By ReachVC 桂曙光

昨天看了经纬创投合伙人邵亦波的一篇博客“再谈优先清算权（Liquidation Preference）”，举了对创业者向VC融资时很有教育意义一个例子，尽管已经说得很清楚了，我还是有点疑惑，于是，我花了点时间，把这个例子详细解剖一下。

邵总举例的一个比较典型的创业融资过程如下：

第一年：公司成立，天使投资50万美元，融资后估值200万美元。

第二年：A轮融资，VC投资400万美元，融资后估值1200万美元。并且，拥有1倍的优先清算权，Non-participating，8%的年股息。同时，成立了期权池15%，以后每轮融资都保证期权池占总股本的比例15%不变。

第三年：B轮融资，VC投资800万美元，融资后估值4000万美元，2倍的优先清算权，Participating，10%的年股息。

第四年：C轮融资，VC投资2000万美元，融资后估值8000万美元，3倍的优先清算权，Participating，10%的年股息。

第五年：公司以1.5亿美元的价格卖掉，创业者获利多少？

根据邵总的计算，创业者在公司卖掉的时候，经过四轮投资，股份被75% × 66.7% × 80% × 75%四次稀释，最后还能持有30%的股份，但考虑到15%的期权，创业者手中应该是只有15%的股份，但其价值并非对应的2250万美元。因为VC投资人有优先清算权（Liquidation Preference），即：公司被卖掉或者被清算时优先股有权优先把他们的钱先走。

我从头开始梳理这个投资及并购过程，如下：

1、公司成立，天使投资50万美元，融资后估值200万美元。

假设公司按$1.00/股的价格，发行了200万股份，创始人及天使投资人分别持股75%及25%。如下图：

2、A轮融资，VC投资400万美元，融资后估值1200万美元，设立了期权池15%，以后每轮融资都保证期权池占总股本的比例15%不变。

看起来融资后估值为1200万美元，似乎融资前估值就是1200-400=800万美元，实际不然，因为15%的期权也需要从融资前的估值里出（稀释原始股东，即创始人和天使投资人的股权比例），而15%是融资后的期权比例，其价值是15%*1200=180万美元，这样融资前估值就是800-180=620万美元。而已发行的股份数为200万，每股价格为$3.1美元，公司根据A轮VC的400万美元投资及15%期权的价值，增发相应的股份。A轮VC投资人持股33.33%。如下图：

3、B轮融资，VC投资800万美元，融资后估值4000万美元。

跟A轮融资类似，融资后估值为4000万美元也不表示融资前估值就是4000-800=3200万美元，这里15%的期权也需要从融资前的估值里出（稀释原始股东，及创始人、天使投资人和A轮VC的股权比例），同样15%是融资后的期权比例，其价值是15%*4000=600万美元，这样融资前估值就是3200-600=2600万美元，每股价格为$7.9美元，公司根据B轮VC的800万美元投资及15%期权的价值，增发相应的股份，B轮VC的股份比例是20%。如下图：

4、C轮融资，VC投资2000万美元，融资后估值8000万美元。

跟A、B轮融资类似，融资前估值不是6000万美元，而是4800万美元，每股价格为$11.16美元， C轮VC的股份比例是25%。如下图：

5、公司以1.5亿美元的价格卖掉。

公司以1.5亿美元的价格卖掉时，如果所有VC股东的股份都是普通股的话，按照各自的股权比例，他们的回报倍数分别为6.7倍、2.6倍、1.9倍。

实际结果当然不会是这样了。那在详细了解之前，需要先看看优先清算权的Non-participating与Participating属性。邵总讲得很明白：

Non-participating代表投资者在公司卖掉或清算的时候，可以拿走以下两者中的一个：第一，他们投资的本金；第二，他们所占股份的价值。也就是说当每股价格在清算时比投资者投资时的价格高，优先清算权是不起作用的，因为投资者一定不会选择拿回本金。这里A轮的投资者就拥有这项权利，这是比较合理的。

B轮投资者要了Participating，并且是2倍。什么意思？如果公司卖掉，投资者先拿800万美元的2倍即1600万美元，加上8%的利息，然后，他们还要在剩下的钱里按照股份比例分。“Participating”的结果是投资者鱼和熊掌兼得。B轮的投资者有了这个权利，C轮的投资者更要有。这一点也是要特别注意的，因为开了个坏头之后，以后只会更糟。每个后来的VC都会要和之前的VC至少一样好的条款，而更普遍的情况是后来者的条款会对投资者越来越有利、对创业者越来越不利。

那现在我们来算一下1.5亿美元的退出，创业者最终能拿到多少？

首先，C轮投资人如果按照其股权（假设投资人的优先股都可以按照1:1转换成普通股，后同）比例，只能3750万美元，即1.9倍的回报，这个回报倍数低于他投资时要求的3倍清算优先倍数，所以他一定会执行优先清算权，这样，他可以先拿走：2000 × 3 + 2000 × 10% × 1 = 6200万美元。剩下的8800万美元，C轮投资人还要可按转换成普通股后的股权比例，跟其他所有股东一起分配（Participating）。但这之前，B轮投资人和A轮投资人还是优先股呢，还有等他们决定是否行使各自的优先清算权。C轮投资人的回报倍数暂时为3.1倍。如下图：

其次，在C轮VC投资人拿走优先清算的钱之后，该B轮VC投资人拿了。如上图所以，如果他按照股权比例分配剩余的钱，只能获得1.6倍回报，低于优先清算的2倍要求，所以，B轮VC投资人也会执行优先清算权。B轮投资人可以先拿走：800 × 2 + 800 × 10% × 2 = 1760万美元，剩下的7040万美元，B轮投资人还要按照股权比例，跟其他所有股东一起分配。但这里，他同样要等A轮投资人决定是否执行优先清算权。B轮投资人的回报倍数暂时为2.2倍。如下图：

第三，这个时候，可以看到A轮VC投资人的回报为3.2倍，高于他优先清算的1倍回报要求，他当然不会执行优先清算权了，他会选择按照可转换成普通股的股份比例，跟其他剩余股东分配剩下的钱。

所有A、B、C轮投资人拿走了优先清算的钱之后，所有股东都按照可转换成普通股的股份比例，分配剩余7040万美元。如下图：

最终，C轮投资人的回报倍数为4.0倍，B轮投资人的回报倍数为3.4倍。而创业者最终获得约1473万美元左右，跟邵总的答案是D（1500万）非常接近。

当然，上面的案例是个非常理想的状态，简化了很多东西，比如期权的价格、期权是否发给创始人、B轮VC投资时,期权是否稀释A轮VC、C轮VC投资时，期权是否稀释A/B轮VC?（邵总的案例解析中，所有期权全部由创始人承担，这样的VC是不是太黑了）

上面的分析可以看到，一个还算成功项目，成交金额达到1.5亿美元，结果创始人只能拿到1500万美元左右，10%都不到，主要原因在于最后一轮VC投资额太大、优先回报倍数太高，搞不好的话，创业者一个子儿都捞不到。

切记一点：拥有Participating Liquidation Preference的VC，他们的利益跟创始人的利益可能是不一致的，因为即便公司被廉价卖掉，他们也会获得一个不错的回报，而创始人就惨了，他们手上20%多的股份，又能怎样把握自己的命运呢？（ReachVC 桂曙光）

By ReachVC 桂曙光

（本文已刊登在《创业邦》杂志2009年10月刊）

2009年7月23日，亚马逊（NASDQA：AMZN）宣布收购美国最大的在线鞋类零售网站Zappos，亚马逊的支付方式为价值8.07亿美元的亚马逊普通股，外加4,000万美元的现金和限制股，共计8.47亿美元。这无异于给国内略显萎靡的互联网行业，尤其是B2C这个领域打了一针兴奋剂，互联网行业的创业者和关注互联网投资的VC们，一时欢呼雀跃，似乎希望就在前方，就像当年Google以16亿美元收购YouTube带给网络视频网站的希望一样。

Zappos创立于1999年，位于美国内华达州汉德森市，目前是全球最大的鞋类在线销售（B2C）网站。公司CEO谢家华（Tony Hsieh）的背景也可谓辉煌，他在1996年年初放弃了Oracle程序员工作，以2万美元本钱在一套2居室的公寓里开始创业做LinkExchange，1997年5月，获得红杉资本（Sequoia Capital）的300万美元投资，1998年11月微软宣布以价值2.65亿美元的股票收购LinkExchange。此后，24岁的谢家华成为了一名天使投资人，并在1999年的时候认识了一个比自己更年轻的创业者——尼克.斯威姆（Nick Swinmurn），斯威姆开了一个买鞋的网店ShoeSite，谢家华觉得创意很棒，就投资了50万美元，并把网站的名字改为Zappos，6个月之后，谢家华也进入公司跟斯威姆一起经营，并在2000年正式成为Zappos的CEO。谢家华后来陆续以个人身份和通过自己控制的创投青蛙公司（Venture Frogs）向Zappos追加投资超过1,000万美元，并引入红杉资本约4,400万的投资。Zappos的成功出售，其创业者和投资Zappos的VC都借此赚翻了。

这个案例很精彩，其中有很多东西值得创业者学习和借鉴：

1、创始人最终不一定能掌控公司

对于Zappos被收购事件，几乎所有的媒体都是在大肆报道谢家华的成功创业史和交易的金额，有几个人还记得这家公司的真正创始人是一个叫做尼克.斯威姆的年轻人，Zappos的前身是ShoeSite，而ShoeSite的创造者是第一个员工是斯威姆！可怜的斯威姆，好比他自己生下的孩子，养了3个月后家里来了个厉害的保姆，保姆觉得孩子名字太土了，改掉！后来在保姆的精心护理下，这个孩子出息了、出名了，结果大家都把这个孩子的保姆当作他的父母，不知道他真的父母为何人。

Zappos的融资经过很多轮，包括天使投资和六轮VC投资（A、B、C、D、E、F轮），最后斯威姆手中剩余的股份比例已经是个位数了。这是很多创业者需要牢记于心的，要想寻求VC的资金来发展公司，都要承受每一轮稀释掉20%-30%的股份。即便一开始拿着100%的股份，也只需要2、3轮就被稀释到50%以下。

另外，由天使投资人谢家华担任Zappos的CEO，而不是创始人斯威姆，这可能有多方面的原因，比如：（1）斯威姆自己感觉能力不行，主动让贤；（2）谢家华认为斯威姆能力不够，强迫其让位。不管怎么说，看起来似乎谢家华无论在公司运营能力、对资本的吸引力、长远发展眼光等方面，更适合做公司CEO，但前提是斯威姆一开始就要能明白和接受这一点。

很多成功创业者出身的天使投资人，对企业都会给予很大的帮助，有时候他们甚至会挽起袖子自己亲自干。VC公司里也通常有一个职位叫做“创业合伙人”，他们基本都是创业者出身，一旦看到好项目，VC投资之后，他们就会加入公司。这些人一旦进入公司，很有可能就会逐步取代创始人的地位。

初创期的创业者，你在融资之前，你做好这个准备了吗？你能接受吗？

2、并购是消灭竞争对手的一个手段

Zappos做得风生水起，作为B2C行业老大的亚马逊当然坐不住。面对网上销售鞋类产品这个巨大市场，为了与Zappos竞争，亚马逊曾在2007年推出一个独立的网站Endless.com，专门在线销售鞋类和手提包，但是根本无法跟Zappos相提并论，就拿2009年6月来说，Zappos的访问人数达450万人次，而Endless.com仅77.7万人次。另外，亚马逊也在自己的主网站上销售鞋类，但是这跟Zappos的差距就更大了。

那亚马逊该怎么办？打不过就不打了，买过来成一家人呗！反正亚马逊与其花钱、组织团队去跟Zappos抢客户，还不如直接把Zappos买断，这样代价说不定更小，还能为公司提供新的利润增长点，有利股价上升。最重要的，公司短时间之内，不必投入资金和人力到鞋类产品的销售上，原来最大的竞争对手倒戈了！

