Supply, Demand, Savvy and Priced VS Unpriced Seed Rounds
Mark Suster has struck again with yet another contribution to the seemingly endless debate about convertible notes versus priced seed rounds. His conclusions will, of course, shock and amaze: Price the “effing” round. All the investors agree. (I probably overstated that.) I don’t want to rehash the now tedious discussion, but the following thought has occurred to me more than once: Investors who hold notes that are convertible at a discount are indifferent to the next round valuation (sort of – (a) a low valuation theoretically helps the return on the seed investment and (b) everyone likes to invest in...
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More on the Angel vs VC Seed Debate
The angel investment debate rages on. I don’t know if rages is quite the word, but it continues. Many people have written about it including Brad Feld, who cites a number of others. I have written about it. Mostly the debate revolves around who is and who is not a “good” angel investor. If the disputants are to be believed, a VC who just plopped $250K into your business to get an option on leading the next round is a “bad” seed investor but a VC who thinks like an angel investor and will give you some bandwidth is a “good” seed investor. I...
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The seed debate rages on
Brad Feld has another fine post on seed investing. His post, like so many others, focuses on the intent of the investor. In effect, he says there are good seed investors and crappy seed investors. He is undoubtedly right about that, but I am not sure it matters as far as optionality and signaling are concerned. Any VC seed investor is likely to have a choice whether or not to fund an “A” round. It does not matter whether they made the investment with the intent of securing that choice or not. With respect to the value of the option, it does not matter that...
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Coming Seed Crash - But is it Bad
There is a lot of stuff in the blogosphere on the subject of the impending crash in seed investments and its corollary: that all this seed investing that is going on is somehow bad for entrepreneurs and investors and, by extension, the entire ecosystem. The various arguments are nicely laid out in a couple of posts by Andy Payne first “Coming Seed Fund Crash” and second “More on the ‘Seed Fund Crash’”. There is also a nice summary of the discussion at Cloud Avenue. Finally, Paul Kedrowsky and Chris Dixon have weighed in. The thing that strikes me about this conversation is that...
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Seed Notes and Bad Signals
I have been giving more thought to this issue of signaling and VC seed notes. As I have pointed out before there is a lot of chatter about it in the blogosphere. My initial thinking in an earlier post was that this is really much ado about nothing. I was going to leave it at that, but one of my partners passed along a rumor to the effect that one of the top tier VC funds in Boston was pursuing (or considering pursuing) the following strategy. They, apparently, propose to do a whole bunch of seed notes with the intention of following up...
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Senator Dodd and the Accredited Investor
There has been a ton of discussion on the blogosphere about Senator Dodd’s ill-conceived plan to make financing harder for start-ups. Check out Fred Wilson’s blog. It will lead you to lots more stuff (in addition to the more than 165 comments – when I last looked). I don’t think there is much I can add to the general dismay over the proposed legislation. But I did post a comment about the genesis of the term “accredited investor.” One of Dodd’s proposals is to raise the bar on who qualifies as an accredited investor. In short, for a person to be an accredited investor,...
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Forms for angel and seed investments
Despite all the talk in the legal world about forms, and there is a lot of it, and despite the great success of the NVCA Series A documents project originally inspired by Sarah Reed, it took Fred Wilson’s recent blog post to create some interesting back and forth commentary on seed forms. Good forms are a wonderful thing. They can save tons of time and cost – each of which is in short supply for early stage entrepreneurs. Now, not every shoe fits every foot, and sometimes work is needed and is appropriate. At the risk of stating the obvious,...
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NVCA Forms Project
For the first time in several years, I was able to actually attend (as opposed to sign up for and then not be able to go) the annual meeting of lawyers and VC in-house counsel that was organized by Sarah Reed (of Charles River) long ago to develop what are now the NVCA document forms. In my view, this is one of (perhaps the) most successful forms projects ever undertaken. We are about to publish EEC Perspectives for Q4 (the link is to Q3, but Q4 will be available in the next day or so) and year end. It will show very high...
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Seed and Angel Investor Notes
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...
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