Fundraising

In searching for your investor, every VC seems to have different stipulations and ranges for their check sizes. Many firms will initially write smaller checks to their first-time investments and larger checks to their recurring, portfolio investments. Finding a VC with a check size that fits your need can be difficult. We will segment some of our favorite VCs by typical minimum check size, sweet spot check size, and maximum check size. Related Reading: A Quick Overview on VC Fund Structure Angel Investors: Checks under $30,000 Jonathan Ozeran Jonathan Ozeran serves as an advisor for Great North Labs and is a hands-on investor that has seen many phases of growth. He focuses on several verticals, including AI, Mobile, Biotechnology, Digital Health, Health Care, Hardware, Insurance, and more. Check Size: Min. $10,000 — Sweet Spot $25,000 — Max. $25,000 Lolita Taub Lolita Taub is the Co-Founder and General Partner at The Community Fund where she invests in community-driven companies. She has over 40 investments as an angel and VC. Check Size: Min. $1,000 — Sweet Spot $20,000 — Max. $30,000 Pre-seed/Seed Investors: Checks under $300,000 DC Ventures DC Ventures assists startups in areas crucial to funding and growth. Their team is made of industry experts and savvy investors who help entrepreneurs reach their goals. They are based in Washington D.C., Dublin, and Buenos Aires. Check Size: Min. $10,000 — Max. $100,000 Hustle Fund Hustle Fund is a seed fund for hilariously early hustlers. They are led by Elizabeth Yin and Eric Bahn. Hustle Fund is comfortable setting terms and being the first check. Because of their small check size, they will not be putting in the bulk of money in your round. Check Size: Min. $25,000 — Max. $100,000 (Check out their Visible Connect profile HERE.) Supernode Ventures has an extensive network of contacts providing access to media, customers, and investors to help support. They are based out of NYC and look to add 10-12 companies to their portfolio each year. Check Size: Min. $50,000 — Max. $200,000 Beta Boom Beta Boom invests in underdog founders that don’t fit the typical Silicon Valley founder profile, and they particularly look for founders that have lived their problem and have shown tenacity, hustle, and focus. They don’t care if you went to Stanford or Harvard. Check Size: Min. $150,000 — Sweet Spot $150,000 — Max. $300,000 Checks under $10,000,000 Allos Capital Allos Capital invests in early-stage B2B software and business services companies in the heart of the Midwest. They are managed by Don Aquilano, John McIlwraith, and David Kerr. Allos generally invests within a 5-hour drive of our offices, which are located in Indianapolis and Cincinnati. Check Size: Min. $250,000 — Max. $3,000,000 Cowboy Ventures Cowboy Ventures invests in US-based, software-oriented companies. Their sweet spot is co-leading or leading seed rounds (usually a round of $1-5m). They seek to back exceptional founders who are building products that “re-imagine” work and personal life in large and growing markets. Check Size: Min. $500,000 — Sweet Spot $1-5M — Max. $7,500,000 Fuel Capital Fuel Capital is a California-based early-stage venture fund focused on consumer, SaaS, and cloud infrastructure companies. Their goal is to open doors for founders who have the potential to change the world, and provide them with more value than capital could buy. Check Size: Min. $500,000 — Max. $1,000,000 Second Century Ventures Second Century Ventures is focused on promoting innovation in the real estate industry. SCV prefers SaaS companies generally focused on big data applications, digital media, fintech and business services that can span multiple verticals and geographies. Check Size: Min. $1,000,000 — Max. $5,000,000 .406 Ventures .406 Ventures is an early-stage venture capital firm that invests in innovative IT and services companies founded by the finest entrepreneurs. They typically are the lead, first institutional investor in early-stage and de novo investments in market-changing IT Security and Infrastructure, Technology-Enabled Business Services, and Next-Generation Software companies. Check Size: Min. $2,000,000 — Max. $6,000,000 Freestyle Capital Freestyle Capital is a seed-stage investor and mentor for Internet software startups. They make just 10-12 investments each year, to support their founders and portfolio companies. Check Size: Min. $1,000,000 — Sweet Spot $1,500,000 — Max. $7,500,000 Checks over $10,000,000 Insight Partners Insight Partners is a leading global venture capital and private equity firm investing in high-growth technology and software ScaleUp companies that are driving transformative change in their industries. Check Size: Min. $10,00,000 — Max. $350,000,000+ Summit Partners Summit Partners invests just about everywhere in the world. They are led by 27 managing directors with an average of 14 years of experience. They ultimately are looking to accelerate growth in companies and achieve very dramatic results. Check Size: Min. $10,00,000 — Max. $500,000,000 Explore thousands of different VCs by their check sizes, geographies, verticals, and more at Visible Connect! Related Resource: How to Find Venture Capital to Fund Your Startup: 5 Methods

What is a restricted stock unit? Restricted Stock Units or RSUs are forms of compensation issued to employees by an employer founder. This compensation is issued in restricted company shares. Shares are restricted because their value is limited by a vesting plan. After a set amount of time laid out in a vesting plan occurs, a certain amount of shares becomes accessible and valuable. RSUs give employees interest in a company but will not be worth their full value until the full vesting period is complete. RSUs will always have value due to their underlying shares. What is a restricted stock award? Restricted Stock Awards or RSA’s are given to the employee on the day they are granted. They do not have to be earned via a vesting schedule like RSUs do. The employee “owns” the stock associated with the RSA on the grant date. However, they may still have to purchase them, depending on the nature of the offer. This purchase contingency is why RSAs are considered “restricted stock”. RSUs vs RSAs for startups Overall, restricted stock in the form of RSUs or RSAs can be a value-add for startups and a great way to incentivize talent employees to join the team. RSUs are not purchased at grant date but instead have a timed vesting period as well as other vesting conditions before they are owned outright. RSAs are purchased on the grant date but still typically have time-based vesting conditions. Unvested RSUs are given up when an employee is terminated and RSAs are available for repurchase when an employee is terminated. RSAs are typically granted to early employees before funding rounds with additional equity payouts and RSUs are typically granted to employees after funding is taken on. What the differences are important to understand RSUs and RSAs are two common terms to understand in the startup landscape. RSU stands for “Restricted Stock Unit” and RSA stands for “Restricted Stock Award”. Understanding the difference is key when building and operating a startup. While both RSUs and RSAs are forms of restricted stock, they are different and serve different purposes. In general, restricted stock is owned from the day it is issued and does not need to be purchased. However, because it is restricted, it needs to be earned. How do restricted stock units work? RSUs became popular in the early 2000s after a variety of executive fraud scandals occurred across the market. With it’s vesting limitations, RSUs have become a popular option for compensating leadership and early employees without the risk of providing full stock upfront. RSUs give an employee interest in company stock but they have no tangible value until vesting is complete and typically vesting plans are staggered so that only a certain percentage of shares vest at a time. For example, if an employee has a 4 year vesting period with a 1 year cliff, they would only walk away with 25% of their promised shares after a year of employment (or none if they leave or are terminated prior). RSUS are also structured with limits in case termination occurs that can override vesting or cliff rules. The restricted stock units are assigned a fair market value when they vest. When RSUs finally vest, they are considered income, and a portion of the shares is withheld to pay income taxes. When the employee receives the remaining shares and can sell them. If an employee is terminated, they keep any of their vested shares but the company can purchase back the unvested shares. Like any potential compensation option, RSUs have pros and cons to their structure and offering. Some Pros of offering RSUs include: Long Term Incentive – because of the standard vesting period of 4 years, generous RSU packages can be helpful in incentivizing top talent to stick around longer, put in more effort to grow the company, to ultimately claim their full offering of stock at the highest possible value. Low-Impact: The admin work and back-end management of RSUs is minimal compared to other, more complicated stock incentive plans. RSUs also allow a company to defer issuing shares until the vesting schedule is complete. This helps delay the dilution of its shares. Related Resource: Everything You Should Know About Diluting Shares Some Cons of offering RSUs include: No Dividends: Because actual shares are not allocated, RSUs don’t provide dividends to the stock holders. However this means that the employer issuing the RSUs needs to pay dividends in an escrow account that can help offset withholding taxes or be reinvested. This is something to keep in mind as a potential founder offering RSUs. Income Restrictions: RSUs aren’t taxable until they vest. So employees can’t pay taxes before vesting as the IRS doesn’t consider unvested RSUs to be tangible property. Shareholder Voting Rights: RSUs don’t grant the shareholder voting rights or input into the company until they are fully vested. How do restricted stock awards work? Restricted Stock Award shares are given to the employee on the day they are granted. While RSUs are more commonly awarded to general employees, RSAs are more common with early employees at a startup before the first round of equity financing. Instead of a timed out vesting period that portions out the stock like in an RSU, an RSA is the lump sum awarded on one date (although that may still be time-based). Vesting still applies in a different way to RSAs. Vesting only impacts a receivers RSAs if they are terminated or leave the company allowing the company to potentially purchase back the shares. The vesting is less about the employee owning the stock as the RSA is owned but about the ability to retain what is owned. However, there are usually time-based rules associated with RSAs so that the shares may expire if certain requirements, specifically financial requirements, aren’t reached. Most companies have vesting schedules in place to prevent individuals from joining a company, receiving their RSA award, and leaving immediately. Most RSA pros and cons are fairly similar to RSUs as RSAs are simply another form of restricted stock. How are restricted stock units taxed? With restricted stock, it’s important to consider two types of taxes: regular income tax and capital gains tax. Taxing on restricted stock is complex but the basic underlying factor of income still applies – anything that a company pays an employee is taxable. For RSUs, regular income taxes are paid when the recipient shares vest. How are restricted stock awards taxed? For RSAs, the receiver has to pay for them outright so when the vest date rolls around there are no additional taxes to pay on the shares themselves unless they change value. The RSA receiver will only need to pay taxes on the gains in value of the shares. The tax on gains between grant date and vesting will be income tax. The tax on gains between vesting and sale of those shares will be capital gains tax. An election called the 83(b) election can be selected on a tax form which means the recipient can pay all their ordinary income tax upfront. The 83(b) election is eligible for RSAs not RSUs.