尽管根据Zappos和亚马逊的交易协议，Zappos的要求全部得到了满足，将继续保持独立品牌并独立运营，并且所有管理层和原员工维持不变，但天知道以后会怎么样呢。

财大气粗的上市公司可以拿大钱消灭竞争对手，其实创业企业也可以拿小钱消灭竞争对手，但需要借助VC的手。有些VC如果对某个行业感兴趣，但看不清哪家公司最后能冒出来、成为领先者，那他就可以同时投资几家公司，但只集中精力扶持其中一家，打压、干扰其他几家，甚至将其他几家的商业机密透露给扶持的这家，最后只要剩下的这家公司发展起来了，其他几家死掉都当作成本了，一家成功就能全部赚回来。所以，创业者在接触VC的时候，首先要看的，是他有没有投资过你的竞争对手，或潜在竞争对手，如果有，嘿嘿，最好当心点儿。

创业者，你是VC眼里扶持的对象，还是消灭的对象呢？

3、VC的目标跟创业者常常不一样

有报道说，把Zappos卖给亚马逊，并不是谢家华想要的结果，他一直希望促成Zappos上市，而Zappos的投资人红杉资本却希望公司早日出售，尽快实现退出，换取现金。但谢家华出面辟谣说“红杉资本强迫我们出售公司，这是不准确的，没人被强迫这样做。”“我们不再需要为运营一家上市公司而头疼。”到底是怎样的情况，可以简单分析一下：

首先，受金融危机、经济危机的影响，美国股市表现不佳，IPO窗口也一度关闭，2008年下半年及2009年上半年，VC们最担心的是所投资的企业能否成功退出。将Zappos出售给亚马逊，并且以换股的方式进行交易，对与红杉来说应该是不错的选择，相当于间接上市。

通过查询亚马逊就收购Zappos给SEC的S-4申报文件，以及一些内幕人士的披露，得知红杉的4,400万美元是在E轮和F轮以优先股的方式投资的，由于当时Zappos的估值很高，作为补偿，红杉获得了不错的优先清算倍数，分别是4倍和2.738倍。也许是谢家华认为Zappos上市是迟早的事，通过高估值尽量少稀释一点股份，公司只要上市了，就不会触发投资人的优先清算权利，所以优先清算倍数是高是低都无所谓了。

按照红杉的投资额和持有的股份比例，Zappos被并购时，红杉的优先清算额将超过1.5亿美元。但如果红杉将其所有优先股都转换成普通股，按比例分配8.47亿美元的并购总额的话，只能得到不足1.2亿美元，所以，只有当并购交易总金额超过11亿美元的时候，红杉转换成普通股才是有意义的。据S-4申报材料中披露的摩根斯坦利对Zappos在公开市场的价值分析，摩根认为Zappos的价值为6.5亿至9.05亿美元之间。所以，很显然，红杉没有将其股份转换成普通股，而是按照优先股股东的身份获得优先清算额。

申报材料中披露的Zappos财务状况，公司2008年的毛收入超过10亿美元，净收入6.25亿美元（同比增长21%），未计利息、税项、及摊销的利润（EBITA）超过4,000万美元，净利润1,080万美元，而2007年净利润只有180万美元，这样良好的财务状况，如果公司愿意的话，其财力足以支持到IPO市场转暖。

另外，一开始亚马逊提出的是“全现金”交易的方案，但是Zappos想要“全换股”交易的方案。很明显，Zappos（包括管理团队和VC）认为基于亚马逊股票的未来增长预期，全部以换股的方式支付的方案会更好。但亚马逊也是这么考虑的，所以希望全现金的方案。双方经过几个回合的磋商、亚马逊做出极大让步才达成“大部分股份、少量现金”的结果。

谢家华是一个超级成功的创业者，他的基金也有一些成功的投资案例，如果红杉都会让他在清算优先权、强迫出售问题上吃亏，想象一下对于初出茅庐的创业者，你怎么能算计得过那些老练的VC。

创业者，在拿VC的钱之前，你知道VC需要的是自己手里股份的“流动性”而不是你的利益吗？

4、财务顾问能起到推波助澜的作用

在S-4申报材料中，还可以看到亚马逊和Zappos是如何一步一步走到一起的。其实Zappos在亚马逊的视野之内也不是一天两天了，两家公司早在2005年8月就曾有过一次高层的会谈，包括双方CEO、红杉首席合伙人迈克尔.莫里茨（Michael Moritz）在内。后来不断有高层的接触，但直到2008年底双方的关系才开始升温。直到2009年4月，Zappos聘请摩根斯坦利作为财务顾问之后，双方才迅速达成交易。其中的几个重要时间段如下：

1. l Zappos从创立到被并购：10年
2. l 红杉第一次投资Zappos到退出：4年9个月
3. l 亚马逊从接触Zappos到收购完成：3年11个月
4. l 从聘请专业财务顾问到完成到宣布并购完成：3个月

从上面创业者能看出什么名堂呢？

首先，创建一家伟大的公司不是一蹴而就的，即便是如谢家华这样的人，都需要十年公司，而很多初出茅庐的创业者，动不动就喊出3、4年上市、5、6年做到行业第一之类的大话，这不但对你融资没有任何帮助，反而会让VC觉得你很幼稚。

其次，红杉资本的退出花了4年多，这对于寿命期为10年左右的VC来说，不算太短。对于创业者来说，如果你做不到在3、5年之内让公司上市或者被并购，就不要想着去找VC了，尤其对于那些已经募资完成好几年的VC，更不要打他们的主意，他们可没有时间陪你玩，他们背后的出资人还在追着他们的屁股要投资回报呢！

第三，亚马逊和Zappos相识很长时间，这可能是绝大部分大项目所面临的情况。当创业者在评估退出可能性的时候，他们通常幻想着有一天会被哪个天上掉下来的巨头看上，扔过来一大堆钞票，但实际上99%的情况是，这个收购者是你已经早就熟识的某家公司。但由于创业者对资本运作的不熟悉、并购方对创业企业的审慎考察、以及双方在利益上的看法分歧、等等原因，导致双方迟迟难以达成合作——直到有第三方的专业财务顾问的出现。Zappos自己花了3年多跟亚马逊谈不拢，摩根斯坦利进来之后，3个月就摆平了！这就是第三方财务顾问的价值，谢家华也算是资本运作的高手了，红杉资本更是高手中的高手，但还是需要借助摩根斯坦利的手，才把这个交易迅速搞定，这其中的奥秘，恐怕就是摩根斯坦利生存的秘诀。

创业者，你在融资的时候，是愿意自己单枪匹马去找VC，还是愿意找个专业的财务顾问来帮你呢？(ReachVC 桂曙光)

by ReachVC 桂曙光

（删减版已刊登在《商界评论》杂志10月份的刊中刊）

商业计划书（即Business Plan，简称Bizplan、BP）通常是创业者为了对外融资的目的编写的，是创业者在一厢情愿、自我包装、自我感觉的情况下，对公司的画像，包括公司业务、财务状况、市场分析、管理团队等等方面的内容。创业者开始商业计划书的编写，标志着公司融资工作的真正启动。通常投资人是通过商业计划书对公司进行初步的了解，然后决定是不是跟创业者进入到下一个环节。商业计划书编写的好坏，有时候决定了公司融资的成败。

商业计划书形式及内容构成

通常而言，商业计划书中，需要包括以下九个方面的内容：

1) 公司介绍及长远目标；

2) 管理团队的介绍；

3) 产品或服务介绍；

4) 商业/收入模式；

5) 市场推广及营销策略；

6) 市场分析及竞争分析；

7) 公司发展规划；

8) 财务状况及财务预测；

9) 融资需求及资金用途；

这些内容结合在一起，可以完整地给潜在投资人讲一个故事：

有这样一个公司，它想成某个领域的一个伟大公司？它是在什么情况下创建的，已经取得了哪些成绩，它是由一帮有什么能力的团队创立和管理？它是要为用户解决什么样的问题，这个问题有多么严重，它的产品和服务是什么，怎样解决用户的问题？已经有哪些用户使用了它的产品和服务了？它如何跟合作伙伴合作，如何从客户那里赚到钱？公司是通过哪些渠道和手段将产品和服务推广，让用户了解和购买？公司所做的事情有可能做多大，有多大的市场机会和发展潜力，又有哪些竞争对手在跟它抢夺这些机会，公司跟他们比起来的优势在哪里？公司未来有什么样的发展目标和计划？公司的经营历史及未来发展用财务数据来表现的话是怎么样的？要实现预计的发展目标，公司当前还需要多少外部资金支持，这些资金主要是做哪些事情就能保证公司按预定目标发展？

当然，商业计划书中的各项内容前后次序没有必要一成不变，也可以稍作调整。根据融资的需求，商业计划书可以分解成以下四份材料：

1. 商业计划书执行摘要：Word格式，篇幅为1-2页，5分钟可以看完；
2. 演示文件：PPT格式，篇幅为20页左右，适用于30分钟的演讲；
3. 完整版的商业计划：Word格式，篇幅为30-100页以上，包含详细、完整的全部内容；
4. 未来3年的财务预测：Excel格式，包含详细的财务预测模型，及全部预测假设条件及预测财务报表。

有很多创业者辛辛苦苦，好不容易拼凑出了一份100多页的“完美”商业计划书，他们往往期待着他们的努力能够的到回报——获得投资，但是你换位思考想一想，如果要让你在决定跟创业者会面之前，需要仔细看完100页的商业计划，你会怎么做？而且这个人你以前从来就没有见过，或者是从未听说过？再进一步想一想，如果你每天有5-20份这样的商业计划书，那又是个什么概念！你说对了，这非常没有效率，知名的投资人每天会被各种各样的融资项目包围，无数双要钱的手在眼前挥舞。所以，你要想得到与投资人会面的机会，就需要尽量简短一些，而100页的商业计划显然是背道而驰的。

那么，创业者应该怎么办呢？首先，要准备一份商业计划书执行摘要（Executive Summary，简称“执行摘要”），其内容是对完整版商业计划书的高度浓缩，也可以作为商业计划书的第一部分，主要用于跟投资人第一次邮件沟通，或者是在某些会议、论坛场合跟投资人简单沟通。执行摘要最长不要超过两页，最好压缩成一页，要能让投资人在3-5分钟内阅读完毕，以决定是不是有必要跟创业者面谈，进一步了解一些详细情况。

一旦投资人决定跟创业者面谈，那创业者通常需要一份PPT演示文件，这份文件也可以称之为商业计划书，因为它的内容是完整商业计划书的概要，是创业者跟投资人直接面对面沟通、演示时使用的文件，也是最为重要的一份融资文件。投资人一方面通过创业者的嘴巴“讲”出他的商业计划，另一方面，也通过这个过程考察创业者的表达、思维、应变、等方面的能力。PPT演示基本是投资人的规矩，创业者要通过30分钟-1个小时的演示，激发起投资人对公司的兴趣。

如果投资人对公司的产品、服务、市场地位、团队、基本财务数据、前景、等等方面都看好的话，他们就会要求看一看公司未来会有什么样的快速成长的财务表现。这个时候，创业者需要拿出一份详细的3年预测财务模型，告诉投资人收入怎么产生、业务怎么增长、管理费用是怎么样的、人员招募计划是什么、哪些地方需要花钱、等等。投资人是投资公司的未来，而不是过去，过去的业绩只是一个证明而已，没有一个坡度很陡峭的收入、利润增长曲线几乎是不可能打动投资人的。另外，有些创业者会做出5年、甚至10年的财务预测，这对于初创期的企业完全没有意义：能不能活过明年还不一定呢，投资人会把你5年后的财务预测当做胡说八道，痴人说梦的。

当投资人对创业者的公司感兴趣的时候，他会看你那份100多页的商业计划书的，他甚至还可能会花时间，跟你一起逐字逐句完善商业计划。创业者拿着商业计划书，找到投资人，在没有投资人参与修改和提出建议的情况下，就获得融资，这是难以想象的。

Who Is The Venture Capitalist's Customer?

by Larry Cheng

Venture capitalists always talk to their portfolio companies about how important it is to define your customer, understand their needs, and create a compelling value proposition for them.  Though, if you talk with enough VCs, we have a hard time defining the customer for our own business.  I was having a recent discussion on this topic with some colleagues in the industry and no unified consensus emerged.  It is always a debate between our limited partners ("LPs" – those who invest in VC funds) and entrepreneurs.  We all know that we ultimately get "paid" by LPs.  But, we also know we don't survive if entrepreneurs don't want to work with us.  So, who is the venture capitalist's customer? 

