Articles by David S. Rose

Where would I go to invest in startups or emerging companies?

The first question you need to ask is “What country are you in?” and the second is “Are you an Accredited Investor by that country’s standards?”

If we’re talking about the US and you are NOT at the Accredited level ($1 million in investable assets, or $200,000 annual income), then for the moment you are actually not allowed to invest in privately held startups (emerging publiccompanies, of course, you can buy on the stock market like everyone else.)

This will be changing next year, however, because of a new law called the JOBS Act of 2012, which establishes a new, limited type of Crowdfunding for small companies and non-Accredited investors. Once the U.S. Securities and Exchange Commission gets around to writing and releasing the rules for this program (aaaaaaaaaaaaany day now), you will be able to go online to one of many new ‘crowd funding portals’, where startups looking for equity investments will list themselves (similar to the way project crowd funding sites like Kickstarter work today.) Subject to specific rules and dollar limits (10% of your income in aggregate for all investments per year, etc.) you will be able to invest online, just as easily as buying books from Amazon :-)

On the other hand, if you already are an Accredited investor, you can legally invest in startups today without much hassle, putting in as much or as little as you and the company agree on (the average angel investment per company is about $25,000.)

The challenge with this, however, is that while you are allowed to invest, right now the company is not allowed to tell you that it’s raising money! That’s why one of the best options for you today is to join a local angel investor group, where you will work collegially with 25-250 other investors to hear pitches from companies, do your due diligence homework, and then—if you are interested—pool your money with the others to make meaningful investments.

Most angel groups today are connected on a single Internet platform called Gust(of which I happen to be the CEO), which allows their members to easily collaborate both internally and externally on finding and executing investments. As the primary international platform for angel investing, Gust is also used by over 200,000 startups to manage their investor relations, making the industry increasingly efficient.

If you want to strike out on your own, though, there are several online platforms that have recently begun to offer selections of curated startups to Accredited investors. While this has been a bit problematic given the current rules, as of late September 2013 (also thanks to the recent JOBS Act) it will finally be legal for companies to publicly announce that they’re raising money (technically this is called General Solicitation).

Some sites are already offering individual investments to Accredited investors, and hundreds more are gearing up to launch in the coming months. Among the better known ones already in business are AngelListFunder’s ClubSecondMarket,SeedInvestRealty Mogul, and Bolstr.

So, the bottom line is that this is a great time to start thinking about investing in high growth startup companies! Whether you’re an Accredited angel investor or a non-accredited crowd funder; whether you want to invest with a group or on your own; whether you want to meet founders in person or do everything online; whether you want to invest $1,000 or $1,000,000; whether you want to lead an investment syndicate or participate along with other investors; there are—or shortly will be—groups, platforms and services that will be delighted to help you get into the game!

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

Which books would you recommend to a VC analyst-associate?

The Business of Venture Capital
Insights from Leading Practitioners on the Art of Raising a Fund, Deal Structuring, Value Creation, and Exit Strategies

Raising Venture Capital for the Serious Entrepreneur

Mastering the VC Game
A Venture Capital Insider Reveals How to Get from Start-up to IPO on Your Terms

Term Sheets & Valuations
A Line by Line Look at the Intricacies of Term Sheets & Valuations

Venture Deals
Be Smarter Than Your Lawyer and Venture Capitalist

Venture Capital, Private Equity, and the Financing of Entrepreneurship

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

How can Australia kickstart the local startup community?

Sebastien Eckersley-Maslin makes some excellent points, most of which are ones that I would have made. In particular, getting to critical mass (of entrepreneurs, angel investors, engineers, et al) is perhaps the most important thing you can do. Whether this is by City (the most useful) or pan-Australian (perhaps a bit easier), it provides a host of benefits both in terms of availability of resources and visible success stories for new entrepreneurs.

Australia has some very active, organized, groups of angel investors, and they should be embraced and brought into the startup community as a resource.

An online central hub of the entire startup ecosystem would be a great way to bring all of the startup constituents and components together.

Celebration of entrepreneurship is also important, because fear of failure is one of the most debilitating things for an industry that needs to be nurtured. Here, Australia should take as its model we crazy Americans, rather than our delightful British cousins. In the US (particularly in tech centers such as Silicon Valley or New York), failure is almost a badge of honor, and is largely perceived to be a great learning experience. Across the sea, however, a single failure can often ruin reputations and social standing…which means that many great entrepreneurs never dare to start.

Finally, immigration policies are certainly an important subject for discussion. Here in the US we are having the same debate, for the same reasons. Although we have a lot more people than you do, every year there are tens of thousands of foreign-born great people who would do wonders for our tech community, but who are not allowed across our borders. You have the problem to an even greater extent, and I would suggest doing what you can to increase the number of qualified people who are able to enter the country and join your startup workforce.

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

Should I give my seed investors anti-dilution protection?

What this investor is seeking is called “permanent, full-ratchet, anti-dilution protection”, and that is neither (a) in line with the market, nor (b) practical. Even if you were willing to give it to him, it is highly, highly unlikely to stand up beyond the next financing round, because there’s no way your next investor is going to take a dilution hit for this first one.  That’s why anti-dilution provisions are typically only applicable to the next financing.

So, no, you simply can’t give him what he wants. (Assuming that the next investor wouldn’t stomach it, there are only two possible outcomes: A: the new investor forces the original one to waive it, or B: the new investor walks away from the deal.)

Instead, let me suggest that you offer “weighted average anti-dilution protection” to the next equity round. That is fair and reasonable, and should provide an appropriate level of comfort to this investor.

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

Crowdfunding: KickStarter, Indiegogo, AngelList, Gust: How to choose?

First, it’s important to understand that the four platforms you list fall into two very distinct groups.

Kickstarter and IndieGoGo are project-based crowdfunding platforms through which anyone can contribute money, either as a donation or with the promise that they will receive a tangible ‘reward’ of some kind if the project is successful.

Gust and AngelList are equity-based platforms, used by Accredited Investors  to facilitate the investment of money for an ownership interest in a company.

As such, depending on what you are trying to do (fund a project or get permanent investors into your company), you would select one group or the other.

Once you’ve done that, for the first group it doesn’t make sense to participate on more than one platform. That’s because in the vast majority of cases, most of your contributions will be coming from your own network, and you don’t want to divide them up (since you will need to hit your ‘target’ minimum raise.)

For the equity group, however, it is not uncommon (and there is no downside) to listing on both Gust and AngelList. Neither has any cost to establish a profile, and both provide visibility to active angel investors and others in the startup ecosystem (Gust primarily to organized investors and funds, AngelList primarily to independent investors).

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

Is making Equity Crowdfunding available to all a good thing?

Part of the challenge is the enormous amount of ignorance surrounding this suddenly hot topic. There are thousands of companies that “the crowd” can fund without restriction, including Apple, Google and Facebook. These are “publicly tradable companies”, and what makes them so are the extensive rules surrounding disclosure, transparency, trading and other aspects of their corporate existence.

But since there are millions of other companies that do not fall into this category, the U.S. Securities and Exchange Commission provides certain limited exceptions to allow individuals to invest in non-public companies.

Chief among the [highly imperfect] criteria used to determine whether companies can solicit and accept investments from specific individuals without providing those investors the protections required of public companies are income and/or asset tests. While by no means ideal, these rules are there for very good reason.

Perhaps the single biggest challenge faced by equity crowdfunding is the fundamental difference betwee “investing” and “supporting”. A quick, impassioned discussion of this can be heard in my recent keynote at CROWDFUNDx:

http://socialmediaweek.org/blog/…

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