San Francisco and NYC hold the largest amount and value of venture investing across the US. However, with a plethora of urban areas, Texas is continuing to offer venture funding at a rapid pace. We will evaluate various VCs who are involved throughout Austin, Dallas, Houston, and San Antonio. To keep an eye on Texas-based investments we wanted to share which venture capitalists are geologically active.Visible Connect is our investor database. Connect allows founders to find active investors using the fields we have found most valuable, including: Check size — minimum, max, and sweet spot Investment Geography — where a firm generally invests Board Seat — Determines the chances that an investment firm will take a board of directors seat in your startup/company. Traction Metrics — Show what metrics the Investing firm looks for when deciding whether or not to invest in the given startup/company. Verified — Shows whether or not the Investment Firm information was entered first-handed by a member of the firm or confirmed the data. And more! Using Visible Connect, we’ve identified the following investors, segmented by Austin, Dallas, Houston, and San Antonio. Search through these investors and 11,000+ more on Visible’s Connect platform. S3 Ventures With over 14 years of investing experience, S3 targets startups with a focus on Business Technology, Consumer Digital Experiences, and Healthcare Technology. S3 has branded themselves as “The Largest Venture Capital Firm Focused on Texas.” Led by Brian Smith, S3 invests between $250k – $10M. To learn more about S3 Ventures check out their Visible Connect profile. View Profile Santé Ventures Santé invests at the intersection of health care and technology. Douglas French, Joe Cunningham, and Kevin Lalande are the three founding, managing directors of the Austin-based firm. Santé often leads entry-level rounds and is on the mission to improve people’s lives with every investment. To learn more about Santé Ventures check out their Visible Connect profile. View Profile ATX Venture Partners ATX looks to invest in post-revenue companies with initial investments ranging from $300k – $3M. With a focus on the central-south US, ATX has always had a people-centric view and looks to drive performance through each of their investments. Brad Bentz, Danielle Weiss Allen and Chris Shonk lead the firm as Co-Founders and Partners. To learn more about ATX Venture Partners check out their Visible Connect profile. View Profile LiveOak Venture Partners LiveOak is a premier seed and series A investor that looks to invest into teams. They focus primarily on tech-enabled businesses based in the Texas area. With over 15 years of VC experience, LiveOak has invested over $200M into Texan companies. Initial heck sizes range between $500k and $5M. To learn more about LiveOak Venture Partners check out their Visible Connect profile. View Profile Next Coast Ventures Next Coast is a forward-thinking VC with over 30 investments. They follow investment themes relating to software, future of retail, communities, future of work, marketplaces, and self-care. They also run a blog with resources for founders and insight into their VC’s direction. To learn more about Next Coast Ventures check out their Visible Connect profile. View Profile NEXT VENTŪRES NEXT VENTŪRES invests in the sports, fitness, nutrition, and wellness markets. Managed by Lance Armstrong, Lionel Conacher, and Melanie Strong, NEXT has a focus on passion and energy. NEXT is open to investments all over the world and offers check sizes between $500k and $3M. To learn more about NEXT VENTŪRES check out their Visible Connect profile. View Profile RevTech Ventures RevTech is all about investing in the future of retail. RevTech looks to lead or follow onto deals at the pre-seed and seed level. Initial checks are around $100k and follow on capital ranges anywhere from $200k to $4M. David Matthews is the Managing Director. To learn more about RevTech Ventures check out their Visible Connect profile. View Profile Goldcrest Capital Led by Adam Ross and Daniel Friedland, Goldcrest invests into private tech companies. They have logged over 20 investments and typically write checks between $1M and $10M. To learn more about Goldcrest Capital check out their Visible Connect profile. View Profile Perot Jain Perot Jain has a focus on US-based companies that are tech-enabled. They offer up to $500k in initial checks to B2B businesses throughout seed and early-stage investments. The investment firm is led by Ross Perot Jr and Anurag Jain. Perot Jain ultimately partners with bold and innovative entrepreneurs. To learn more about Perot Jain check out their Visible Connect profile. View Profile Work America Capital Work America Capital invests in Houstonians and Houston-based businesses by partnering with high-potential, talented leaders with a passion for building a business. Work America invests more than just capital. They look to offer coaching and mentoring to new business leaders. They are managed by Mark Toon and Jeffrey Smith. To learn more about Work America Capital check out their Visible Connect profile. View Profile Vesalius Ventures Vesalius Ventures focuses on the intersection of medicine and emerging technology. As they focus on both early and mid-stage companies, Vesalius looks to offer both capital and management help to various health tech companies surrounding Texas. To learn more about Vesalius Ventures check out their Visible Connect profile. View Profile Active Capital Active Capital has been investing in B2B SaaS companies for over 20 years. Active looks to participate in pre-seed and seed rounds, as they invest anywhere between $100k to $1M. They have an extensive and successful list of portfolio companies outside of Silicon Valley. To learn more about Active Capital check out their Visible Connect profile. View Profile Texas Next Capital Texas Next has long created profitable companies throughout the industries of oil & gas, ranching, agriculture and real estate — which have stood as staples of the state. Their strategy is to invest directly into Texas, partner with Texas leaders/investors, and focus on small businesses. To learn more about Texas Next Capital check out their Visible Connect profile. View Profile To view Texas-based VCs and over 11,000 other global VCs, visit Visible Connect!

On episode 7 of the Founders Forward Podcast we welcome Cheryl Campos, Head of Venture Growth and Partnerships at Republic. Republic is a crowdfunding platform for startups. It allows founders to access a wide range of angel investors and small check investors. Cheryl has been there for 3+ years and has watched the market transform and become a popular funding option for startups. About Cheryl Cheryl started at Harvard and went into banking but eventually landed at Republic. Over the course of her 3 years at Republic (even in just the last 90 days) the crowdfunding market has radically changed as more individuals are able to invest. Our CEO, Mike Preuss, had the opportunity to sit down and chat with Cheryl. You can give the full episode a listen below (or in any of your favorite podcast apps). What You Can Expect to Learn from Cheryl How she went from banking to working for a startup How recent regulation changes have impacted crowdfunding What kind of companies generally succeed on Republic How the rates are structured at Republic How founders can leverage their crowd investors The importance of network effects How “community” is reshaping go-to-market and marketing Related Resources Chery’s Twitter Cheryl’s LinkedIn Republic Community Fund The Founders Forward is Produced by Visible Our platforms helps thousands of founders update investors, track key metrics, and raise capital. Try Visible free for 14 days. Related resource: Understanding The 4 Types of Crowdfunding

On episode 6 of the Founders Forward Podcast we welcome Yin Wu, CEO and Founder of Pulley. Pulley is a cap table platform for hyper-growth startups. Pulley is the third company that Yin has started so it is safe to say she knows the ins and outs of building a startup. About Yin With her first 2 startups successfully exiting Yin has her eye’s set on a new market and issue that all founder face — cap tables and valuations. During her first bouts as a founder Yin had the realization that “no one starts a company because they want to pair this spreadsheet. You start a company cause there’s this vision, this idea that you want to bring it to this world.” In addition to sharing her learnings from building 3 companies, Yin also shares how founders should think about fundraising, cap table management, and distributing equity. Our CEO, Mike Preuss, had the opportunity to sit down and chat with Yin. You can give the full episode a listen below (or in any of your favorite podcast apps). What You Can Expect to Learn from Yin Why Pulley wants to lower the bar to make it easier for founders to start a company Why founders should own 20% of their company by the time they raise a Series A Why they believe founder led companies are more successful in the long run How they are approaching hiring, mostly past founders, at Pulley How they are building their culture at Pulley How they approached their $10M funding round at Pulley What she learned from going through Y Combinator 3 times Related Resources Yin’s Twitter Yin’s LinkedIn Pulley The Founders Forward is Produced by Visible Our platforms helps thousands of founders update investors, track key metrics, and raise capital. Try Visible free for 14 days.