To try and get some feedback, I decided to ask my twitter friends: Who is the VC's customer?  I specifically asked VCs to respond.  Somewhat surprisingly, no VCs responded, but I got a slew of responses from entrepreneurs.  They were quite aligned:

1. apsinkus: "institutional investors are real customers of VCs (in my opinion).  Entrepreneurs are merely suppliers.  No LPs, no money."
2. brandonhaskins: "Although not one myself, a VC is ultimately in investment management, so customers are investors – entrepreneurs are products!"
3. muhammadkassim: "VCs' customers are investors into the fund. Entrepreneurs are VCs' business partners."
4. gmsheehan: "their investors"
5. AppStruck: "The VCs customers are the institutional investors you raise money from."
6. meetthestreet: "LPs…pension funds and endowments are clearly VC customers. In money management the people who give you money are your customers."
7. CameronHerold: "unfortunately for entrepreneurs the Investors are the VCs customers. The entrepreneur is the VCs product."
8. EdLoessi: "the VC's customer are the people who gave them the money the tool is the company invested in and sometimes you break your tools!"

I'd say 85%+ of the respondents said the VC's sole customer is the LP.  Not a single responder said that the entrepreneur is the VC's principal customer.  So, in an unexpectedly round about way, I got my answer from entrepreneurs, not from VCs.  If entrepreneurs are the VC's customer, surely entrepreneurs would know that.  Since they don't know that – either VCs are doing a terrible job taking care of their customer (which is possible) or in fact the entrepreneur is not the end customer of the VC. 

My personal belief is that the VC's primary customer is the LP.  There is a clear and constant relationship between VCs and our investors which is consistent with the traditional definition of a vendor/customer relationship – they pay us for providing a product/service to them.  We have to provide a great product/service to our LPs and service them well as our customer or they can take their business elsewhere. 

Then what are entrepreneurs to VCs?  First of all, entrepreneurs should be no less important to VCs than LPs.  Without LPs, VCs are out of business.  Without entrepreneurs, VCs are out of business too.  Entrepreneurs can take their capabilities elsewhere, same as LPs.  So, while entrepreneurs and LPs are equal in importance, it is a different relationship.  I do not have a vendor/customer relationship with the entrepreneurs I work with.  In my mind, the entrepreneur is not the VC's customer any more than the VC is the entrepreneur's customer.  Nor do I think describing entrepreneurs as the VC's product or supplier is accurate.  Neither of these lines of thinking fit for me as the right way to describe the relationship. 

I think the best term to describe the relationship between VCs and entrepreneurs is partners.  The official definition of partner is: "a person who shares or is associated with another in some common action or endeavor".  I view the entrepreneurs I work with as my partners.  I think they view me as their partner as well.  I am sure that any of my CEO's will tell you the effort that I put in towards being a value-added partner to them.  We partner together for the common end goal of building great companies and creating value for shareholders.  So entrepreneurs are not customers, suppliers or products for VCs, they are partners.  We work side-by-side as partners at the end of the day.  I wouldn't have it any other way.

Term sheet tune-up

by Babak Nivi

I recently received an email from an entrepreneur who had questions about a term sheet he received. Here are his questions and my answers.

Bridge before Series A

The entrepreneur says,

"The investors are in the process of closing a fund so they want to give us a bridge loan now and do the Series A later in a few months after they've closed their fund."

VC firms make seed investments all the time. If you have alternatives, take money from a firm that actually has the capital to invest in a Series A. And even if the firm has capital, you won't be able to raise a Series A from anyone if the bridge firm doesn't like your progress after the bridge.

Read this article from our archives: Keep your Series A options open if you raise debt.

Board

"The board consists of 2 investors, 1 independent, 1 CEO, and 1 founder."

This is too heavy for a bridge or a Series A. I recommend 1 investor, 2 founders for the bridge. Worst case: 1 investor, 1 founder, 1 independent. Best case: 0 investors, 2 founders. Use this quote from Marc Andreessen as normative leverage:

"In many cases, we don't even think today's raw startups should have boards."

He's talking about seed stage companies like you.

For the Series A, the worst case is 2 investors, 1 independent, 2 founders, 1 CEO (if and when we hire one).

Read these articles: Create a board that reflects the ownership of the company, Make a new board seat for a new CEO, and Control is a one way street.

Valuation

"What are you seeing for valuations nowadays? Our prospective investor tells me 'market' is 40-40-20 (founders, investors, option pool) after the Series A."

Market is whatever the market says, not what one investor says. You need at least two competing offers to create a market. If you have only have one offer, you're going to have a tough time negotiating — although it can be done and companies do it all the time.

I would strive for 70 - 20 - 10 (founders, investors, option pool), depending on how much you're raising. I would settle for 60-25-15. These goals will be dramatically easier if you only have one investor in your Series A syndicate.

Read these articles: Create a market for your shares, Tips from a ex-VC who helps entrepreneurs raise money, and Should I shop around?.

New CEO

"The investors want to replace the CEO during the Series A."

This is a big red flag, especially if you aren't interested in giving up the CEO spot right now. Fred Wilson says it well in The Human Piece Of The Venture Equation:

"I've learned that nothing can replace the entrepreneur's passion and vision for the product and the company. If you rip that out of the company too early, you'll lose your investment. I think it's best to wait until the initial product has succeeded in obtaining a critical mass of users and a business model has been developed that works and make sense for the business and is scaling. Then, if its warranted, you can sit down and have the conversation about bringing in experienced management."

Use this quote as normative leverage.

Startups are not assets under management

Finally, who are the investors? If the investors are a well-known firm, they're probably trying to anchor you and there is a lot of room to negotiate.

But if the investors are from an unknown firm, they might think this is a fair deal. They might have the mindset that they're investing in an asset that's going to be "managed" by the founders or new management. That's not the way startups work. If the founders give up too much of the company too early, they lose their drive to create value for the common and preferred shareholders alike.

by ReachVC 桂曙光

(本文以刊登在《商讯-公司金融》09年9月刊）

第一部分：VC的十大卑鄙（上）

6、抢班夺权

VC通常宣称他们只参股，不会控制公司的日常经营，只在董事会占少数席位，听取管理层汇报。事实看起来也是如此，VC通常在第一轮投资时，只要求获得公司30%左右的股份，在3个席位或5个席位的董事会里，VC也只占1席或2席，的确看起来一切都有创业者领导的管理团队说了算。

且慢，在董事会里，VC席位虽是少数，但他们有一个尚方宝剑——“否定权”。翻开VC的投资协议，你会发现，有一大堆跟企业经营相关的事情，VC都拥有1票否决的权利。这好比是创业者在开车，但VC却可以在关键的时候踩刹车。如果公司有后续融资，原来的VC通常会追加投资，保持股份比例，而新来的VC也会要求20%左右的股份，这样一来，创业者幸运的话，还能成为单一大股东，如果一开始公司有多个创始人，股权比较分散的话，VC就有可能成为单一最大股东了，他们可能只需要成功游说1个创始人股东就能控制董事会。

另外，VC投资的时候，一般都会要求对赌协议，如果公司经营没有达到既定目标，VC会说“我们投资时的估值偏高了，需要给予更多的股份补偿。”但如果公司的发展比VC投资时预想还要好，VC是不是应该将一部分股份返还给创业者呢？但可惜，这种情况基本是不存在的。一旦VC拿到更多的股份补偿，就会将创业者的股份稀释。我见过一个创始人在经过几次VC融资之后，只剩下5%股份的情况，但最严重案例的莫过于“太子奶”创始人被投资人净身出户了。

很多VC公司都储备有一些管理人员（创业合伙人），他们在通常有丰富的创业和企业运营方面的经验，平时主要是做VC的顾问。当VC准备向你的公司投资时，他们会详细了解你公司管理团队的经验，如果他们觉得你的团队不够好，VC会给你配备必要的人员，比如他们有时候会给你派一个新的CEO，让创业者以股东的身份，做一个技术总监什么的。这些VC派来的CEO当然会跟VC一条心，他通常会要求一定的股份或期权，董事会上当然也要有席位，创业者的地位岌岌可危了。

7、拉人下水

先来个假设小故事：一家小服装店，一年赚10万。老板成功引入VC，投入300万，占10%的股份，那这家小店的市值立即彪升成3000万。老板很高兴，一年后这家店有能力做到每年赚20万了，还开了3家分店。于是，老板和VC一合计，又出让公司10%的股份，引入另外一家VC，融资额为3000万，这时候，服装店（连锁）的市值变成了3个亿。可是这个时候，服装店整体的利润还是每年10万，因为运营成本上升了。又过了一年，两家VC又拉来全球知名的投行，他们承诺只要给3%的佣金，就可以把服装店包装到香港上市，市值可以做到300个亿！最后，创业的老板、VC、投行都赚翻了，服装店的利润还是每年10万。最后，公司变成了股民的了。可以看到，这家服装店的股份价格一路飙升，VC要想赚钱，就要拉新的VC来哄抬物价，最好拉投行进来临门一脚，以最高的价格把股份交给最后一棒：股民。

当然，上面的故事，结果是美妙的。国内某知名服装连锁集团的真实经历，99%跟上面的故事雷同，它拿到了超过1亿美元的投资，有国际知名的投资人和投行参与，但结局比较惨，倒在香港证券交易所门口，上市失败，公司经营状况也随即被大白于天下。我不认为这些投资人和投行是无辜的，他们只不过是在传递一个商业模式的谎言，上一棒坑下一棒，只不过最后没有成功交给最无辜的股民手里。创业者可以忽悠VC、VC可以忽悠新的VC、大家一起忽悠散户股民，如果达到目的，就是成功的案例，伟大的企业家和伟大的VC们又多一笔伟大的投资案例！

通常来说，被VC投资过的企业，在融资时会容易一些，因为前面的VC已经做过尽职调查、公司治理、财务规范、等等工作了。但有一种情况下会比较麻烦：先投资的VC不继续追加投资了。这种情况，后面的VC会担心是不是企业出现问题了，导致VC不愿意追加。为了拉新的VC进来垫背，先投资的VC会采取“舍不得孩子套不着狼”的策略，继续追加投资一点，忽悠更大的资金进来。只要投进来的，大家一笑泯恩仇，一起忽悠下一家。

即便企业最后上不了市、或者没有上市机会，VC也可以通过并购的方式处理。一般VC都会投资大批企业，找一家可以控制董事会的，收购那家没有退出机会的企业，这样就实现退出了。

8、捞取个人利益

早期项目融资很难，这些公司最需要的是天使投资人，可是对于创业者来说，天使投资人没有什么好的渠道可以找到。其实，他们不知道，很多VC会做天使投资。一个项目要想获得VC的投资，首先要说服某个VC合伙人。一旦他真的觉得不错，可能就先投点钱，拿走20%~30%的股份。然后拉身后的VC投进来或者买走他的股份。

还有一种更为无耻的做法，某个VC合伙人偷了创业者的创意，找几个人攒个公司，然后让自己身后的VC投进来，故意产生投资失败，最后VC基金的钱就直接进了这个合伙人的口袋。

