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.

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

  1. I think these are great tips. The whole fundraising process should be focused on 1. If the investor wants to invest in the future of this company, 2. what is the amount invested, and 3. what is the valuation. The rest is just a lot of wasted resources, causes people to become bitter, and a bad use of time.
    I’m glad there’s actually innovation in this part of the startup world 🙂

  2. It’s a shame I have to post this comment here but I need help and I feel I have been left with no choice.
    Customer support should be a number 1 priority in this day and age and no one should be made to feel that they have been taken advantage of by Corporate America.
    My name is Meg McMaster and I am a very dissatisfied customer of Zynga. I have invested my real life money into your company and cannot get any customer support or satisfaction. I have gone thru all the proper channels and put in a ticket #090803-001547 on 8/3/09. I have updated this ticket on a regular basis but cannot get any help. What kind of company takes someones hard earned cash but refuses to allow the customer to speak with a supervisor or someone who can actually help them. I have been patient but feel like I am being taken for a ride by your company, how can I feel otherwise. I would appreciate it if someone in Management could look into this issue and get back to me. I have tried my best to be patient but my patience is wearing thin. I play and purchase coins/rewards/favors in Mafia Wars, Vamp Wars, Farmville & Yoville and have many FB connections. Word of mouth is a very powerful tool one that I would think the company would want to be positive not negative. All I’m asking for is help w/my ticket.

  3. I am positive that my other comment will not be posted but I have tried unsuccessfully to get in touch with your company. No one answers the phone. Point #5 is very powerful, relationships do matter a lot, between companies and their customers, especially those who have financially invested in your company, no matter how big or small that investment is.

  4. Hi Mark:
    I can’t find the original blog entry I commented on here, but I wanted to thank you for having yoville’s support staff contact me and praise my suggestions. That was very kind and generous.
    I look forward to seeing all the issues resolved and everyone ease into the Sweets Factory without further protest.

  5. Incident: 090930-002104
    Do you value your paying customers? Do you value your game testers?
    If so…please do the right thing and hear my plea.
    I have waited almost a week now to get my 300 plus Farmville bucks restored to my account because of some out of syncing problems after I tried the video professor offer.
    All I got was a response saying that I have already been credited.
    Thanks for your response but I don’ t think you got what I meant.
    I know I was credited for that Video Professor offer but what I am writing about is what happened within 5 minutes after I was credited for 300 farmville bucks.
    Can you check your records how many times the system went out of sync within that 5 minutes of me getting credit for the offer?
    My credits were lost in the system due to that numerous glitches from the synching process….
    I was writing to have my credits restored because I didn’t get the chance to use it.
    If you notice several bought items in my account…that is because after losing my farmville bucks due to the numerous out of sync messages as if you didn’t really want me to have those video professor farmville bucks in the first place……
    I bought $40 dollars of farmville bucks and went ahead and puchased several itemsin the e-farm.
    If you cannot restore my 300 plus farmville bucks lost from your numerous out of sync messages on that problematic day on sept 24 when your system deleted my farmville bucks….
    I would have no other option but to ask for a refund of my $40 dollars….and stop playing farmville.
    It is just deceitful on Zynga’s part to offer these products only for you to actually erase it or lose it in the system by your “out of sync” messages.
    If your system messages have a choice of “yes” or “no” in terms of when the “out of sync” messages appear and you give the players a notice in advance that if you press “yes” we will lose our farmville bucks…then I would have not pressed the button after the out of sync messages.
    Please do the right thing and restore my missing farmville bucks because even though it was credited…I didn’t get the chance to use it because of the out of sync messages.
    Thank you and I am hoping for your kind consideration.
    Anthony J
    Level 33 Farmville
    Lveral 63 Mafia Wars
    Yoville player
    Vampire Wars player
    Fashion Wars player
    Pirates Player
    Cafe World player

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