What is Private Equity? Making the decision to take on external funding should not be taken lightly. A decision to bring on additional capital and more importantly, where that capital comes from, can make or break a business if not fully understood. Two types of investment that a new business or startup might consider are private equity and venture capital. Private equity and venture capital play critical roles in a company’s growth. At their core, private equity and venture capital may seem similar, however, the types of companies each type of funding typically invests in and how much they invest differ quite a bit.The firms involved in each type of funding are very different as well. It’s important to know the differences between them if you are a founder looking to take on new funding. At the simplest level, private equity is capital that is invested in a company or other type of private entity that is not publicly listed or traded. More detailed, private equity is a compilation of funds sourced from firms as well as high net-worth individuals. The purpose of these firms is to invest in private companies by buying large amounts of shares. Additionally, private equity can also mean buying the majority of a public company with the intention of taking it private and delisting it from the public stock exchange. The majority of the private equity world is dominated by large institutional investors. These large institutional investors typically include large private equity firms and pension funds. A pension fund is any plan, fund, or scheme which provides retirement income. These funds are typically larger and well equipped to be invested into private companies. How Does Private Equity Work? Private equity firms hold roughly $4 trillion assets annually. The breakdown of private equity investments comes from two major types of investors. The two types of private equity investors are: Institutional investors, primarily pension funds or major banks Large private equity firms The typical goal of private equity investments is to gain control of a company through a full buy-out or a majority investment in said company. With total control being the main focus and purpose of private equity investments, lots of capital is needed. Therefore, typically the funds involved in private equity need to be large and stable. Large private equity funds and institutional investors are made up of accredited investors. Most private equity funds have a minimum requirement. These minimum requirements set the minimum amount of money that an accredited investor must commit to the fund in order to be a part of the fund. These minimums are significant. A standard one might be $250,000 – $500,000. Private equity firms focus on two main functions. These functions are deal origination and management, and portfolio oversight. refers to managing overall deal flow. This is done by relationship management and deal management – creating, maintaining, and developing relationships with M&A (Merger and Acquisitions) intermediaries, investment banks, other transaction professionals in the space. This focus allows private equity firms to build a strong network for referrals and new opportunities to invest and purchase companies. In the robust M&A landscape, it is also common for private equity firms and institutional investors to employe folks specifically focused on prospecting companies where a future opportunity to buy or invest could occur. Portfolio oversight is the overall management of all active investments in the private equity firm’s workflow at any given time. Any active investments make up a portfolio. Managing that day in and day out consists of advising and directing revenue strategies, monitoring profitability, making hiring and executive decisions, and overall monitoring if the portfolio is balanced and profitable. The level of work in each investment will vary depending on how large and what stake of ownership the firm has. Financial management will be the main focus but IT procurement and operational tasks are typically part of that as well. Outside of traditional large cash, equity or debt investments, a common strategy for private equity firms is the leveraged buyout strategy or LBOs. An LBO is a complete buy-out where a company is bought out by a private-equity firm, and the purchase is financed through debt. The collateral for that debt is the company’s operations and assets. Examples of Private Equity Firms Holding trillions of dollars in capital, there are plenty of private equity firms out there. The top 10 globally are: The Blackstone Group Neuberger Berman Group LLC Apollo Global Management Inc. The Carlyle Group Inc. KKR & Co. Inc. Bain Capital LP CVC Capital Partners Warburg Pincus LLC Vista Equity Partners and EQT AB. Most of the largest firms have global offices spanning New York to San Francisco to Hong Kong to Paris and many other major hubs in between as well as across all populated continents. On the institutional investor side, JP Morgan Chase, Goldman Sachs, and Citigroup are all prominent players within the private equity space as well. Private Equity Backed Companies Private Equity firms can invest in a variety of different types of companies. A few examples of well-known companies that are backed by private equity firms include: Hostess Brands – the sweets company ADT Inc. – a leading provider of monitored security Qdoba – the fast food brand Infoblox – software security Marketo – sales and marketing software Powerschool – education technology LogicMonitor – SaaS performance monitoring What is Venture Capital? Venture capital is also a form of private funding. More specifically, venture capital is funding given to startups or other young and new businesses that have the potential to break out of their category and grow rapidly, finding success. Venture capital funding typically comes from wealthy individual investors, banks, or other financial institutions. Notably, a venture capital investment is typically financial but could also be an offer of technical or managerial experience. Venture capital is all about the risk and reward balance. Venture capital investors invest in companies that have not proven success yet but show major potential and the opportunity to make back higher than typical returns if the company delivers at the high potential the venture capitalists believe that it will. Related Resource: 12 Venture Capital Investors to Know Related Resource: Miami’s Venture Capital Scene: The 10 Best Firms Related Resource: 8 Most Active Venture Capital Firms in Europe Related Resource: Breaking Ground: Exploring the World of Venture Capital in France Related Resource: 7 Best Venture Capital Firms in Latin America Related Resource: Exploring the Growing Venture Capital Scene in Japan How Does Venture Capital Work? Venture capital in a nutshell is private equity but specifically for small startups and new companies with high-growth potential in the technology, biotechnology, and clean technology spaces. Venture capital is technically a form of private equity, however, it is a type of investing that is normally all equity and smaller investments than other private equity investments. The main differentiator is that venture capital is focused on high-risk, high-reward scenarios. There are three main types of venture capital financing: Early-stage – this is typically a small amount of funding, potentially in a seed round, that allows a startup to finish building a product or service offering, qualify for a loan, or in some cases kick-off early stage operations. Expansion – this type of venture funding is typically a higher capital amount that will allow a startup to scale rapidly. The type of funding might be seen at a Series A or larger. Acquisition – this type of funding may be purposed specifically for financing the buyout of another company or competitor in that startups space. It might also be used to develop a new type of product or launch a new line of business within their company. Just like private equity firms, venture capital firms offer capital for equity. Investors from venture capital firms often take board seats as part of their ownership / equity stake in a company. Venture capital firms typically raise set funds with teh intention of investing those funds over the course of a set period of time. The funds are typically made up of individual investments from limited partners, or wealthy individuals, banks, or other institutional investors. LPs invest their money in venture capital firm’s funds because they are looking for high-growth returns and trust the venture capital firms to make those investment decisions for them. Venture capital firms typically employ a staff dedicated to researching the potential investments that could be made. Because of the high-risk high-reward industries that VCs work with, due-diligence and detailed research is crucial to eliminate as much risk as possible before investing firm dollars in a startup. Examples of Venture Capital Firms With tech startups historically being founded in the Bay Area and other major metro hubs like New York City, a large portion of VCs are based on the coasts. A few well-known venture capital firms include: Bessemer Venture Partners Sequoia Capital Andreesen Horowitz GGV Capital Index Ventures Founders Fund and IVP Related resource: Understanding the Role of a Venture Partner in Startups Examples of VC backed companies Most high-growth, successful tech companies, especially SaaS companies, are venture backed. Well known venture-backed companies include: Pinterest – the visual bookmarking tool LinkedIn – world’s largest professional network Yelp – online directory for local restaurants, services, retail, reservations and recommendations Docusign – digital documents Hubspot – marketing and sales software Instagram – photo sharing social platform Private equity vs venture capital for startups The main difference between private equity and venture capital comes down to size and risk. What Private Equity Firms are Looking For (in startups) Private Equity firms typically are looking for large companies with a proven track record to buy. They are looking for mature businesses where the model is proven out. These large or more mature companies may be failing for one reason or another. Even if a company is not necessarily failing but instead has plateaued their growth, a private equity firm would look to buy the company and streamline operations to make it more capital efficient, cash positive, and profitable. Private equity firms mostly buy 100% ownership of the companies in which they invest. Typically then the companies are in total control