I attended a breakfast meeting today for the Northwest Entrepreneur Network today — the theme was Anatomy of a Venture Financing — overall, it was a good event. One thing that surprised me was how little ownership founders generally maintain after several rounds of financing. Per their presentation, in a very successful scenario, the founders end up with <8% of the company!
Here are some of my bullet point takeaways from the morning:
- Tie up IP early, when when/if you are still at your previous employer
- Document every penny you spend, to help justify your investment/ownership later
- Need succinct business proposition early on
- Define market potential for your business
- Define minimum investment to get to exit
- Founders must have skin in the game ($) beyond lost wages
- Is company a feature, or a business?
- Realistic Cap Table, & right founder %’s (50/50 usually doesn’t make sense)
- Resolve all shareholder agreements before looking for any $
- Valuation = 12 month forward revenue
- Due Diligence = auditing the business plan (what will you do, how soon, multiples)
- VC’s prefer Corp’s to LLC’s (because existing law on the books) – LLC & S-Corp pass on income & VC’s can’t have income
- 25 Page biz plan & powerpoint suffice (avoid tirekickers of your plans)
- Board members (a) must open doors and (b) act as mentor for CEO
- Insist on pro-rata investment rights for folks in each financing round