Emerging Enterprise Center Blog - Commentary and Analysis For Entrepreneurs and Startups

  I have been giving some thought to Fred Wilson’s recent post, “A Challenge to Start Up Lawyers”.  His basic point is that he should be able to close an angel financing of under $1mm for legal cost of $5K.  Needless to say, this post brought out the sycophants (the Fred you are absolutely right crowd) and the deeply offended (the lawyers are worth every penny they charge crowd).  I don’t think it is reasonable to be in either crowd.  Our firm enters into a wide variety of arrangements with start-up (and other) clients.  These arrangements are intended to reflect... More

I was skiing on Cannon Mountain the other day.  Below is what I saw.         This is the time of year when pundits look forward and make predictions.  So, I decided to do the same.  Here are ten predictions for next year:  1)     The Pats will beat the Eagles in the Superbowl  2)     Angels will continue to invest at a torrid rate.  3)     There will be continued modest improvement in numbers of VC financings (but not enough to get back to 2007 levels).  4)     Cleantech and renewable energy start-ups will continue to have difficulty raising venture money.  5)    ... More

After Q1, I was wondering if the venture economy was back or if folks just thought so.  At the end of Q1 things seemed to be on a steady upward trend; now they seem to be sputtering. Well, the Q2 results have now been reported on by many sources, including the three law firms that publish data, Foley Hoag (my firm), Fenwick & West (a Silicon Valley based firm), and Cooley.  Unfortunately, I think Dave Pierson from my firm put it well in his analysis of New England based activity, “the environment for venture investing … has generally improved compared... More

 I had lunch today with an A list entrepreneur and we got around to the topic of whether or not the facts matter.   By the facts, I mean what is “market” in the venture investment world. This is a topic upon which I recently wrote a blog post pointing out that, at least in some cases, the facts don’t matter. I admit that I must have been in a funk, because I took the position that it probably does not really matter what is going on in the market. Basically, I said that if you are a repeat entrepreneur with a strong record... More

I was talking to an entrepreneur client yesterday (this client is a rock-star and a visionary in his space), and I just talked to another client who is working hard to do his first start-up (in a different space from yesterday’s client). The rock-star has name brand VC (that he does not actually know) making cold calls to him trying to get into his next venture. For the other guy, it’s an uphill battle. No surprises here.  Here is the issue. In each case, I have met with the client and discussed what is “market” for terms in series A investments. Now, I actually... More

My last post concerning structuring to meet the needs of your financing sources, has led me to think about how to handle contracts. Businesspeople are often willing to go “skinny”. That is to say they are willing to live with contracts that are not comprehensive or rigorous. They often rely on relationships and accepted business practices (or simply trust). In many ways, this is what makes the world go around. The mere creation of a thorough carefully drawn contract that covers every (almost every) contingency and the negotiation that implies may itself be an impediment to doing business.  A lot of the time the sales... More

Seed and angel investments often come in the form of convertible notes – often notes that are convertible into some future round of equity investment at a discount to the valuation at the time of conversion. They have other terms as well such as interest rates, maturity dates, prepayment premiums in the event of an early sale of the business, waiver of certain debtor protections etc. These all may form the focus of future posts. I want to focus on what, if any, influence seed/angel investors who invest in these types of notes want (or get) concerning the terms of... More

I ran into an entrepreneur that I know pretty well at a social gathering. As is often the case, the conversation turned to capital raising. It turns out that he has raised several hundred thousand dollars of "growth" capital through a loan from brokerage house. As I understand it the entrepreneur went to a number of wealth individuals and convinced them to open trading accounts at the brokerage house and use the securities in the account to collateralize/guarantee a loan to the entrepreneur’s company (in effect a margin loan with the proceeds being used to fund the business). In consideration... More

Sometimes you have to take your financing where you can find it and deal with the consequences later. If there were but world enough and time, you could negotiate the correct fair valuation for you business and the correct fair terms for you and the investors. But there never is (world enough and time) nor is this the best of all possible worlds. So, in the end you will have to settle, and, with luck, if you don’t get what you want at least you will get what you need. Along the lines of dealing with the real imperfect world,... More

What are you seeing? People seem to be asking each other this question with increasing frequency. I attended a board meeting for a client who will need to be doing a financing in the next few months, and that was the one question everyone wanted to have the answer to. There is no good answer to this question because no one is seeing anything. We all have random data points. So, here is my answer: Prepare to be horrified. Funded companies that are doing well and controlling their burn, are getting appalling down valuations from potential new investors. These valuations are often below the original “A”... More