of the firm after the private equity buyout. Private equity investments are also typically a minimum of $100M for one single company. There are no limits for the type of companies private equity companies can invest in. In addition to equity, private equity firms may structure investments with debt and cash. Related resource: Dry Powder: What is it, Types of Dry Powder, Impact it has in Trading What VC Firms are Looking For (in startups) Venture capital is typically invested in a new company with high potential. This could be a small startup or a larger scaling startup that has yet to reach profitability but is showing major upside and potential. Unlike private equity, venture capital firms typically invest less than 50% in any one company or investment. Due to the high-risk nature of the companies they are investing in, they typically like to spread the money in their funds across many different investments to increase their chance of success and high return. The investments from venture capital firms are typically less than $10M per investment. Venture capital firms are limited to startups in technology, biotechnology, and clean technology. Additionally, venture capital firms typically only invest with equity. For startups early on in their journey, venture capital is typically where they might seek investment. This is due to the early risk of their companies as well as the desire to maintain majority control in their companies management and direction as they build. Down the line, a startup may end up in the position where their only option is to give away the majority stake in their company to inject capital into the business to keep it afloat. Related Resource: Understanding the 9 Types of Private Equity Funds Related Resource: Accredited Investor vs Qualified Purchaser Critical differences between venture capital firms and private equity firms The difference between private equity and venture capital matters because the type of investor a company brings into their business can completely shape the outcome and ultimate goal of the company. Understanding your desire to IPO, get acquired, or stay private are critical to consider before seeking different types of funding. Ownership and advisory can make or break a successful company as well as change the type of value and long-term financial success of the founders or initial employees. Related Resource: How to Choose the Right Law Firm for Your Startup When to seek out Private Equity vs Venture Capital As a startup, it’s important to understand when to seek out private equity or venture capital backing throughout your company’s journey. Taking on the right type of investors (or not) at the right time is critical for long-term success. Startups in the tech space will most commonly seek out venture capital funding first. If a startup is in the tech space and is aiming to grow quickly and make it big or believes it has the potential in a large market to take a large market share, venture financing makes sense as it allows that company to scale quickly without giving up too much equity or majority stake. Companies in a position where they heed a large injection of cash, are not in the startup technology space, or are not high-risk, might make more sense to seek funding from a private equity firm. This type of investment may lead to a larger stake of control being put forward but with more stable and long-term financing options. Visible can help your startup report out important updates to your investors (private equity or venture capital!). Learn more here. Related Resource: Exploring the Top 10 Venture Capital Firms in New York City Related Resource: Chicago’s Best Venture Capital Firms: A List of the Top 10 Firm

What is a 409a valuation? Most founders aspire to take their companies public. Until that dream is achieved (or another is realized), it can be a bit tricky to understand the value of a startup along the way. Public companies value are set by the market. Private companies, however, depend on independent appraisals and private valuation.That is where a 409a valuation comes in. A 409a valuation is a critical term and concept founders need to know. A 409a valuation is the fair market value (FMV) of a private company’s common stock. This FMV is determined by an independent appraisal. Common stock is the stock that has been reserved for founders and employees. A 409a valuation determines the cost to purchase a share. Related resource: 8 Startup Valuation Techniques and Factors to ConsiderWhat Does the DCF Formula Tell You? What are the benefits of a 409a valuation? A 409a valuation is critical if you want to offer equity to your employees. While startups are getting up and running, matching benefits of large, established public companies can be difficult. A great option to offer new employees (and attract top talent) is to offer equity in the business. Offering stock options that will vest (or become accessible or earned) after a period of time promises high earning potential and promotes loyalty and employee investment in the vision and growth of the company. A 409a valuation is needed in order to accurately offer this benefit to your team. In addition to providing attractive stock options for your employees and attracting top talent to your business, another benefit of a 409a valuation is that understanding and keeping this valuation up to date can help attract new investors and help a founder intelligently grow their business. We will cover when you should get this valuation done (and how often) but the insight provided by the valuation can be another metric to showcase success to investors and board members, especially if a startup is not cash-flow positive or growing revenue yet. Having a clear understanding of how much your business is worth by continuing to seek out an updated 409a valuation is critical for founders as they grow their business and get to the critical point of taking the company public or selling it for a profit. When is a 409a valuation required? To start, it’s important to highlight how long a 409a valuation stays valid. A 409a valuation is only valid for up to 12 months after its issuing date. The only exception to this timeline is if a material event occurs prior to the 12 month timeline. Material Events Material events are pivotal situations or changes to the business that would dramatically shift the valuation. Some examples of “material events” include: Financing such as convertible debt, sale of common shares, or preferred equity. Qualified financing is probably the most common material event startups will encounter. Acquisitions – if your startup chooses to buy another company this would qualify as a material event and significantly alter the 409a valuation. Divestment – selling off part of the business or any of the major assets of the business would shift the valuation. A secondary sale of common stock would, though less common, would also be a material event same as an initial sale of common shares. Any major exceeding or missing of financial projections for the business (annually or quarterly) can be significant enough to be considered a material event and trigger the need for a new valuation. Major business model shifts are also sometimes considered a material event. If, as a founder, you are ever unclear on what constitutes a material event, always consult a 409a valuation firm to be sure. Technically speaking, a 409a valuation is required every 12 months or whenever a material event occurs. Beyond these requirements, there are critical times in the startup lifecycle where 409a is very much needed in order to continue growing and building your business in a smart, successful way. Related Resource: A User-Friendly Guide on Convertible Debt In order to receive a 409a valuation, you should be prepared to provide the following information to your independent assessor: Company overview including executives names and an overview of your startup’s industry A certificate of incorporation / corporate charter The most recent cap table A board presentation and recent pitch deck especially if you just completed a round of funding Historicals and 3-year profit and loss, cash balance, and any debt projections – essentially a complete financial picture Estimate of your hiring plan and options estimate you expect to issue over the next 12 months, the typical period that the 409a valuations are valid for. A list of publicly traded companies that are comparable to yours. Any info about expected timelines relating to IPOs, acquisitions, or mergers Any other significant events that have happened since you last had a 409a valuation created. When do I need a 409a valuation for my startup? Beyond the technical requirements of every 12 months and when a material event occurs, there are other circumstances where it is highly recommended that you get a new 309a valuation. Though not necessarily “required” these instances are critical to your success as a startup and as a founder because this new valuation will equip you with the most up-to-date information on the worth of your startup and provide another data point for growth. Other instances where you need a 409a valuation outside of material events and the 12-month mark are: Before issuing common stock for the first time As stated, stock for your co-founders and employees can be a huge perk to offer in order to attract top talent and retain hard-working employees who will stay loyal and push the company forward. When common stock is available, all employees have a stake in the success of the business and want to push the company growth forward because they want to vest their stock when the company is on the verge of going public or getting acquired in order to walk away profitable from that common stock. That being said, you need an initial 409a valuation to even have the opportunity to offer this stock to employees at all. After raising a new round of venture financing Raising a round of venture funding is extremely monumental for your business. Weather your startup is raising an initial seed round of just a few million or a 40M + round 3-4 years in, that type of capital injected into the business is extremely significant. While a pre-money and post-money valuation will also be in play, it’s important to reassess your 409a valuation after this type of significant funding, too. After raising a new round of venture financing it is necessary to get a new 409a valuation because the new cash injection in the business will significantly change the speed at which you are able to scale. You will most likely be hiring more and offering more common stock so an updated valuation is crucial