更为常见的是VC想创业者要好处。VC公司投资后，企业除了出让股份给VC基金之外，有时候，VC合伙人还会要求个人无偿拿走1、2个百分点的股份。有的VC不要求部分的“返点”，他要现金。VC公司投资1000万，企业给VC个人“返点”100万。

还有一种利益可能没有直接表现在金钱上，表现在友情上。VC有大量的朋友，有些可能是老同学、“发小”什么的，交情很深。如果他们创业的时候需要资金支持，作为VC的朋友，有时候也是愿意“两肋插刀”的，钱反正也不多，又不是自己的（是LP的），就做个顺水人情，投了也够“仗义”。

9、投资协议陷阱

即便是最老练的创业者，在其创业生涯中，很难有超过10次的VC融资经验。相反，一个普通的VC，每年都会直接或间接做5-10个项目的投资。因此，创业者在跟VC进行投资协议谈判的时候，VC是有压倒性优势的。这种不平等的地位，最常见的结果就是VC会对一系列的投资条款精心设计。

对于创业者来说，绝大多数投资条款都很陌生，如果你自己不懂，VC不会跟你解释太多的，VC的口头禅就是：“这个条款是标准的，没什么好谈的。”真的是标准的吗？当然不是，否则，他还要花几万美金找大牌律师干嘛？其实VC所谓的“标准条款”都是他们多年的经验总结出来，对他们最有利的。当然这样可以保护自己，但创业者一不小心就会掉入陷阱。

举几个有风险的条款的例子：

一、比如前面提到“业绩对赌条款”，信心满满的创业者如果经营上没有达到预期，可能又要被VC搜刮走一部分股权，最狠的当然就是净身出户；

二、如果“优先清算权”是要求一定倍数的投资回报保底的话，创业者要小心了。比如VC投资1000万，要求优先拿走3倍回报。而最后公司以2000万被卖了，只好全部都给VC，创业人就两手空空了；

三、如果公司在4、5年之后还没有退出，VC通常会通过“回购权”，让创业者回购其手上的股份。回购价一般是VC投资价格的某个倍数，很少有创业者能够拿钱回购的，那就任人宰割吧；

四、VC如果想把自己的股权出让给第三方，通常会拉着创业者一起卖，因为VC的股份一般比较少，并购方是没有兴趣的，这个时候VC就会通过“强售权”捎上创业者。有些VC为了早点变现，可能会这样强迫创业者出售公司，也有VC会通过这个条款，将一个有前途的公司，低价卖给自己控制的另外一家公司；

五、VC通常会要求创业者签署“独家协议”才会正式对公司进行尽职调查和投资协议谈判，“独家期”通常要求1-3个月，这个期间创业者是不能跟其他VC沟通的。但独家期不约束VC，VC还可以继续看这家公司的竞争对手，如果VC发现竞争对手更好，就会抛弃这家公司。

还有很多条款，背后都有潜在的风险，创业者只有真正掉进陷阱才会发现，但为时已晚。

10、骗子VC

创业者融资时最大的一个问题其实是不知道去哪里找到合适的、真正的VC，因为有太多虚假的、号称是VC的投资公司了。据不完全估计，北京是骗子VC最为集中的地方，可能有超过500家，比正规VC多多了。

有不少创业者，融资时接触了几十家投资机构，各种名目的费用花了几十万，但是最终因各种原因被一一拒绝。那些一见面就让交什么商业计划书制作费、评估费、律师费、等各种名目的费用的公司，那99%的可能是一家骗子VC。他们行骗的方式很简单：要来实地考察，费用要你付；去他指定的评估公司做评估，评估费你付；要帮你做包装，费用让你付；去他指定的律师事务所做意见书和尽职调查报告，费用由你付，等等。我曾经听说最离谱的一件事是，在一次投融资大会之后，某家公司收到13家所谓VC发过来的投资意向书，当然，最后没有一家真的投钱进来，但公司却实实在在花了很多钱。

上面这种骗子VC的手法很卑鄙，但被骗的创业者还很难掌握证据去告他，或者没有时间和精力去跟他打官司。但最近闹得沸沸扬扬的红鼎创投和汇乐投资非法集资的主角，就要受到法律的制裁了。他们违背了VC募资的根本原则，违反国家规定，以承诺高额回报的方式，向大量不明真相、没有VC投资经验和风险承受能力的出资人募集资金，涉嫌构成“非法集资罪”。红鼎创投最后落得资金链断裂，导致出资人的上亿资金可能会打水漂。

还有一种按项目募集资金的骗子VC也不少，这些骗子拿着五花八门的“项目”，描绘出眼花缭乱的财务回报前景，然后就开始民间融资，从那些有钱但没有投资经验的民营老板、煤矿主等手里骗取资金，如果操作得漂亮，他们甚至可以把银行贷款、政府担保和无偿资助都能搞到手。

VC投资这个行业，是一个高度需要商业信誉的行业，又是一个新兴和快速发展的行业。红鼎创投和汇乐投资事件，给中国本土人民币VC的声誉带来了难以估量的负面影响，让很多民间资本短期内对VC望而却步。

I met with an investor, what happens next?

by Mark Suster

This is part of my ongoing series, "Pitching a VC."  Getting a meeting with a prominent angel or VC is difficult enough.  Some advice on how to do that was covered in this link – Getting Access to a VC.  This post covers the day after.  I spoke about the topic on Fox Business News yesterday in a great session with TechCrunch50 winner RedBeacon and will post it along with my other VC Videos when Fox puts it on their website.

The Day After (the waiting game begins)

So you just had an investor meeting.  It sounded like they really liked you.  The promised to follow up with: calls, using your product, talking to customers or "noodle on things."  Will they?

OK, if I'm going to be honest with you then you need to promise not to shoot the messenger.  Despite best intentions they probably won't follow up on their actions. And unless you just won the TechCrunch50 (e.g. you're hot) it probably won't go very quickly (unless we return to the boom days of VC, which I suspect won't happen again soon).

Remember that most fund raising takes time.  It's about building long-term relationships and showing traction over time.  If you haven't read how to build VC relationships and demonstrate traction make sure to read it.

Why don't VC's follow up? Because VC's (not unlike yourself) are tremendously busy.  The partner you saw is probably sitting on 5-6 boards which means he or she will be busy helping existing portfolio companies.  They probably have 3-4 deals that are further along in their pipeline of deals they are considering (e.g. ahead of thinking about you).  They have probably seen 4-5 new companies this week minimum.  And they have responsibilities for helping to manage their fund.  Plus, now they need to Tweet, use Facebook, attend conferences and keep a blog!   Not to mention what happens in years where they also need to raise a new fund.

Let's be honest.  This is not unlike a major biz dev deal you're trying to sign or a big sales campaign into the VP of a major company.  I like to tell entrepreneurs to treat it like a sales campaign.  EXACTLY like a sales campaign.  You would never go see an important executive at a customer and then sit around and wait for them to realize how great you are.

As a result, the ball is actually in your court.  Maybe it shouldn't be?  But the reality is that it is.  So don't expect an unprompted email or phone call next week.  Don't be surprised if your logs don't show that the partner has been using your product.  If any of this happens it's a bonus (but still doesn't mean that they'll follow up. They just had some time and found your product interesting).

I am really surprised how many entrepreneurs pitch me and then I never hear from them again.  I guess they assume that since I didn't email or call I must not be interested.  This isn't always the case.

So how to proceed?  Read the following as a guide

ENTREPRENEUR NEXT STEPS

1. Stay on the radar – You need to find a very polite way to persistently be on the top of the radar screen of your VC.  Start with a very short thank you email the day after your pitch.  If any actions were agreed this should be in the email.  If they said they'd use the product it should have the password.  If they wanted to talk to people this should have the contact details.  If any junior people attended send them separate emails and help them get up to speed on the product.  It is much easier to follow up by calling the junior staff (again, just as you would in a sales campaign).

2. Show a sense of momentum – After a week or two has passed and you haven't heard back it's time for step 2.  A polite follow up email saying, "just wanted to follow up with a quick summary of some exciting news."  Yes, I know only 2 weeks has passed.  That's why in your original meeting you should hold back some news that you have so you can bring it up later.  Sinister?  Not really – just a good sales tactic.  You're just trying to stay on the radar screen.  I suggest in your email you say, "I know you're really busy so I'll make sure to check back in a week or so."

3.  Find a way to help the investor – Not everybody has the capacity to do this but if you can you should try.  Did anything come up in the meeting where you think the investor could use your help?  Did you mention an executive contact that they'd like to meet?  Do you know a "hot" company that you think would like an intro (if so, make sure it's one that's not currently fund raising ) Do you have access to an event that's coming up and you want to invite the investor?  Whatever.  Doing a "not over the top" favor is a good way to build rapport.

4. A reason to reengage – By now if you're in a normal VC or angel process 4-6 weeks might have passed.  If you know that the best VC processes can take 4-6 months you won't feel the time pressure.  If you left funding to the last minute you'll need to be more aggressive, which is a shame.  But your next step is to find a reason that the VC needs to see you again.  This could be a major new release of the product that you'd "love to show the VC because he'll find it interesting" and you promise to only stay 20-30 minutes.  Or maybe you had a major customer win that you'd like to walk them through.  Or a major shift in strategy.  Whatever.  You need to push the next meeting.

5. Multiple endorsements / touch points – The same strategy that works to get intro's to people works to get momentum from people.  They need to hear about you from multiple touch points.  It needs to be masterfully orchestrated by you but very subtle.  You need to find out who influences the partner.  Who knows them well or at least somebody that they see on a regular basis.  It needs to be somebody you know and trust.

In a perfect world you say, "I met a few weeks ago with Joe Partner at Big VC Co.  He seemed to be interested.  If you happen to see him I'd really be grateful if you would mention how much you like our product / believe in our company / that you knew me well when we worked at Yahoo! (or whatever is appropriate).  I want to be subtle about it so if you talk with the VC please don’t over play it."  The more people who mention you the better.

6. A sense of urgency - This is the critical bit.  I call it the "prom conundrum."  Let's face it – everything we do now is some derivative of what we did in high school.  Four guys are thinking of asking you to the prom.  They don't because they're also thinking of asking Susie.  But if they here that somebody else is seriously thinking of asking you to the prom – BOOM – you get asked.  I wish it weren't so.  It is.  That's human nature.  (reminder: don't shoot the messenger – I'm just telling you how it is).

So how do you create urgency?  First, you do need to create multiple interested parties.  You can't fake it.  Then see point 5 above.  You need to find a way to get a whisper campaign going that somebody else is thinking about asking you to the prom.  If all else fails you give the VC a call with a very subtle and polite message, "Just wanted to keep you updated on our situation.  We're getting some strong interest from a couple of firms.  We don't have a term sheet yet but seem close.  We really liked your firm and just wanted to get a sense on what else you need from me to help your process."

7. Extra Credit Tip - I'm going to get pounded for saying this so I'm making it optional (but it is a very smart strategy).  Do the VC's work for them.  What, what?  Yes, I said it correctly.  They're having a tough time understand how big you can be?  Do the market sizing analysis for them and send it.  They're worried about competitors? Do a 5-page PowerPoint competitive assessment.  They said they'd call references but haven't?  Ask your senior customer client to proactively call them.  They aren't sure about your business model?  Come in and walk the associate through the details.  VC's (like you) are busy.  The more you make their life easier the quicker you get to yes.

Guidelines for following up

1. Be subtle – All this said, there is such a delicate balance between polite persistence and being a pest.  You need to sail very closely to the line of acceptability without ever crossing it.  You need to show chutzpah without being annoying.  Smile when you're asking for more meetings and say, "I'm really sorry to push you but I guess you'd want to invest in somebody who pushes customers  bit, too?"  It is not something I can ever teach somebody – it's like art – you know it when you see it.  People cross the line often.  It's not pretty.

