What to do about that first round of funding?

You are a co-founder. You and your team are committed to making it happen. Now you need money.

Your options: clear as...

What comes next has profound implications for your company. If you have some interested early stage investors lined up the critical question is: “How much of the company to we give up for $XX?” If these are friends and family, you’ll want to be fair (even generous) with them. Regardless of who they are, you shouldn’t cede more control of the company than is necessary or screw up the cap table (which will spook sophisticated investors down the road.)

So, what is the pre-money value of a good idea and a team that’s recently committed to making it happen? Reasonable people will disagree and you could spend a bunch of cycles on this without getting your product any closer to market.

You have two options: (1) price the deal and agree to a valuation at this early stage, or (2) kick the question down the road and structure your first round of capital as a convertible debt instrument. The former is clean and neat, but may hurt either management or the investors if later rounds prove your pricing was off. The latter costs some lawyer time, protects management’s stake, but could screw your early investors if your valuation has a large increase between funding rounds.

Allocating stock options in early-stage companies

How much are you worth? In a startup environment, that question is never just about salary and 401(k) perks; it’s about how much of the company you deserve given your position and your performance.

@TheFunded via Twitter posted this link. It provides some comps to use when you’re negotiating with your boss or trying to sensibly allocate options for that key hire or board member.

Here’s the direct link to Christine Herron’s blog post with the numbers you’ll want to see.

Supporting the VC industry – a letter to my Sentors and Congresswoman

Dear Senator Udall, Senator Bennet, Congresswoman DeGette:

There is threat to my livelihood as a high tech entrepreneur in Colorado. Risk capital — the life blood of small companies so vital to Colorado’s economy — is facing onerous and unproductive regulation from the Treasury Department.

VC and founder stereotypes

I’d like to take a few minutes to explore the cartoonishly pejorative stereotypes that have recently popped up on the web. The embedded slideshows below offer a comical glimpse into the worst behaviors on each side of the table.

Getting to No

In business (and in life) people are often a obsessed with getting to “yes:” an outcome many view as unequivocally positive and helpful to their goals. I submit that the right answer to most business questions is “no” and the more quickly one can recognize which paths are strategic dead ends, the better.

The trouble with creating a winning business strategy is that it is impossible for someone to tell you that you have it right until after the fact. Early on, a credible business person can provide only three answers when asked about your strategy: (1) “That is interesting,” (2) “What can I do to help?” or (3) “No, that won’t work because _____.”

Let’s unpack those responses. The first answer is often a polite way of saying, “I don’t want to hurt your feelings by telling you the two dozen huge problems I see with your business idea, but it sure is creative!” The second is always terrific to hear. Hopefully by “help” they mean investing. Ironically, the third answer is the most helpful. In the absence of meaningful validation for your strategy (i.e. the sale of your company for a big wad of cash), the only route-finding tool you’ve got is the word No.

Nate Lewis’s talk on energy — solar is the planet’s only hope

I’m attending day one of a packed conference at CU Boulder: the Workshop on Efficient Conversion of Solar Energy to Electricity and Fuels. Nate Lewis (whose paper everyone needs to read) gave last night’s keynote address. Nate is a very clear thinker and one of those rare scientists who is able to speak to power — both business power and political power — with clarity and in a language rational people can easily understand.

The Right Stuff

Elon Musk (CEO of SpaceX, a PayPal founder) is determination personified. His attitude and commitment embody what it takes to get a startup off the ground. In his case, “getting off the ground” is literal: SpaceX is developing the first privately-funded, liquid-fueled rocket transportation business. They recently suffered their third consecutive in-flight catastrophic failure.

Why uniqueness is a dangerous idea — A discussion of substitutes and their impact

All too often one will hear an entrepreneur or an inventor say something like, “We don’t have any competition. What we are doing is unique.”

At the level in the market where money is made, statements like this are not just wrong, they endanger capital and jobs. Let’s look at two ways smart people arrive at the conclusion that they won’t have to compete for revenue.

Steve Jobs’s tail is longer than yours

While the press writes about other things, Apple has quietly engineered a revolution in how we buy and interact with software. This ought to sound familiar. Sub “software” for “music,” and roll back the clock to 2001: the introduction of the iPod and iTunes…