to do this accurately and intelligently. If you are taking on a lot of new venture financing over a short amount of time, it is still recommended that you get a new 409a valuation after every round, even if that is close to your 12 year expiration of an existing 409a valuation or another material event. This is because venture funding is typically such a high-value injection for your company and there will be a new breakdown of ownership with the new investors at the table. As you approach the “end” of your startup with an IPO, Merger, or Acquisition If your company is on track to go public, or have an initial public offering (IPO) on the stock exchange, it is critical to get a final 409a valuation. A 409a valuation is only in existence when you have common stock and are a private company. So as you approach the time where your company is going to IPO and be publicly available for trade, those common stocks worth will convert at the public valuation. With that in mind, as your company approaches IPO, a new 409a valuation is necessary one final time. This final 409a valuation is going to be a factor in what the startup IPO’s at. That initial public offering will be influenced by your 409a valuation (among many other things). Its best to ensure your public offering is influenced by as many factors as you can control before the market takes hold of it. Having an accurate 409a valuation leading up to IPO sets up all your common stockholders for success by having the most realistic and up-to-date picture laid out. The same goes for approaching a merger with another company in your company’s space or selling the company to be acquired by a larger company. Both instances can lead to a big payout for your common stockholders. However, in both cases, good due diligence on the part of the acquiring company leadership or leadership at the merging company should be to ask for a recent 409a valuation. It is necessary to invest in a new 409a valuation leading up to this major “end” event for your startup. An acquisition or merger will most likely change the primary owner of the business and shake up the valuation of the common stock. In some cases, if your private startup is acquired by a public company, your common stock will be absorbed by the public stock of the buying company. That being said, an updated 409a valuation is important to influence the market value of the stock that your employee’s common stock will be converting to. Let’s note, however, that this is dependent of course on the way the merger or acquisition deal is structured and if stock is at play for the existing startup employees. How do 409a valuations work? We’ve laid out when a founder should seek a 409a valuation for their startup, but now let’s dive deep into how a 409a valuation actually works. A 409a valuation is calculated by an independent appraiser with no affiliation to the startup at hand. This is done to ensure the valuation is fair and based on a defensible methodology. An independent appraiser will approach a 409a valuation with one of three main methodologies. The three methodologies that might be used include: Market Approach A market approach is a methodology where the independent appraiser will look at comparable companies in the public market in order to reach the private 409a valuation. The market approach uses something typically known as an OPM backsolve. An OPM Backsolve is a methodology where the appraiser assumes the new investors or recent investors paid fair market value for their stock options and equity. Investors typically receive preferred stock, however, so the OPM backsolve is a special application for an option-based valuation method that takes into account the market value payment to calculate the preferred options into common stock options. Asset Approach The Asset Approach is typically the best approach for new startups that are pre-revenue and also have not raised any outside money. It is a very simple approach that consists of simply calculating a company’s net asset value and that number determines the proper valuation. These valuations are typically straightforward because it’s too early and there aren’t enough defining financial changes (positive or negative) to affect the valuation. Income Approach An income approach is a bit more straightforward than the Market Approach and basically the easy option for a company at the opposite end of the startup spectrum that would be using the asset approach. This is an approach that is typically used by independent appraisers when the startup receiving a new 409a valuation has a high amount of revenue and a positive cash flow. Using the income approach, a fair market value is determined by looking at a companies total earnings, or assets, and subtracting any outstanding liabilities or debts. Again, this approach is typically going to be the most effective and beneficial to a startup when they are in a positive earning position with high revenue. Typically if these 409a appraisal methodologies are done within a 12-month valuation and done within these methodologies in the correct way as deemed by the IRS, they may be eligible for safe harbors to ensure extra security for that valuation. These are just extra protection for your business as long as the valuation isn’t extremely unreasonable. To review, an asset approach is typically used at a startup’s inception and pre-revenue / pre-funding. An income approach is used to find a valuation when a company has high revenue and cash-positive. A market approach is used at every step in between asset and income stages or when there are more factors at play with investors or recent finding where an income approach is too simple. Independent appraisers may use any of these methodologies to find a 409a valuation so let’s dive into how much a 409a valuation costs. How much does a 409a valuation cost? Typically the cost of a 409a valuation can vary depending on the different aspects of a startups business and how complicated the valuation is going to be. The cost of a 409a valuation will also depend on how it is offered by your provider. Some providers offer it as a standalone service while others bundle it with other financial offerings which can alter the price. The average cost of a typical 409a valuation will range from $1,000 to $10,000. The effects on cost include size of the startup and complexity of the company. Complexities could include significant material events, fundraising, cash position, investors involved, and timeline of the startups path to IPO. An independent firm offering a valuation may offer a valuation with a flat rate of $1,000 but increase by $500+ as the state of the business becomes more complex / for each additional 409a valuation requested. Now that we’ve talked through what is needed to created a 409a valuation and the typical cost range of a 409a, lets outline who can help with a 409a valuation. Who can help with my 409a valuation? 409a valuations can be provided by a variety of financial sources. They can be provided by independent financial firms and banks. Tax firms are also a key resource and provider that can give you a 409a valuation. If you believe your 409a valuation will be especially complicated, a tax firm may be your best bet to ensure all IRS requirements are fulfilled and any safe harbors that can be are taken. 409a valuations can also be calculated by software companies specializing in the practice (in addition to other financial services). Pulley is a great choice for startups to calculate their initial 409A valuation because you can also issue option grants using the 409A price directly on the platform. FAQ If you missed these pertinent pieces of info in the post or simply want a refresh, here are some frequently asked questions. Is a 409a Valuation public? No, a 409a valuation is not public as it is only available to privately held companies. In order to get a fair market value appraisal, a startup must look to publicly traded companies in their space for a comparison. Is a 409a Valuation required? Technically a 409a valuation is only required if you want to offer common stock to founders and employees. Investors technically take preferred stock, however, that relies on common stock valuation too. Typically the case to NOT have a 409a valuation will be the exception not the rule. 409a valuations are strongly encouraged if not typically required based on the nature of how you will most likely be financing your startup. When does a 409 Valuation expire? A 409a valuation expiries after 12 months or when a significant material event occurs before the expiration date.

What is a pre-money valuation? In the world of startups, valuation of your startup is discussed constantly. Understanding that valuation, however, can be a bit confusing depending on where you are in your funding and startup journey. The valuation of your startup will shift significantly (as will the risks) as soon as you decide it’s the right time to take on funding. Now whether a founder or founding team decides to take on angel investors, venture capital backing, or bootstrap your business, if funding is involved a startup will have a pre-money valuation and a post-money valuation. Understanding this difference is essential startup knowledge. The definition of this type of valuation is fairly straight-forward. Pre-money valuation is what a startup is worth without external funding or prior to a round the startup is actively raising. This is the valuation given to a potential investor before a funding round to showcase what the company is currently worth. The pre-money valuation of a company will shift overtime. It will be different before initial funding vs. before a Series A for example. What is a post money valuation? On the flip-side of a pre-money valuation, a post-money valuation is what the startup is worth after that next round of intended funding takes place. This will have some significant change because the new investors receive a percent value of the company. Post-money valuations are a more set amount based on true money worth of the company. There are no potential factors within a post-money valuation. Pre-money vs post-money valuation for startups While the difference might seem clear between pre-money and post-money valuation for startups, there are a few things to keep in mind when understanding valuation in general and why these numbers really are so significantly different. Valuation, in general, is fluid. It is speculative and flexible. Valuation is completely driven by the market and opinions of various players in the game. Entrepreneurs and existing investors will want a high valuation. They believe