2. Be concise – Unlike this post you need to be very brief in all communications and meetings.  No VC reads long emails – no time.  If you ask for (or they offer) a favor – ask for 1 and only 1 for now.  I sometimes get requests for 4 things at once.  In this case I'm like a deer in the headlights – I don't know where to start – so I usually don't.  When I get one request – I do my best to help.  If you ask for a follow-on phone call or meeting promise to be brief and deliver on that promise.

3. Be persistent – Can't emphasize this enough.  Don't be offended that they didn't respond via email.  Senior people get busy, bogged down and behind.  Send a few times.  I covered the topic on the post I emailed a VC but never heard back.

4. Use multiple channels - My email is always overloaded.  If I don't respond I promise you that I'm not ignoring you.  If I'm not interested I'll tell you.  I am just overwhelmed.  If we're connected on LinkedIn or Facebook – try a short ping there.  If the VC uses Twitter regularly then this is a perfect place to connect.  I love it because it's restricted to 140 characters so you have to be concise!  But avoid anything confidential unless it's a DM.

5. Let time pass – If you email me on Tuesday and remind me on Thursday (which happens) you've crossed the line.  If you're feeling pressured because you're nearly out of cash – then you started the process too late.  That's not my fault.  Desperation never sells well.

6. Be gracious – Be extra courteous in all communications.  A little good graces goes a long, long way.  Be apologetic of taking up time.  Be thankful for work put in.  I know it's their job, but it makes a difference so being nice never hurts.

7. Accept "no" for an answer – I can't emphasize this enough, if you do get a "no" then politely move on.  It's OK to ask if they know a VC that might be a better fit and ask for a VC intro.

If you think they're telling you "no" but don't know for sure I would recommend the following email, "Dear VC, I get the sense that you guys are not interested in investing in my company at this stage.  I appreciate all of the time you put in and hope to convince you next time around.  We are talking to other parties – it would be very helpful if you could confirm that you're no longer interested just to help me better manage my time."

Voila.  Make it easy for them to say "no."  Better that you at least know.  Otherwise they're not likely to tell you.

The pros and cons of founder lock-in

There's been a debate going around recently about how important it is for the founder of a startup to be locked into a company, and how much they should be living "hand to mouth" versus being paid well when running their startup. In particular, there are a fair number of investors, and startups themselves, who believe that founders should be paid well below market, basically enough to cover their basic living expenses, as an incentive to work as hard as possible to make their companies a success. The theory is that someone whose entire livelihood and future is dependent on the success of their business will be that much more committed to making a company work (ie, because you have to make the company a success in order to survive, you'll make it a success).

Although there are merits to the approach (highly paid founders are not a formula for keeping your burn rate down, for one), the problem in recent years has been that the time that founders–and for that matter, employees–are locked into a company has dramatically gotten longer in recent years, with lack of exit opportunities.

Mark Suster makes the argument recently that founders should be allowed some way to take money off the table even if a company has yet to hit an exit opportunity. It's a theme I've been hearing a lot lately, from such efforts as Startup Exchange–which allows founders to trade shares into a common pool and reduce their risk– and SharesPost, which allows founders to sell their stock on an online marketplace. Sometimes, for more mature companies, it's cash-out during a financing round. In any case, the debate highlights a bigger issue not just for founders, but for employees.

Long time employees of startups, are usually given some percentage of the company when they start, and usually in exchange take a lower salary. The problem is the formula isn't working like it used to, and cash out of a deal now is rarely "life changing," except in the rare, really big exits. The vast majority of startup employees, unless they are paid market wages, aren't going to see an equivalent return from their options. I've talked to numerous financial advisors specializing in startups, and they all tell me that–unless someone is a founder at the company, and it has not taken significant venture capital dilution–employees are not getting meaningful amounts from acquisitions today.

Perhaps it's all just another symptom of the changing venture capital industry, where there's just not enough big, IPO-sized exits, but it seems like this is one area where startups and investors are going to have to figure out a new business model, where both founders and employees feel like they have a reasonable chance of either an exit, or at least some minor reward and diminished risk, in order to commit the 5, 7, or 10 years of their lives it might take to build a successful company.

Term sheets that you don't want

by Mark MacLeod

There's been some good discussion around ideal term sheets for startups these days, with several organizations releasing model templates in the hopes of making it easier for startups to raise seed capital.

While we'd all love to see one set of uniform, clean term sheets (and more importantly, clean deal docs, since term sheets are just the beginning of a long, expensive closing process), the fact is term sheets come in all shapes and sizes. Here are a few that you don't want. I have had the pleasure of seeing all of them over the years.

The complex term sheet

The complexity of a deal is tied to the valuation. The lower the valuation the cleaner the terms. When you see fancy or expensive terms it usually means there is a gap in valuation expectations between management and the investors. The gap is bridged by optically giving management the value they want but punishing them with other terms such as:

Participating Prefs: Also known as "double dip". On exit, investors holding participating prefs can get their investment back (or a multiple of it if they are multiple participating prefs - more on this below) and then still get their portion of whatever is left. So, if you sell for $ 25M after having raised $ 10M and your investors own 60% of the company, they get to take their $10M in cash back and then get 60% of $ the remaining $ 15M. This really comes in to play in smaller exits. Beyond a certain exercise price, investors will just convert to common.

Multiple liquidation prefs: On exit, investors can either take their portion of the exit price or some multiple of the amount of cash they put in, whichever is greater.

Cumulative dividends: A dividend that is declared each year and is payable in more stock giving your investors free shares. So, they can for example increase their ownership by 8% every year. Very expensive.

The premature term sheet

Term sheets mean different things to different funds. For most, it means they have made the decision to invest and unless something major comes up in legal due diligence, they will invest. However, some funds bang out term sheets early in the process. These term sheets are basically just a confirmation that the fund is about to get serious, but should not be interpreted as deals. However, when you sign the premature term sheet and stop discussions with other funds, you are creating a real risk that you'll be left with no deal since premature term sheets have a low probability of closing.

The incomplete term sheet

Most investors like to syndicate (i.e. bring other investors into the round). The thinking is that you get more smarts and deeper pocket books around the table. So, its usually the case that when you get a term sheet its only for a portion of the round. This is all good, except when you have no one to fill the balance. If the investor is leaving you to find the remaining $ and is not actively introducing you to other investors and not selling them on the deal, you have a real risk that the deal will go cold. The investor who has given you a term sheet will start to think they were crazy to do so since no one is jumping on board the deal.

The babysitter term sheet

Its normal for both the board and the shareholders to have certain approval rights. These normally cover significant things like financings, debt, executive hires, changing your business, etc. However, if investors are asking to approve things that are just part of the normal running of the business, its a sign that they don't trust you.

I am sure there are many more flavours of undesirable term sheets. But these are the main culprits...

作者：ReachVC 桂曙光

(本文已刊登在《商讯-公司金融》09年8月刊）

十年前，活跃中国的VC大多是国外机构的中国办事处，这些“海派”或“海归”的VC都会遵守很多VC行业的基本法则。但随着更多海外VC的涌入、大量“土鳖”VC的崛起，加上在中国市场环境的耳熏目染后，这个群体中有些个体（注意：是个体，不是整体）已经开始出现变质和病态。有道是：卑鄙是卑鄙者的通行证，高尚是高尚者的墓志铭。

1、剽窃商业机密

很多创业者在寻找VC融资时，最担心的是自己的商业机密泄露出去，所以，他们会在商业计划书的首页上罗列出保密条款，更懂行一些创业者会要求VC签保密协议（Non-Disclosure Agreement, 即NDA）。VC通常是不会签的，除非是这家VC觉得这个项目真的很好，需要深入了解，才会跟创业者签一份VC拟订的NDA，这种情况不会超过5%。

VC不愿意签NDA是有原因的，他们每天会看大量的项目，很多项目都是雷同的。创业者可能觉得自己的创意是独一无二的、自己的商业模式是独创的，但VC很可能在听到你这么说之后，又见了5家跟你做同样事情的竞争对手。所以，如果跟每家创业企业签DNA，VC就会面临巨大法律风险，没有秘密可言的东西，VC怎么给你保密啊！

VC通常会标榜自己会守信用、不会泄露你的任何秘密，如果你相信的话，那你就是一个天大的傻瓜。VC可能很喜欢你的创意，但却想资助别的人去做。在VC公司里通常有一种合伙人，叫做创业合伙人（Entrepreneur in Residence, EIR），他们以前就是创业者，现在窝在VC公司参与评估项目、发掘投资机会，一旦看到某个创业企业不错，可能就会游说VC投资，之后就加入这家创业企业重新创业；或者，看到好的创意或商业模式，挽起袖子照搬来自己做；还有，他们也可以先投资一家公司，然后把几家竞争对手的商业模式及计划全部复制过来。

在中国目前的商业环境下，就算你去起诉这家VC并且最后赢了官司，又能获得什么微不足道的补偿和精神胜利？你的公司可能已经死翘翘了，而剽窃你创意的那家创业公司可能做大上市了，给VC赚了很多钱。更糟糕的情况可能是，企业者根本就没有时间和足够的证据去起诉VC，只能眼睁睁看着人家拿自己的东西去赚钱。

VC对于任何关注的领域，都会看一大批公司，这些公司彼此之间可能在市场是直接竞争对手。VC还都是学习能力很强的人，他们是以投资回报为目标的，所以，创业者在跟他们沟通交流的时候，一定要多个心眼。

2、制造泡沫，扼杀行业

本来大家能赚钱的行业，只要被VC看上，肯定要乱套。比如Web2.0的代表——视频网站，在商业模式还处于摸索的阶段，几大视频巨头就打得不亦乐呼。但他们之间的战争，本质上就是几大VC之间的血拼，少的能搞到几百万美金，多的几千万美金，大家能够做的无非是烧钱买服务器带宽、拉高网站的Alexa排名、积累资源量……拼死拼活的，烧了上亿美金，除了让盗版更为猖獗之外，还真没有为这个行业的发展探索出一条路。

再比如新媒体，分众传媒的成功海外上市，让十多家VC赚翻了。于是，有更多的VC和创业者在这个领域继续挖金矿，几十家新媒体公司拿到VC的超过10亿美元的投资。现在只要有人的公共场所，统统都被挂上广告牌了：机场、车站、广场、商场、餐厅、酒店、楼顶、墙面、公路沿线、飞机、火车、地铁、公共汽车、出租车、厕所，等等，甚至连手机都不放过。这些媒体的竞争，导致了租金的水涨船高，媒体公司成本大幅提高。但作为商家的广告主，在新媒体上投入并不会增加太多。这样，泡沫自然就出现了。目前，包括老大哥分众传媒在内的很多新媒体公司，已经出现了运营危机。

其他诸如太阳能等清洁能源、餐饮、连锁、电子商务、等等，都已经、或正在经历被VC吹泡沫的危险。

VC不仅以拔苗助长的方式扼杀某些行业，创业者也被他们惯坏了。没有VC，创业者会勤俭持家、量入为出，一旦VC的大把真金白银进来，这些勒紧裤腰带的创业者马上就把那些最纯洁的商业品质抛到九霄云外了，先找个高档的办公室，再给员工大幅加薪，然后再招一堆闲人，反正有钱买单了，烧钱似乎是一件很光荣的事，烧得越多，反而越牛B，拿到VC的投资、上市圈钱也成了很多创业者的成功的标志。

3、不择手段抢项目

通常90%的融资项目没有VC感兴趣，1%最好的项目VC蜂拥而至，“抢单”在VC圈是非常常见和普遍的事情，试问天下VC谁人不抢单？！。这一方面是因为VC的数量这几年确实是比较多，据说仅仅江浙一带的人民币投资公司都有几百家；另外，大部分VC没有专业的团队，对投资领域缺少深入的了解，导致没有自己发掘项目的能力；还有，创业者通常不会在一棵树上吊死，他们融资的时候，恨不得一口气跟能联系到的所有VC见面。

