Invested Interests

6 Clues That You May Be Cool as an Entrepreneur

Google's Larry Page image via Coolspotters.com

A while back, when a startup founder mentioned to me that he wasn’t sure he had the personality to be an entrepreneur, I realized how important that insight was. My first thought is that if you are more annoyed than energized by expert advice, team suggestions, and customer input, then you should probably avoid this line of work.

Actually, it’s more complicated than that, but that’s a good start. After working with entrepreneurs for more than a decade, I have developed a good “radar” to quickly recognize mentalities that will likely pass the test of investors, employees, and customers. Read more

Invested Interests

Forget Presidential Politics: Here’s How We Create Jobs — And How You Can Help

As I write this, days after the 2012 presidential election, I’m probably not alone in feeling relieved that the political jeering and soapboxing that reached a feverish pitch during the seemingly endless campaign season has finally subsided.  Yet amidst all the partisan cheerleading and name-calling, there has been some discussion of substance.  One particular four-letter word has been used pervasively by candidates of all stripes:  Jobs.

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Antone Johnson , Founding Principal, Bottom Line Law Group
November 8th, 2012 0

Pivotal Moments

What is an effective “pre-incorporation-agreement” between possible founders of a startup?

The bottom line is that the very question you are asking is one of the trickiest things of all when it comes to startup founding.  On the one hand, if you DON’T make things explicitly clear up front, you are just begging for a future disaster by ‘kicking the can down the road’. On the other hand, if everything is locked in stone before you even start, you may find yourself with a completely untenable structure even six or twelve months out, when it becomes clear that not everyone is contributing as much as you all envisioned at the outset.

It’s sort of a case of “damned if you do, and damned if you don’t”. That said, it’s infinitely better to have a structure which at least provides a framework for taking action, otherwise you may well lose your money, your friends and your company. My suggestion? If this really has the potential to turn into a company (instead of just a school project) find a local lawyer who specializes in this stuff, and who will be willing to help you do a simple incorporation document for a few hundred dollars. Then sit down with your co-founders and divvy up the equity based on the contributions you all believe each of you will make…providing for reverse vesting, a large option pool, and a clear decision-making structure.

Good luck!

*original post can be found on Quora @ : http://www.quora.com/David-S-Rose/answers *

Invested Interests

7 Keys to Positioning Your Competitors to Investors

Steve Jobs and Bill Gates image via Facebook.com

Every entrepreneur should spend plenty of time thinking about competitors, and how they relate to your business, but you need to be very careful what you say out loud about them to your team, your investors, and your customers. What you say speaks volumes about how you think about your startup, how smart you are, and your personal integrity.

I’ve spent hours talking to startup founders, and heard a thousand startup pitches, and I always listen carefully to what is said (or not said) about competitors. Everyone has a view on competitors, so you will likely get some off-the-cuff questions on this subject as well. Here are some common pitfalls or traps to avoid: Read more

Pivotal Moments

What are the downsides of communicating a key differentiation in your name?

One reason is that because of rapidly changing nature of business, today’s competitive advantage can easily become tomorrow’s disadvantage…or at least irrelevancy.

Think about how useful the name Tote.com would be for a shopping site developing a social-sharing universal shopping bag/cart. Pretty cool, huh? But what happens when that doesn’t work particularly well so they pivot to socially-sharing images? Wouldn’t, um, “Pinterest.com” be a little more useful?

Similarly, “stickybits.com” is perfect for a QR code tagging site, but doesn’t work nearly as well as “turntable.fm” once it turns into a collaborative music-playing site. Or “FundingUniverse.com” needing to change to “Lendio.com” when they pivoted from equity to debt.

Of course, you can try to game the system and figure out in advance where you’ll be AFTER you pivot and extend your line of business. But then you end up with a heck of a lot of customers trying to figure out why a mail order DVD rental company is called “netflix.com“.

Through painful experience, many industry professionals have learned that it usually makes more sense to go generic and ambiguous, allowing your genius marketers to add the meaning to simple, catchy URLs.

That’s why instead of naming your PEZ dispenser trading site “pezheads.com“, you’d probably be better off with “eBay.com“. Or instead of using “cheapbooks.com” for your online discount bookseller, a better choice might be the more flexible “Amazon.com“.

*original post can be found on Quora @ : http://www.quora.com/David-S-Rose/answers *

Invested Interests

Great Startup Teams Foster a Culture of Likability

Larry Ellison Photo by Oracle PR

You don’t have to be likeable to everyone to be a great entrepreneur, just to the people who count. Of course, we can all point to apparent exceptions, like Ted Turner or Larry Ellison, who are sometimes seen as lions, downright predators, or even jerks. Yet I’m told that even these guys are considered quite likable by an intimate group of business and personal associates.

So likability is an elusive quality. It doesn’t mean always being perky and bright and constantly being happy. What makes each of us likable is distinct to us, and to some degree it’s in the mind of the beholder. But the basic drivers of likability are the same for most of us, and Michelle Tillis Lederman, in her book “The 11 Laws of Likability” has summarized these nicely: Read more

Invested Interests

Convertible Notes have a clause that the investor can ask for the money back. How often is this used?

The question should be “used for what?”

Because convertible notes are designed to give investors an equity interest in a company that will eventually be worth much more than their investment, the intention on their part is always to convert into equity (after all, if they were just after the interest on a loan, they could find much less risky things to invest in than a startup.)

Therefore, the only reason that an investor would NOT convert into the next round of equity would be if the company was doing so poorly that there was no such round. (Think about it this way: assuming a convertible note with a valuation cap, which is what all smart investors would do, it would always be to the investor’s advantage to convert, regardless of whether the valuation of the round was high or low.)

But the flip side of this is that if the company is doing so poorly that it can’t raise another financing round, it is also highly unlikely that it will have the cash on hand to repay the debt, so there would be no purpose to be served by the investor asking for the money back…because they couldn’t get back what doesn’t exist.

So therefore, if the repayment clause is not used to get the money back, what is it used for?

It is used as an incentive (carrot/stick) for the investor and the company to sit down for a heart to heart talk, and figure out what to do next…with the balance of power this time in the hands of the investor, because the company was not able to deliver on its projections.

  • If things are generally going pretty well, the investor(s) will usually extend the note to give the company more breathing room, maintaining the status quo.
  • If things are going not so well, and it doesn’t look like there will be a follow-on financing round any time soon, the investor and company might agree to convert the note into equity at a previous (lower than anticipated) valuation (if there had been a previous round) or at whatever valuation they agree on.
  • In a worse case, if the company is really in bad shape, the investor can pretty much dictate whatever terms s/he wants, using the implied threat of otherwise forcing the company into bankruptcy because it can’t repay the debt.

 

While that last option sounds pretty horrendous, in practice I have seen it used mostly for good. There are many permutations of what “good” could look like, but essentially holding a past-due note from a company that can’t repay it, is like holding a nuclear weapon: using it probably destroys all value for everyone, but the ability to use it, like the geopolitical theory of Mutually Assured Destruction, means that everyone is at least forced back to the table to negotiate a way of saving the company.

*original post can be found on Quora @ : http://www.quora.com/David-S-Rose/answers *