in the idea already and want to make sure their shares aren’t diluted when new funding is taken on. New investors, however, will want to assess all risk and ensure they aren’t overpaying or overvaluing and risking their financials. They way that an investor positions their pre-money valuation can affect the post-money valuation and ultimately the founders, investors, and all current shareholders valuation. Related resource: Navigating Pro Rata Rights: Essential Insights for Startup Entrepreneurs Timing is Everything As stated, pre-money valuation is set prior to the investment round while post-money valuation is a fixed valuation after the round is complete. Because of timing, post-money valuation is a lot simpler. That number will always be fixed. Although post-money valuations are simpler, pre-money is more commonly used. Pre-money valuations can flex so much because of the timing and number of factors in place that could affect the valuation in any given scenario. Pre-money valuations are affected by employee share open plan expansion, debt-to equity conversions, pro-rata participation rights, and of course the value and market opportunity seen by current stakeholders and founders. To break down some of these terms: ESOP (employee share open plan) are the plans given to employees of the company to vest as shareholders. Debt-to-equity conversion is any potential situation where debt taken on by the startup is promised to be paid back by a value amount of stock. Pro-rata participation rights are the rights (typically not contracted) to previous investors to invest in future rounds at a set level to maintain ownership rights. Timing is everything for pre-money valuation because it will affect the post-money valuation. If a startup is growing rapidly, doing really well in the market, and the potential is obvious because of demand in the market or interest from other investors, a founder may be able to get a really great pre-money valuation. If the founder is looking for funding to bail out the company or because growth is only possible with more capital, then that could affect the desirability of the startup and therefore lead to a lower pre-money valuation. Price per share or PPS is the focus. The market price per share of stock, or the “share price,” is the most recent price that a stock has traded for. It’s a function of market forces, occurring when the price a buyer is willing to pay for a stock meets the price a seller is willing to accept for a stock. A solid PPS is the goal for any company taking on funding to set themselves up for a successful IPO or acquisition at some point. This is ultimately an understanding of what an investor will pay per share for a startup. The PPS is the pre-money valuation divided by the fully diluted capitalization. The PPS and pre-money valuation are directly proportional (one goes up, the other goes up). So, the greater the pre-money valuation, the more an investor will pay for each share, but the investor will receive less shares for the same investment amount. Every startup founding team wants to make sure they are setting themselves up for a successful end game so timing their funding to line up with excellent pre-money and post-money valuations is critical. Why the differences matter The differences of pre-money and post-money valuations matter. Outside of timing, the main difference between pre-money and post-money valuation is the insight they provide to investors. A pre-money valuation provides value into the potential shares issues while post-money valuation provides a hard, clear, and fixed numeric value equating to the current value of the difference. A hypothetical, potential value pre-money leading to a set value post-money. The difference is critical for founders to understand. Why are pre-money and post-money valuations Important? Ultimately, pre-money valuation and post-money valuation matter because these valuations also have the biggest impact on determining the percentage of a company an investor is going to acquire for a given investment, as well as the percentage of the company the existing stockholders will retain. Having a deep understanding of pre-money and post-money valuations will certainly help during negotiations as well. On top of being an integral part in the dynamics of a deal it is also an easy way to portray to potential investors that you understand the mechanics of a startup and cap table. A pre-money valuation can make or break your post-money valuation. Understanding what factors go into a pre-money valuation can help a founder make an informed decision when choosing to take on new investors or not and ultimately retain a solid post-money valuation they can stay excited about. How to calculate pre-money and post-money valuations? Now that the differences and importance of pre-money valuation and post-money valuation is clear, breaking down how to actually calculate these values is the next step in building out essential startup knowledge. Calculating Pre-Money Valuations Pre-Money valuation is pre-funding so it’s important to keep that in mind when calculating this valuation out. The catch to this is to factor in the post-money valuation you want to get your company to – that is critical into calculating the pre-money valuation you are going to pitch to investors. The formula to use for this is: Pre-money valuation = Post-money valuation – investment amount Understanding what factors you have in play that will be attractive to investors and then incorporating that into your projected goal post-money valuation will lead you to understanding what investment amount to seek and how to ultimately present a pre-money valuation to investors. Calculating Post Money Valuations Getting to your post-money valuation is much simpler than calculating your pre-money valuation. The main thing to keep in mind for calculating the post-money valuation is understanding what percentage of your company the new investor will receive and ultimately understanding how that takes away the value overall. A good way to think about calculating post-money valuation is by using this formula: Post-money valuation = Investment dollar amount ÷ percent investor receives The post-money valuation will be a fixed dollar amount and does not flux in the way a pre-money valuation can be adjusted. Ultimately, it’s important to understand pre-money valuations and post-money valuations if you are ever going to be involved in a startup at any level. Employees should understand this when considering their stock options and how their company presents those to them. Founders need to understand this to intelligently grow their business and of course investors need to understand these valuations to make smart investments and walk away with high-potential earnings. Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days.

Last week our CEO, Mike Preuss, joined the Product Market Misfits podcast to discuss Mike’s lessons from building Visible and how startups can think about fundraising. We’ve shared our favorite quotes and takeaways from the podcast below. If you’d like to give the full episode a listen, you can do so here. Fundraising is like B2B Sales We think that the fundraising experience for a founder is the same as what a B2B enterprise SaaS selling motion is. So you have your prospecting and awareness of your brand at the top of the funnel. And then all the way at the bottom of the funnel, you have current investors and investor updates which I would call customer success, right? And then in the middle you have things you are putting a pipeline together and having meetings and those meetings are progressing. And, hopefully I get a couple, a term sheet or more at the end of that whole process. We often compare the traditional VC fundraising process similar to that of a B2B enterprise SaaS sales funnel. Dan asked Mike about how investor updates can be a secret weapon for a startup (as mentioned in a previous podcast episode). Mike goes on to explain how investor updates can fuel your “fundraising funnel.” Learn more about running a fundraising funnel here. Connecting the Dots for Potential Investors If I’m sending an investor update out every month and sharing a light version with potential investors, I’m staying top of mind to them. I’m showing progress along the way. You’re probably building a relationship with them through that, that mechanism. Because remember a big part of this whole kind of song and dance of fundraising is building a relationship with new investors. Speaking more tactically on the idea of using investor updates during a fundraise Mike mentions how the value of investor updates can be two sided. One one hand, you can use a light version of an investor update to “nurture” your potential investors to speed up the conversation and negotiations when the time is right to raise. Using Investor Updates During Due Diligence A lot of times in diligence, depending on the stage, investors will ask for you to send them your last 12 months of investor updates. If you don’t have it that’s a really bad sign. But done correctly that will help weave a narrative and will let the investor see think, “hey, this is how I can expect for them to engage with me after I write a check.” On the other hand, investors updates are a vital part of the due diligence process. One of the first places your new potential investors will ask about how you operate is your current investors. If you do not regularly communicate with your current investors and they are not willing to be an evangelist with new potential investors, that is generally a red flag. As Mike mentioned, new investors may simply just want a first hand look at your last 12 updates as well. To learn more about investor updates and how you can leverage them for fundraising, check out our investor updates guide here. On the Importance of Harmony in the Workplace Harmony is our secret weapon. What I’ve realized is that just because you’re working more hours or your butts in a chair doesn’t mean you’re actually more productive and we have a lot of bit data to back that up. When asked, “what is your secret weapon for team culture?” Mike dug into the importance of harmony at Visible. Mike goes on to explain how he does not prescribe to the idea of work/life balance. Rather work is a component of life and there needs to be harmony between your life and the things that are a part of it, like work. Mike and Dan go into deep detail to cover more tactical fundraising advice, company building, and “secret weapons” that Mike has used during his time as a founder. If you’d like to give the full episode a listen, you can do so here.