能者多劳，有项目挖掘能力的VC就满世界找项目，没能力的VC就蹲在别的VC门口，创业者一出来，就拉过来聊聊。VC跟创业者见面的时候，会问很多业务上的问题，但有一个问题基本上是所有VC都会问的：“还有哪些VC在跟你谈？”如过你告诉他“我们跟红杉、IDG、赛富、鼎晖这几家初步接触了一下”，那这家VC会密切关注红杉他们的动向，不时跟你打探消息，如果红杉要给Term Sheet了，这家VC可能会给一个相对更“友好”的Term Sheet，因为很多VC对红杉的眼光还是信赖的。如果这几家VC跟你初步接触之后，没有下文了，你也不要指望这家VC会感兴趣。所以，好的项目，创业者手里可以拿着5、6份Term Sheet对比是很正常的。

对于钱多的VC，价格不是问题，他们可以用更高的估值、更多的投资额，从其他VC的手里抢项目，而对于钱不太多的本土VC，抢项目也有自己的“土方法”。通过政府关系施压就是一种手段，有家本土VC号称可以从高盛手中抢到一个PE项目，因为这家VC有项目方当地的政府关系，创业者不敢不让他投资。还有，有些VC会一方面通过跟创业者一起吃吃喝喝、洗桑拿、找小姐等方式搞好关系，另一方面，把其他VC的一些或有或无的不良记录给抖露出来，吓退创业者。

不仅是二流的VC会抢项目，连最知名的一流VC也会这么干。在美国最牛气的VC之一，其中国团队曾对一个小家电企业，在没有做尽职调查的情况下，投资了上千万美金，因为如果花时间做尽职调查的话，项目就被其他VC抢走了。另外一家也是美国最牛气的VC之一，为抢项目被其他VC起诉，索赔上亿美元，一时满城风雨。

竞争是残酷的，所以VC们聊天，通常不会聊自己手头的项目，最常见的是说些诸如“大环境不好啊”、“人民币基金是方向”、“电子商务还不错”、“我们专注TMT、医疗类的项目”、之类的废话。

4、投资公害项目

如果说VC之间抢项目，只不过是“鹬蚌相争、创业者得利”的话，那这一条就是VC和创业者一起合伙坑害社会了。

有家医药中间体的企业，产品可以作为普通药品的原料，也可以是毒品的原料。企业对于客户是做什么用途，根本不关心，只要愿意钱采购，来者不拒。管他黑社会、走私犯，还是制药厂，签合同开发票，还是一手交钱一手交货，都无所谓，企业挣到钱就行。这家企业年收入能够做到近一个亿，利润也有几千万，很多VC抢着往里砸钱。

还有某人胎素生产企业，从死婴的脊髓里抽取原材料，加工成去皱美肤功能的针剂。死胎是几十块一个，从乡镇小医院和街边私人黑诊所里收购，制成针剂后，一针就是上万块。这种见不得人的生意，创业者和VC还试图包装成高科技生物医药，上市圈钱。

医药研发外包在中国现在很受VC追捧，这些公司是承接外国医药公司的医药化学成分合成和临床测试。其实这里面有巨大的问题，化学物合成会产生大量的有毒气体和有害废物，外包企业通常直接排放，严重污染环境。而临床药物试验更是触目惊心，只要这些公司愿意花很小的代价，就能找到大量的中国老百姓给他们做临床药物试验，最后即便药物对人体造成损害，也不会有什么大不了的赔偿。

互联网上VC支持的公害项目就更多了：视频网站做成了盗版基地、交友网站做成了“一夜情”联盟、网络游戏做成了诱惑青少年沉迷的毒药、私人的电脑被流氓软件绑架成赚钱的工具、……

惟利是图是商人的本质，而VC更是商人背后的商人。去年底的金融危机来临时，美国红杉资本的老板曾对其所投资的公司说：“现在，现金流比你妈妈还重要！”我想，对某些VC来说，任何时候，钱都比他妈妈还重要。

5、拖死创业者

很多创业者在融资的时候，最痛苦的是很难从VC那里得到一个痛痛快快的说法：我的项目是好还是不好？你有兴趣还是没兴趣？对于公认的好项目，VC当然就是一个字：“抢”。但如果他对你不怎么感兴趣，或者是还拿不定主意，那你就不会得到明确答复。VC很狡诈，他们不会明确对你说“不”，那样的话，你就去找别的VC了，他们最希望的就是你一直在吊在他这棵树上。VC有时还抱着“等着瞧”的态度，因为就像时尚会经常改变一样，技术人员也会不断地完善自己的产品，或许过一段时间你的产品或商业模式会更好一些。此外，VC还想从你那里得到更多的启示，“剽窃”你的创新的思想，移植到他们已经投资的其他创业公司中去。

如果VC知道你还有其他选择，他们往往会有很多托词勾住你，比如：“我很想投资你，但我需要一些时间你去找到跟我一起投资的VC。”“我还需要花点时间咨询专家的意见。”“我们非常希望对你投资，但现在我们正在募集一个新的基金，等忙完这一阵子再说。”“过几天我给你打电话吧。”

投资之前如此，投资之后也不例外。有些被VC投资的公司，过了好几年，VC仍然看不到退出（出售、IPO）的机会，这一方面可能是因为当初VC的估值太高，找不到冤大头买家接盘VC的股份，另外公司自身发展也不太理想。这种情况下，VC也不能一直陪着创业者耗下去，VC基金到期是要清算，那这种公司通常只有一条路：关门大吉。即便公司有机会低价被收购、或者跟其他公司合并，但VC也不会给创业者这种机会。VC宁愿选择让公司彻底死掉，是因为失败案例是允许的，可以说是市场环境不好等原因，VC的投资决策并没有错。但如果VC抽身之后，项目反而做好了，那就是VC的责任，要么是VC当初的估值太高，要么是创始人的素质不行，这些都可以说是VC投错了，这些对VC名声都很不好，他以后还怎么混？所以，VC宁可把你做掉，也不会给你翻身的机会。

（未完待续）

Be Prepared for Your Pitch

by Paul Jozefak

One thing to remember when pitching to a VC is that you have to be prepared. When I say prepared, I mean in regards to questions which are going to be thrown at you. Further, when I refer to questions, I mean the questions VC's are going to ask. Specifically, you will hear most of the following questions if you are very early stage and are trying to get me excited about your idea (obviously this is not an exhaustive list):

Customers:
1.  Who is your target customer?
2.  Why will this customer buy from you?
3.  Have you done market testing?
4.  How many potential customers were you able to test your product on?
5.  Will these customers be willing to pay for your product?
6.  Will they only pay once or continue paying?
7.  Do you already have paying customers and if so, how many?
8.  Are you talking to your customers regularly?
9.  Has customer feedback gone into tweaking the product?

Product:
1.  Who developed the product? In-house or contract developer?
2.  Is the product done and if not, what remains to be completed?
3.  What is the underlying technology?
4.  How easily could someone copy your product?
5.  Is there a competitive product in the market already?
6.  How long did it take to create/complete your product?
7.  Are you using the product yourself?
8.  What did development cost?
9.  How will you tweak the product in the future?

Market:
1.  How big is your market?
2.  Is your market Germany, EU, World?
3.  How much of this market do you want to win?
4.  How will you address your market?
5.  What is it going to cost?
6.  How well do you know your market, i.e. have you worked in the target market?

Employees:
1.  How many do you have.....full-time, part-time?
2.  Do they have options?
3.  What kind of salaries are you paying (going to be paying)?
4.  How long have they been on board?
5.  Has there already been churn and if so, why?
6.  Who are your future hires?
7.  Do you have specific people in mind when it comes to future hires or will you need a headhunter?

Management:
1.  How many of the managers are founders?
2.  How much of their own capital have founders/management invested?
3.  What are current and future (post-financing) salaries of management?
4.  What additional management hires are necessary?
5.  What are the weaknesses of current management?
6.  Do you have company cars (yes, I will ask this!)
7.  Is the complete management team in one location or separate offices?  
8.  How often does management meet as a group?
9.  How long has the management team worked together?
10. Has management had previous exit experience?
11. Has management been part of venture-backed companies previously?
12. Has management previously worked in start-ups?

Financing:
1.  How much are you raising and why?
2.  What will you initially spend the money on and how are you prioritizing this?
3.  How much time did you plan to complete fundraising?
4.  Are you looking for one or multiple investors?
5.  Do you have a valuation in mind? (Of course you do but is it negotiable?)
6.  Are you current investors participating in the round....pro-rata or more than that?
7.  If the current investors aren't participating, why is this the case?
8.  Are future rounds planned?
9.  Will an ESOP be part of the current round?
10. How long have you already been out fundraising?

Miscellaneous:
1.  Why are you talking to us? (Seems like a no-brainer but you'd be surprised how often people stumble on this one!)
2.  What do you expect from me outside of cash?
3.  Have you done any reference calls on us?
4.  Would you like me on your board?
5.  How much time do you expect me to invest as an investor?
6.  Have you ready my blog? (Yeah, I do ask this every now and again but only when I sense that some is prepared!)

Again, this is not an exhaustive list. I thought I'd just do a brain-dump of things that come to mind. I hope in some way this gives you a sense of the types of things we throw out when hearing a pitch. Maybe it's helpful when meeting with other VC's as we do tend to ask similar questions. Nevertheless, don't presume we've read all of this beforehand in your business plan and know it already if it's in there. We want to have a discussion with you and get your answer in person when you are pitching to us. The more questions I ask, the more interested I tend to be.

Seed is the new Series A for VCs

by Caine Moss

It shouldn't come as a surprise to anyone that VCs have, over the past few quarters, been reluctant to put term sheets down on new investments. Most venture folks have instead been preoccupied with tending to their portfolio companies, either ensuring that their most promising companies have enough capital and resources to weather the downturn, or trying to sell off the others.

The statistics bear this out. U.S. venture-backed companies raised $9.28 billion in the first half of 2009, according to VentureSource. That's 44 percent less than the $16.47 billion raised during the same period in 2008.

It may be too soon to pop the champagne, but the mood in the venture community appears to be slowly improving.

The market is up (the Dow has climbed back to above 9000); cracks are emerging in the tech IPO deep-freeze (with Open Table and Solar Winds having had successful IPOs, and a number of other venture-backed technology companies announcing plans to go public in the near term); and VCs are starting to do deals at an increasing rate (VentureSource cites that the amount of capital invested in the U.S in Q2 2009 rose by 32 percent as compared to Q1 2009).

What is most noteworthy about the recent increase in funding activity is the structural change occurring in the market for early stage investments. In the early part of this decade (after the dotcom boom and subsequent bust), when VCs recommitted to investing in early stage startups, most simply dusted off their Series A term sheets and recommenced investing in the "Series A mold." Series A deals can vary dramatically, but they often look something like this:

1. VCs invest $3-5 million of capital for a 33-50 percent post-money ownership stake in the company.
2. Investors receive a senior liquidation preference on an M&A exit, and will often "participate" with the holders of common stock on the distribution of proceeds beyond their preference, either until all proceeds get distributed or up to some negotiated cap based on a return multiple (e.g., 2x-3x the VC's initial investment).
3. Investors enjoy control features such as special voting "block" rights on important corporate actions such as financings and M&A transactions, as well as on operational activities like hiring executives or entering commercial or strategic transactions.
4. Investors control the Board or at least negotiate for board neutrality (where neither the founders nor the VCs control board voting).
5. Attendant to the investment are a panoply of additional rights including demand registration rights to compel a company IPO after a period of time, first refusal rights on founder stock transfers and "drag-along" rights (which force founders to vote for a sale of the company under certain circumstances).

As investors dip their toes back into the early stage deal pool following the most recent downturn, however, many are opting for "seed" financings instead of the typical Series A described above.

