8% dividends and a 5 yr forced payback, tell them to go be bankers and lend their money out. 

4. control - entrepreneurs, assume that if a vc can fire you they will. it can happen bc you performed badly and also bc you performed too well, and you have never managed such a big business. 

5. relationships - matter a lot. go with people you know and trust, not the highest bidder. go 10% below your market price, choose your investor and hopefully they will feel priviledged. my advice is pick people you would like to have beer and sushi with like fred. 

6. ref check - ask to interview founders of failed companies the vc backed, especially ones who have been replaced. remember, some should be replaced.

Comments

[Adeo Ressi]

Thanks, Mark, for the support. I hope we can drive to a better funding environment by balancing the incentives.