The world is becoming aware of the potential in blockchain technology. The rise of Bitcoin, Ethereum, and other blockchain protocols have created a new class of startup working to innovate on a new frontier. From alternative cryptocurrencies to companies who support the crypto ecosystem, we are witnessing the infrastructure-building phase of a new wave of technology. At Visible, we talk to founders every day who are looking for investors. Our new Connect platform allows you to search our database of nearly 11,000 investors to do your own research, but in this post, we will be highlighting some of those investors in the blockchain space. 2020 Ventures Stage: All Stages Investment Geography: United States, Southeast Asia Key person: David Williams Blockchain investments: Bitpay, Polysign, Kava Networks, Ripple Labs, tokens like BTC, ETH, LINK, & more. Thesis: 2020 Ventures doesn’t only invest in blockchain & crypto, but when they do invest in the space they make bets on both coins and companies in the space. They spend time primarily on payments & stores of Value, but also invest in DeFi, exchanges, and other projects. View Profile Notation Stage: Pre Seed Investment Geography: New York, Agnostic Key Person: Alex Lines and Nicholas Chirls Blockchain Investments: Filecoin, Zepplin, Livepeer Thesis: Notation capital explicitly says on their site that they are not thesis driven. Instead, they focus on writing the earliest checks into big ideas that are of interest to them. With deeply technical backgrounds, Notation is placing bets across many different sectors – blockchain being one of them. They’ve invested directly in protocols like Filecoin and in crypto-focused companies such as Bison Trails and Livepeer. You can read their operating principles on Github here. View Profile Blockchain Valley Ventures Stage: All stages Investment Geography: Global Blockchain Investments: Algotrader, Coinfirm, Keyless Key People: Heinrich Zetlmayer Thesis: Another hybrid advisory/investment firm, Blockchain Valley Ventures brings expertise to the blockchain space by helping projects of all kinds come to fruition. From corporate blockchain projects to startup ventures in the space, BVV is there to help with both capital and expertise. View Profile Pillar VC Stage: All stages Investment Geography: United States, Northeast Key People: Jamie Goldstein, Russ Wilcox, Sarah Hodges Blockchain Investments: Algorand, Circle, LBRY Thesis: Pillar is a highly founder focused VC fund that differentiates itself by investing in good founding teams. They invest across many categories, but found themselves as one of the first investors in new blockchain Algorand and several other crypto companies. View Profile Boost VC Stage: Accelerator/Seed Investment Geography: Global Key People: Adam Draper, Brayton Williams, Maddie Callander Blockchain investments: Abra, Aragon, Filecoin, Ethereum, and many more Thesis: Boost.vc invests in what they call ‘Sci-Fi Founders’ primarily via their accelerator. They have dozens of investments across many different frontier industries, primarily focusing on VR/AR, Crypto, and what they call ‘sci-fi’ investments. View Profile Castle Island Ventures Stage: All stages Investment Geography: Global Key People: Matthew Walsh, Nic Carter Blockchain Investments: BlockFi, Zabo, Talos, and more Thesis: Castle Island Ventures invests almost exclusively in public blockchain projects. They have conviction that public, permissionless blockchains will form a new economic infrastructure, and deploy capital using their past financial and crypto expertise in projects that support public blockchains. View Profile Blockchers Stage: Accelerator, Seed, Grants Investment Geography: Europe Blockchain Investments: Volvero, Blocksquare, and more Thesis: Blockchers provides grants and occasional investments through their accelerator in the European Union. They are smaller than some of the other players on this list, but they’re a great option to explore if you’re building a blockchain based startup in Europe. View Profile Kenetic Trading Stage: Series A/Series B Investment Geography: Global, but focusing on Asia Key People: Jehan Chu, Daniel Weinberg Blockchain Investments: BlockFi, Handshake, Alchemy, and many others Thesis: Kenetic Capital is involved in a few different areas of crypto and blockchain markets. They invest in Series A and later blockchain companies like BlockFi and Handshake, and also are involved in cryptocurrency trading. They offer many sophisticated trading products and executes on advanced trading strategies with a team of experience software engineers and quantitative traders. Jehan Chu, the fund’s CEO, has played a major role in the building the blockchain community in Hong Kong and hosts meetups throughout Asia. View Profile ConsenSys Ventures Stage: Accelerator, All Stages Investment Geography: Global Key People: Min Teo, Joseph Lubin Blockchain Investments: Compound, Gitcoin, Juno, and many others Thesis: ConsenSys is a highly successful Ethereum software development company. They’ve built multiple hit products such as MetaMask, Codefi and Quorum. They’ve used their expertise to spin out an investment arm that has made investments to projects like Compound, Gitcoin, and many other protocols and infrastructure builders in the space. Just starting out? You can consider their hackathon or accelerator programs. View Profile Placeholder VC Stage: All Stages Investment Geography: Global Key People: Joel Monegro, Chris Burniske Blockchain Investments: Magic, Nexus Mutual, 0x, Aragon, and many others Thesis: Placeholder invests in new projects in the space that seek to build around cryptonetworks. Their thesis is that the advent of blockchains and their open-sourced nature will lead to a slow decline of the current tech monopolies of the day. The key reason: blockchains undermine the key advantage of tech giants: data monopolization. ‘crypto collapses the cost of building and scaling information networks by replacing centralized coordination with universal financial incentives.’ You can read their full investment thesis here. View Profile Use Visible Connect to browser our investor database of hand curated investors. Find investors and add them directly to your Fundraising Pipeline in Visible. Give it a try here.

Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days. Relatively speaking, venture capital is a fairly new asset class. Innovations have been consistent since Y Combinator came to market in the early 2000s. Since then there have been countless innovations that are creating more funding options for startup founders. The most recent innovation has been rolling funds. Learn more about rolling funds and what they means for startup founders below: What are Rolling Funds? Pioneered by Angelist, a rolling fund is a new VC fund structure that allows funds to raise money on a continuous basis – creating a new fund structure as quickly as every quarter. These funds can also be publicly marketed under Rule 506(c). While rolling funds are still relatively new, there have been early benefits and signs of more innovation to come. To learn more about rolling funds and their impact on startup founders and investors, read more below: What are the benefits of Rolling Funds Rolling funds have the opportunity to transform the venture capital space. As we begin to scratch the surface on rolling funds and how they fit into the space, there have been some clear benefits so far. 1. Attract New Types of Investors These funds also lower the barrier of entry into VC for aspiring investors by allowing them to get started with less up front capital. Angelist can manage most of the legal and administrative aspects of rolling funds too, further lowering the overall amount of knowledge and capital needed to get started. Because of this, rolling funds may create many new types of investors. 2. Provides More Funding Options for Founders More investors means more funding options for startup founders. As we mentioned above, rolling funds will lower the barrier to entry for emerging VCs, in turn creating more funding options for startups. As more competition pops up in the space, the more competitive it will become to get on a startup’s cap table. Because of this, funds will have to create more resources and terms for startups. Related Resource: The Understandable Guide to Startup Funding Stages 3. Continual Limited Partner Fundraising Rolling funds allow VC’s to continue to raise money from limited partners on a regular basis, essentially turning the process of LP investing into a quarterly subscription-based model. If an LP decides that they don’t want to continue backing an investor, they can stop allocating resources to them immediately. On the other hand, if they see that a given investor is making good bets, they can invest more money in them very quickly. This is especially useful for VC’s who would like to fundraise opportunistically in the case of portfolio markups. 4. Shortened Feedback Loops This new structure will shorten feedback loops for venture capitalists. Startups take a long time to reach full maturity, but they still have clear milestones throughout their journey. If an investor has several companies in their portfolio that succeed in securing future funding or obtaining product market fit, they can be rewarded instantly by raising more money during the next quarter. This is good for LP’s too, as they can make small, periodic investments in rolling funds based on the real time performance of the investor. This is quite different from having to write very large checks every 10 years. It opens up LP investing to smaller funds and individuals – rather than just institutions. How are Rolling Funds Structured? As we mentioned, rolling funds will allow more people to become VC’s. Because companies like Angelist will allow these small investors to outsource many fund management responsibilities, more people with A+ networks and good judgment can get into the game. For example, a star employee at Stripe or AirBnB might have access to many startup deals and the judgment needed to allocate capital effectively. Traditionally, if they wanted to get into VC, they would have needed to slowly work their way into an established fund or quit their job to start their own. If they didn’t want to do this, then they could angel invest, but then may not have hit the threshold needed to be an accredited investor (and even then they were confined to only investing their own money). Rolling funds allow them to start investing part time, and without needing to hit accredited investor requirements (although LP’s do need to be accredited). These new operator investors will be able to attract LP investment from many different sources, such as their managers, successful friends, and others who are impressed by their network and experience. Maybe you, a current founder, have always thought that you’d be a good VC and wish you could allocate capital into your other founder friends’ deals. With rolling funds, you can start a fund as a side hustle. This enables you to capitalize on your access and judgement by investing in other founders. 