Seed financings are "priced" like Series A deals, meaning a valuation for the company is set and an ownership stake is taken at the time of the investment. However, seed deals tend to involve much smaller amounts of investment capital than Series A financings: usually somewhere between $500,000 and $2 million. These seed deals are also sometimes called "Series 1" or "Series A-1" financings to distinguish them from Series A financings that follow them.

It used to be that seed financings were investment vehicles reserved principally for investors and "seed stage" VCs with small funds that can only deploy small amounts of capital in any given deal. These days, however, we are seeing big-fund VCs seeding early stage deals with a regularity we haven't witnessed before. Based on internal private financing data, my firm (Wilson Sonsini Goodrich & Rosati) alone has closed 14 VC seed deals in the four months from March through June 2009.

So why the recent increase in seed funding? I believe there are three reasons.

First, VCs have to deploy capital and, as noted earlier, they've been reluctant to do so for the past several quarters. Over this time, however, entrepreneurs haven't stopped pitching them great ideas, and with the market showing signs of improvement, they are now starting to fund these ideas.

Second, while the desire to deploy capital has re-emerged, VCs are still skittish. They are reluctant to put large amounts of capital at risk, and figure seed deals to be a suitable "low-risk" investment option for them.They can throw $500k at a founder and tell her to prove out a business model. If she doesn't, then the VC is only out $500k. If she does, then that VC is probably in pole position to lead that founder's Series A financing a few months later.

Third, for software, Internet services and other IT companies, the cost of innovation is a fraction of what it used to be a decade ago, and entrepreneurs starting these companies require less capital for their businesses.

From an entrepreneur's perspective, VC seed investing isn't necessarily a bad thing. After all, some activity is better than no activity. Moreover, investment decisions within the partnerships of these venture firms can be arrived at more quickly and with less friction when only $1 million of investment capital is at stake.

That said, entrepreneurs should be mindful to avoid Series A deal terms when negotiating a Series 1 financing. Many VCs will propose a seed deal using a Series A term sheet (whether by design or mere convenience), and this can end up costing the company much more than it bargained for. Here are some tips for entrepreneurs when negotiating seed deals (with the caveat that each deal is different, and rarely will an entrepreneur get their way in all of these categories):

1. Don't give away too much of the company too early. VCs shouldn't expect more than around 20-40% of a raw start-up when investing seed-stage.
2. Avoid giving investors more than a 1x liquidation preference, and try to ensure that it is "non participating" (i.e., after the investors' preference is taken, all remaining proceeds are allocated only to the holders of common stock).
3. Don't give investors Series-A-type control rights. A VC should expect to receive one board seat, but not to control the board, following a seed financing. Also, while it is customary to give investors voting "block" rights on financings and on a sale of the company, entrepreneurs should avoid granting voting rights that give VCs blocks on operational matters at this stage.
4. Keep other "investor rights" to a minimum. For example, try to avoid granting demand registration rights, ROFRs on founder stock transfers or drag-along rights.
5. Many VCs will want a "super-pro rata" right in seed deals, giving the VC the right to increase its ownership percentage in the next round. This is not necessarily unreasonable, but take care to ensure that in agreeing to super pro-ratas the company is leaving room for a new VC to lead the next round.
6. Beware of the negative market perception that results when the VC that seeded your company declines to participate in the Series A. This happens. Raise this issue with the seed VC early on to assess the risk of this happening, and always keep your communication channels open with other VCs interested in what you are doing.

Seed is the new Series A for many VCs, and this is fine. Just make sure that you, as an entrepreneur looking to raise capital, understand what seed financings are, and also what they are not.

Pitching the VC partnership

by Chris Dixon

The last step to raising venture capital is normally a 1 hour pitch to the whole partnership during their weekly monday meeting.  This is often described to entrepreneurs as a formality, but at least in my experience, for early stage deals, I would say there is probably a 25% chance of you getting a term sheet afterwards and a 75% chance of you getting rejected (although it will rarely come in the form of an actual "no") .

The reason the odds of you getting dinged are that high are:

1) In most VC firms all it takes is one partner to say "This is really stupid - I hate it" to kill a deal.

2) Although by the time you pitch, the lead partner has probably told the other partners about you and probably sent around a memo, the non-lead partners probably didn't pay attention, and only really do when you are presenting.

Good VCs have a much lower post-partnership ding ratio, because they work hard to socialize a deal and really get their partners to focus on it before asking the entrepreneur to present.   For example, I used to work for Rob Stavis at Bessemer and he had a much lower post-meeting ding rate.  This was because he spent a lot of time talking to his partners beforehand ("socializing the deal"), and if they had good objections he got them early on.  (Ps. Hopefully the VC will work extra hard to pre-sell the deal if they ask the entrepreneur to drop everything and fly across the country.)

The very worst thing that can happen in a partnership meeting is what I call the "partner ambush."  Basically this is when the partner who brought you in (the "lead" partner), who you've met with for many hours and fully understands your company and is excited about investing in it, realizes midway through the meeting things are going badly and decides to try to save face by turning on the entrepreneur.

I had this happen to me when I was raising money for my last startup, SiteAdvisor.   Basically what happened is me and my co-founder Tom Pinckney walked into this big, well known VC firm at 4pm to a room of very tired looking guys (yes, they are all male) who had been hearing back-to-back pitches all day (side note:  always try to present in the morning).  No one introduced themselves or said hello, which was a bit unnerving.   The first questions were clearly hostile to the very idea of a consumer security startups (for a bunch of bad reasons, most VCs vastly prefer enterprise to consumer security - especially on the east coast and back in 2005).   One of them literally laughed at the idea of marketing via search engines (this is the east coast - believe it or not many VCs our here still don't know what (white hat) SEO is and how important it can be).   Then the partner who brought me in said "Well, Chris, why not make SiteAdvisor into an enterprise product" basically turning on me and the whole concept of the company.  Things went downward from there.  To add insult and injury, the lead partner never even bothered to call me to ding me afterwards - in fact I haven't heard from him to this day.

In retrospect, that would have actually have been a very good investment for the VC if they had actually given our pitch a fair hearing.  Which gets me to my final point:  I think VCs are making a mistake by putting so much emphasis on the partnership pitch.  There is some positive correlation between presenting to a room full of (sometimes hostile) VCs and building a successful startup, but not a very high one.

Besides missing good investments, the emphasis on the partner pitch leads VCs to invest in bad companies.  An investor friend of mine was recently talking about a failed startup he invested in:

Toward the end of the company, when things were going very badly, I went in and spent a day sitting with the entrepreneur and watching him work.  At that point I realized his one skill in life was pitching investors.  He had no idea how to manage people, build a product, get stuff done, etc.

The current early-stage VC process is optimized to favor people who are good at pitching partnerships, not necessarily people good at creating successful startups.

How NOT to project a SaaS startup's revenues

by Healy Jones

When I was a venture capitalist, I saw a recurring, common mistake made by startup founders who were trying to project their company's revenue for the coming years. Of course, now that I am actually trying to help a startup create their financial projections from the other side of the table I almost made the same mistake! This issue is particularly important when the startup has a SaaS or viral revenue model.

How to NOT project SaaS revenues

Probably the number two or three mistake startup founders (and me, almost) make when estimating their revenues is to assume they acquire their customers in a linear fashion during the year. Many, many CEOs project revenue by the following formula:

(Number of expected customers at year end) X (monthly subscription revenue) X (12 months) X 50% = Anticipated Yearly Revenue

The 50% discount attempts to take into account that you haven't acquired all of the customers on January 1 (Or whatever your fiscal year day one is), but instead get some of them month 1, some month 2, some month 3, etc. However, this creates a major assumption - the assumption is that you get the same number of customers in month 1 as month 12. Usually this is not the case if you are a startup ramping up your marketing and sales programs. Typically you get more of your customers in the final months, and many, many fewer in the first couple. This effect is more pronounced the greater number of marketing programs you are layering on during the year.

To illustrate how this 50% discount will over-estimate your revenues, consider the following example. I am over-simplifying everything to make a point, so please don't make too much fun of this. Although it is so simplified as to be comical.

Assume a startup has 12 different marketing programs that will run for at least 12 months each. The CEO anticipates that these will result in one new customer per month that they are running. The team will have bandwidth to launch one new program per month, so one new program will be launched each month. The company's service is so amazing that no customers will churn; assume the service costs $100 per month. Customer acquisition will be as follows:

1st Month: 1 new marketing program. 1 new customer
2nd Month: 1 new program, one old program. 2 new customers, plus 1 existing customer = 3 total paying customers.
3rd Month: 1 new program, two old programs. 3 new customers, plus 3 existing customer = 6 total paying customers.
......
I think you get the picture. By the end of the year the company will have 78 paying customers.

Running the formula above for expected revenues, we get $46,800.

The problem is that the company won't actually have that high of revenue. Revenues will really be only $36,400. 77.8% of the amount projected. So, even if the company hits their customer acquisition plan they will miss their revenue target. Obviously this could have serious implications to their cash flow, etc. The level of your revenue miss will be even greater if you have a viral product, since your growth will be even more exponential.

It's a much better idea to identify the specific marketing programs that you will be implementing, the months that you'll be rolling them out and the anticipated customer acquisition by month from them. I realize this takes a long time, and you are probably pretty busy trying to actually get your company going. But projecting your cash flow is such an important part of the success in the early life of your startup that I'd suggest you do it and don't fall into the trap of making such simple revenue forecasts that you misjudge your cash needs.

When A Down Round Isn't So Bad (Unless you are a VC)

by Jason Mendelson

All of us in the startup eco-system hear about the "evil" down round or "cramdown" financings that happen.  These days, the noise level around this financing dynamic is increasing, not decreasing.

While most entrepreneurs worry about down rounds, I'd argue that many times the entrepreneurs and employees are the ones that come out ahead.  In most cases, while the valuation is reset, the VCs funding the round don't want to injure the current employee base by wiping out their equity holdings.  So what's the answer?

VCs will look first to wipe out other VCs that are not participating in the round and give additional options to the employees.  Secondly, the VCs may consider wiping out their own previous equity to accomplish the same effect.

What I've seen over the past 10 years is that most (not all) times, the employees end up with roughly the same amount of equity while non-participating VCs are completely taken out and participating VCs being partially diluted.  Of course, ex-employees are wiped out as well.

There are plenty of examples of these types of transaction and there are plenty of examples of ultimate success stories with these companies.  My personal favorite is Stratify, but my friend Lorenzo Carver wrote a blog post about two recent examples: Open Table and SpringSource.  He points out that these are among the best exits of the year.  It's an interesting read.

Bottom line, a down round / cramdown isn't the end of the world for either the company or its employees.  While still stressful and painful, don't get too out of shape.  All could turn out just fine.

The Naked Silicon Valley Emperor And The Blameless VCs

By Tom Foremski

Georges van Hoegaerden, a serial entrepreneur, writes that "The Silicon Valley emperor has no clothes."

...Silicon Valley has become the emperor who wears no clothes. Many Venture Capitalists (VCs) like the emperor will hold their head high and continue their procession for the sake of protecting their management fees.

...the simple fact remains that very little disruptive innovation is born. And without disruptive innovation (and the risks that such innovation incurs) it is just a matter of time before the Limited Partners (LPs) recognize that the emperor's procession is coming to an end.

Mr Hoegaerden says that the fault is with the VCs -- many don't have the entrepreneurial experience to do their job. And they will always look to blame others and never themselves.

He writes that "innovation is not the problem," the problem is ineffective VCs

Entrepreneurs should refuse to work with investors that improperly assess business risk, money from the wrong investor is a dead-end street anyway. But most influential will be the immediate action from LPs who should close their underperforming commitments (instead of flee), reset their fund requirements and require more relevant operating credentials from General Partners (Venture Capital requires more relevant early-stage credentials and vision than other Private Equity sectors).

The naked Emperor procession will continue for a while.

The sheer size of LP commitments outstanding to the VCs will keep the emperors procession going for a while, and the VCs refusal to criticize themselves is a sign that it is incapable of recovery and self regulation. We need new VCs, with a new mindset and a different DNA to get there.

...We are after all at the beginning, not at the end of technology innovation.

Foremski's Take: I agree with much that Georges van Hoegaerden writes, especially with the fact that we are in the early stages of a long period of new innovation -- but I don't see many signs of things changing regarding the VC industry's malaise. Industries only change when there is a considerable amount of pain and there's not that much pain (yet) on the VC side of the innovation equation.

The problem is in funding and guiding the next generations of startups and creating that "seed corn" for the future. There is little of that going on.

And the reason is lack of decent exits, especially the absence of the IPO market. Prospects for the IPO market opening up look very bleak. However, we mustn't project the present into the future because things don't remain the same. The IPO market will return and that will help restore the cycle of capital that powers innovation.

I'm worried that once the IPO market does return there won't be many companies to IPO because we haven't seeded enough startups.

So You Want To Be A VC?

by Jeff Bussgang

Summer is a good time for career reflection. Am I in a job that's personally satisfying as well as financially rewarding? Is my career on a productive, long-term trajectory? Many executives conclude over the summer (often during long walks on the beach with their spouses) that it's time for a change. Some are interested in exploring what it takes to be a VC. Unfortunately, I often find that many of those who aspire to be VCs have a hard time grappling with the stark reality of the industry – only 3000 deals occur each year (almost eerily precisely 3000 from 2002-2005), with an average of 1-2 deals per active partner per year imply there are only 1500-3000 active partners making VC investments spread out over 450 firms (the number of member firms in the National Venture Capital Association). Thus, it remains still very much a cottage industry and therefore not an easy career path for most to pursue.

But for those who remain determined to pursue a career in VC, I can share a few thoughts that I've observed from my years on both sides of the table.

Generally speaking, there are two on-ramps to the VC world. One is what I'll call "The Apprentice" model: go to a top college, get a few years of working experience, go to a top business school, spend a few more years in a start-up (typically in product marketing/management) and then join a firm in your late 20s/early 30s as an associate or principal and hope to be accepted as a junior partner into the partnership after 4-8 years. During that time, you will probably shadow a few of the partners, join one or two boards and try to learn the trade from the experienced, senior partners around you.

The challenge with VCs who follow this path is that the lack of deep operating experience can potentially be viewed negatively by entrepreneurs. Some entrepreneurs ultimately conclude these types of VCs "don't get it" because they've never walked in their shoes. On the other hand, these "Apprentice" VCs are often more successful investors because they are incredibly broad in their range of expertise and analytical in their approaches to selecting new investments.

The second on-ramp is what I'll call the "ex-CEO/Winner" model: work your way up the start-up ladder, become a VC-backed CEO, navigate a successful exit or two and then join one of the VC firms that backed you and with whom you've had a chance to build a relationship (and make money for) over 5-10 years. This on-ramp sometimes begins with a "Venture Partner" title before becoming a full General Partner (i.e., the training wheels come off and you have your own checkbook, subject to partnership approval).

The challenge with VCs who follow this path is that they can be accused of viewing their VC careers as a lifestyle choice – "the back nine" – and never really go through the hard work, long hours and long years to learn the trade.  After all, this is a business where you fund lifecycles are measured in decades. Although these types of VCs may have deep knowledge in the particular domain where they had operating experience, they may not have the breadth or analytical horsepower to productively invest in the fully broad range of opportunities most general partners require to be successful. On the other hand, these "ex-CEO/Winner" VCs have great networks of former employees and business partners and an ability to bond with the next generation of young entrepreneurs for whom they can serve as valuable mentors.

Which path is the more successful one? I have no idea – but I do know that numerous aspiring VCs who can't credibly follow one of these two paths have slim odds to entering the industry; in a world where the odds are slim at any rate.  And I suspect many LPs are looking for partnerships that blend the best of both sides into a single, holistic unit.

Doubling Down

by Fred Wilson

I wrote a post recently called "Double Down, But Only On The Right Hand" that was about Yahoo!'s decision to bail on search and Microsoft's decision to double down on it. It was also about new forms of search, like real time search, that are worth investing in.

Since writing that post, I've been thinking a lot about "doubling down." Conventional investing wisdom is when an investment goes against you, the thing to do is get out and move on to the next one. Most of the great traders I know practice that approach and it works well for them.

But in venture capital and private equity, it is not easy to "get out." These are illiquid investments that you can't simply sell and move on. So when an investment is not working, you are faced with walking away, shutting the company down, or making an additional investment. And these are hard decisions.

Like most VCs, I am guilty of sticking with our investments too long and putting too much money into the ones that are not working. It's an occupational hazard. As I've gotten more experience in the venture business, I've gotten better at this part of the business, but it is still a challenge for me and most VCs I know.

Bliss McCrum, one of the two VCs who taught me the venture business early in my career always said, "if you are going to put more money into a company that is not working, make sure to change the strategy, team, or cost structure, or all three." It's good advice. You will not get a different result doing the same thing.

The important thing to focus on when making a follow-on investment in a company that is not working is to figure out what's wrong with the company and use the financing discussion to fix it. That's when the investors have the most leverage and when change is most easily obtained.

It is also important to recognize that some investments cannot be fixed. And in those cases, painful as it is, the right thing to do is shut the company down or sell it if a buyer can be found. I prefer the latter outcome, even if getting it is more costly to the investors. Finding a "home" for a company and a team has reputation benefits that accrue to the VC investors over a hard shutdown.

The biggest "double down" I ever did in my career was on the Flatiron portfolio in late 2000/early 2001. We had invested $500mm in 60 companies from 1996 to 2000 and had taken out about 3x that number in cash and stock distributions on 24 companies. The remaining 36 companies were all struggling in the wake of the bursting of the Internet bubble and the portfolio was basically worthless on paper.

Our financial partners wanted out, as did we, but there was the little problem of a portfolio of 36 companies. It would have been easier to take our 3x and be done, but that is not what we did.

Our financial partners agreed to invest another $75mm into the portfolio and my partners and I agreed to triage the portfolio and invest the $75mm wisely into the survivors. We shut down roughly a third of the companies and sold off another third over the next year. But on the final third that we thought had real potential, we invested the additional $75mm.

I am not going to get into the full details of that $75mm "double down" but I will say that three of the twelve companies we doubled down on, Bigfoot Interactive, comScore, and Mercado Libre, have produced north of $300mm in combined value for that portfolio. The other nine have produced even more value and we still have four companies left in the portfolio.

I've told this story before on this blog so it may not be new to some of you. But I like to tell it because it was a very formative experience for me. I learned that when times get tough, you can't cut and run. You have to commit yourself to finding a way out. And the way out involves a double down, but it also involves some hard choices, taking some losses, and restructuring the remaining assets so you can go forward.

In times like we are in, most people are living with situations like this. I am as are most of my friends in the VC business and elsewhere. I hope this post helps those of you who are struggling with this process. The ending of the story can be a good one if you do the right thing, are honest with everyone, and double down on both your financial and personal commitment to the investment.

How Should VCs Say No - When It's The Team?

by Jeff Bussgang

One of the things I continue to struggle with as a VC is the unfortunate fact that I am in the business of saying "no" all the time.

Saying "no" in the context of how you invest your time is one thing - fellow VC blogger Brad Feld did a good blog post on this topic in the context of time management a few weeks ago as did Y-Combinator's Paul Graham.  But I really struggle with saying "no" to entrepreneurs.  Entrepreneurs pour their hearts, souls and dreams into their start-up ventures and to summarily dismiss them remains the hardest thing about the job.  One of my entrepreneur buddies asks me whenever I see him:  "So - did you crush any entrepreneurs' dreams today?"  Very funny.  Ha ha.

One of the reasons for this dynamic is that VCs are in the business of trying to see everything (i.e., learn about and meet with all the best deals out there) but do nearly nothing (i.e., invest in only one or two companies a year).  My blog post on this topic a year ago was a bit tongue in cheek (VCs and Deal Flow), but only a bit.

My dilemma becomes more acute when I try to explain why I am saying "no".  In particular, how do you say no when the reason for turning down the investment opportunity is the team?  It's easier to say no when you have concerns about the market, the business model or the price.  The entrepreneurial team is great, you would enjoy working with them, you think they are money-makers, but there's something in the general model that prevents you from pulling the trigger.  Those are the easy ones.

The hard ones are when you are saying no because of the team.  Successful start-ups typically follow Thomas Edison's genius formula:  10% inspiration (in start-up land, the vision or idea), 90% perspiration (in start-up land, the execution).  Whether you like the idea or not is irrelevant if you don't believe the team has the wherewithal to execute it successfully.  Sure, a team can evolve over time and new leaders can be brought in, but very few VCs invest behind teams they don't believe in.

One curmudgeonly VC I know used to say to entrepreneurs:  "I don't think is an opportunity that suits you." At Flybridge Capital, we try our best to be direct and honest in providing feedback to entrepreneurs to help them with their ventures and perhaps we should have the courage to give it to people between the eyes.  I'm just not sure this blunt feedback would pass the decency and respectfulness test.  After all, who am I to project such an unfair judgment based on a 45-60 minute meeting?  VCs need to "Blink" and make snap judgements after those 45-60 minutes in order to filter and prioritize how they spend their time, but why be mean about it?  So in the end, I often settle for a polite "it's just not a fit for us".  Is that the right approach?  Let me know what you think.  What's the meanest turn down you've ever received from a VC?

Beware of Gym Salesman VC

by mark suster

The post is part of a series called "Pitching a VC" – the outlines is here.

You've been trying to raise VC for months.  You've obviously talked with several funds to hedge your bets.  You finally get your first term sheet.  Time to celebrate!

But wait.  What?  They're giving me 48 hours to sign the term sheet or it expires?  WTF?  What about all the other VC's I'm talking with?  I can't get them to close in 48 hours.  But I have a bird in the hand.  Will they really pull the term sheet if I don't sign?

OK.  First, every term sheet has an expiration date in it.  That's normal and no reason for alarm.  A VC isn't going to give you an unlimited offer to stay on the table as you shop the terms around town.  But there is a difference between a term sheet with an expiration date and a VC that puts pressure on you to sign and alludes to pulling if you don't close by the date.

The various excuses they will give you are:

1. I can't leave an offer "hanging out there"
2. I don't want you to shop my deal
3. If I've made you an offer and you don't KNOW you want to work with me maybe there's a problem here
4. Whatever …

You need to make your own mind up regarding an offer and I accept no liability for your basing your decision on my point of view.

So here's my view: it's total bullshit.  Any VC that would try to turn the screws on you to try and pressure a decision is not the kind of VC you want to work with.  If they use these tactics when they "love you" imagine the tactics when you're not performing as well as you would have liked.

It's one thing if this term sheet is the only game in town.  You might NEED to take it.  But I like to say that "VC is more permanent than marriage.  At least in a marriage if you're unhappy you can get divorced."  Not so, VC.  So why should you be pressured to make a quick decision.  It's unlikely that you've even had time to do due diligence calls on this VC – you wouldn't be so presumptuous as to do this pre term sheet.

The only reason some VCs use these tactics is the same reason a gym salesman only offers you a discount if you sign up today.  Once you're out of the gym they're afraid someone else will get a hold of you and you won't sign with them.  And you know damn well that when you come back to the gym tomorrow and ask for the deal that was only valid yesterday they'll still give it to you.

I highly doubt that any VC who submits a term sheet to you would really pull it because you politely ask for a reasonable extension to their deadline.  They've done all the work.  They've had the big debates at the partners' meeting.  You partner sponsor is excited.  And lose it because you need 2 weeks rather than 1?  Really?

Don't mistake eagerness for pressure.  I can understand a VC who tries to close you the way you would try to close a customer deal.  It's OK for them to push for closure but if you politely request more time they should really be understanding.  And if there are threats, implied consequences for taking time to think about it or do due diligence then I'd give that VC a really hard think.