506(c) Funds Rolling funds are structured as a 506(c) offering. According to the SEC: “Rule 506(c) permits issuers to broadly solicit and generally advertise an offering, provided that: all purchasers in the offering are accredited investors the issuer takes reasonable steps to verify purchasers’ accredited investor status and certain other conditions in Regulation D are satisfied” Put simply, a 506(c) requires that all LPs are accredited investors. As Investopedia puts it, “An accredited investor is an individual or a business entity that is allowed to trade securities that may not be registered with financial authorities. They are entitled to this privileged access by satisfying at least one requirement regarding their income, net worth, asset size, governance status, or professional experience.” LP Subscriptions Accredited LPs, limited partners, are the investors behind a rolling fund. As the name implies, rolling funds are raised on a rolling basis. Quarterly Funds As the team at Rolling Fund News puts it, ‘A rolling fund is structured as a series of limited partnerships: at the end of each quarterly investment period, a new fund is offered on substantially the same terms, for as long as the rolling fund continues to operate. With this fund structure, rolling funds are publicly marketable and remain open to new investors.” Contributions The fund managers are responsible for deciding what the contribution minimum or maximums are for LPs. Currently on the AngelList rolling fund marketplace the quarterly minimums range anywhere from $2,500 to $50,000. Fee Structure Like any venture capital fund, there are fees associated with a rolling fund. Admin Fee For all rolling funds on AngelList there is a 0.15% admin fee. The fee is similar to more traditional funds and syndicates offered through AngelList. Management Fees There are also management fees associated with rolling funds. Most management fees are 2% but can generally range anywhere from 0% to 3%. As defined by AngelList, “Each fund will pay the fund manager a customary management fee. Management fees generally accrue over the first ten years of each fund’s life and are typically payable in advance over four years. Like a traditional fund, GPs can waive fees on an LP-by-LP basis.” Check out an example from AngelList below: How to Get Involved with Rolling Funds? The rolling fund structure opens up VC investing to many people who would have otherwise had a difficult time getting started. For example, imagine a fund built entirely around an independent media creator with a strong brand. High quality tech bloggers or university professors with a deep understanding of startups and a large audience can raise funding quickly on top of their brand and expertise. It could create an additional income stream for these individuals and allow them to build wealth through venture investing. Networking A common thread is that rolling funds will open up the opportunity to create a VC fund to anyone with a great network, access to deals, and good judgement around startups. Whether it’s an elite tech blogger, current founder looking to invest on the side, or startup executives who wants to benefit from their understanding and access to early stage companies – there will be new players in the VC game that might be different than the typical venture investor. Exploring Since launching rolling funds, AngelList has launched a marketplace where anyone can peruse and check out different funds that are currently raising. You’ll be able to check out the different funds (and their managers) to get an idea of who is in the space. Check it out here. Invest With lower investment minimums and more availability, rolling funds are becoming a feasible investment for non-traditional investors. Founders particularly are beginning to invest in rolling funds to invest in other founders. Of course this is an incredibly risky investment and should seek advice before investing. How Rolling Funds Could Impact Fundraising As we previously discussed, rolling funds have created more funding options for startups. Because of this it has the opportunity to impact the current VC fundraising process. Related Resource: All Encompassing Startup Fundraising Guide Increase in Total Number of VCs Rolling funds will lead to an increase in the total number of VC’s. More entrants into the VC business will lead to pressure on the traditional players in the ecosystem and more competition for deals. This competition will lead to better prices for founders raising capital. Would you rather take money from your long time friend’s rolling fund or a Sand Hill Road VC during your Seed round? These options may be real in the next 5-10 years. Rise in Early Stage Investing At first, rolling funds will primarily impact early stage investing. Most of these new funds have raised relatively modest amounts of money compared to large VC’s. Due to the large amounts of capital needed to play at later stage investing, rolling funds might not have an impact there just yet. However, due to the nature of compounding, some rolling funds might grow much larger than expected. VC is dominated by power laws, and the most successful rolling funds might find themselves with LP’s begging to get into future rounds. A rolling fund with a few smash hit successes can instantly raise additional LP capital. Traditional VC’s would have to wait longer to do so. One can even expect large VC’s to adopt the rolling fund model in the future. Easing Exit Pressure A final way that rolling funds will help founders is by easing exit pressure. All VC investors (including those who run rolling funds), will want your company to swing for the fences and seek to be a massive outlier. Traditional VC funds, however, need to show returns to LP’s on a roughly 10 year time horizon so that they have the momentum necessary to raise additional funding. This sometimes gives VC’s an incentive to push your company to exit or IPO within a specific time frame. LP’s want to see returns on set schedules. If your company’s exit would help show better returns, your VC’s might pressure you into selling your company prematurely. With rolling funds, this is not as much of an issue, as they can raise funding from LP’s on a continuous basis, vs having to raise a giant new fund every 10 years. Rolling Fund FAQs Because rolling funds are fairly new to most founders and investors – check out a few common questions below: Can You Market a Rolling Fund? One of the unique factors of a rolling fund are that the general partners behind them are allowed to market them to the general public. As AngelList writes, “Unlike most traditional venture funds, managers of Rolling Funds (known as general partners or “GPs”) can publicly advertise their offerings to grow their investor network and raise money.” Because of this, GPs of a rolling fund can attract LPs from different walks of life. More individuals are beginning to invest in rolling funds which means that startup founders will have a more diverse network of investors with more resources and connections available. What is the Difference Between a Syndicate and a Fund? As put by the team at AbstractOps, “A startup syndicate – or an investment syndicate – is a special purpose vehicle (SPV) created for the sole purpose of making one investment. Although syndicate investors are typically high-risk (high-reward) investors, through syndicates, they can invest in more deals with small amounts of capital, as little as $1,000 per syndicate. ” This means that a syndicate is only investing in a single company. On the flip side, a fund is dedicated to making investments across many companies. Related Resource: Accredited Investor vs Qualified Purchaser Is There a Minimum Investment for a Rolling Fund? The minimum investment for a rolling fund varies from fund to fund. The list of Rolling Funds currently raising on AngelList varies anywhere from a minimum of $2.5K a quarter to $167K a quarter. Checkout Visible’s Investor Database To Find the Perfect Investor Early signs show that rolling funds are here to stay and can be transformational for both venture capitalists and startup founders. If you’re a founder looking to raise capital, check out Visible Connect, our investor database, here. We maintain the database with firsthand data and will continue to add new funds and data as it becomes available.

While you’re busy launching your startup and talking with investors, insurance might not be high on your priority list. But as you start planning to raise your next round, keep in mind that commercial insurance will most likely be a requirement of securing venture funding. Not having insurance can even slow down funding, so it’s wise to get the coverage you need ahead of time to avoid closing new rounds. Venture capital firms often require certain policies to help mitigate the risk associated with investing in your startup. Here we’ll explain five key policies you should understand to help make your next funding round as smooth and seamless as possible. Directors & Officers (D&O) Insurance D&O insurance will likely be the first policy you need to have in place to secure if you’re raising money from investors. D&O covers you, the company, and your board of directors from a broad array of claims associated with wrongdoing that results from managing the company. Some examples include: Theft of trade secrets Misrepresentation that results in a loss for investors Breach of fiduciary duty D&O has three main coverage areas: Side A: Covers individual insureds not indemnified by the corporation Side B: Covers reimbursing the corporation for indemnifying individuals Side C: Covers the corporation itself against securities claims, such as company mismanagement It’s important to note that D&O will not cover any instances of intentional illegal acts, such as fraud or illegal remuneration. Tech Errors & Omissions (E&O) Tech E&O is a type of professional liability policy that is specifically designed for the needs of tech startups and can cover liability associated with technology products or services you provide, media content, and network failures. Essentially, this policy covers claims where your products, services, or professional advice results in a financial loss for your clients. As your startup grows this policy will be essential to mitigating these risks. Keep in mind, tech E&O will not cover claims associated with a deliberate breach of contract. Cyber Liability Insurance While tech E&O will cover errors or omissions, it will not cover cases of cyberattacks. For that, you’ll need Cyber Liability. This is the only type of commercial policy that will help cover the damages associated with data breaches. You can often add this coverage to your Technology Errors & Omissions policy. Startups rely on technology to keep their operations going and this leaves them vulnerable to hackers. In fact, a report by Verizon found that almost a third of all cyberattacks involved small companies and the average cost associated with data breaches, like notification and legal fees, will set you back thousands of dollars. To help cover this risk, it’s important for startups to have Cyber Liability in place. This policy covers liability that originates both internally from employees and externally from hackers, and can cover the following areas: Loss of digital assets Business interruption expenses Cyber extortion Non-employee and employee privacy liability Digital media liability It’s important to note that Cyber Liability will not cover risk mitigation costs or loss of first-party intellectual property. Employment Practices Liability insurance (EPLI) As startups secure more funding and hire new talent, the risk for employee-related claims goes up. Since many startups often lack the HR and legal resources that large corporations have, disgruntled employees could easily sue for allegations of discrimination, wrongful termination, or harassment. Not only are these claims costly, but they can also damage a startup’s reputation. EPLI insurance will cover the startup and employees against allegations of: Discrimination Wrongful termination Sexual harassment Retaliation Workplace harassment Breach of employer contract Keep in mind, EPLI does not cover claims of bodily injury to employees. That’s what Workers Compensation is for. Key Man Insurance Key Man insurance is simply a corporate-owned life insurance policy, typically on the founder or CEO. With startups, the sudden or unexpected death of someone as important as the CEO or founder could sink the company. With Key Man insurance, if this were to happen, the company would receive the life insurance payout. The Key Takeaway As you start planning your next funding round, make sure you keep insurance top-of-mind. You’ve worked long and hard to get here, so it’s important your company is adequately protected. VC firms know they’re taking a big risk by investing in your company, so they’ll need reassurances their liability is covered. Don’t wait until the last minute to provide proof of insurance, you should make sure you’re getting the right coverage that fits your budget. Some startups might find it difficult to secure commercial insurance due to their limited financial history. Make sure you use a broker that specializes in helping startups with broad management liability coverage. With these policies in mind, you’ll be ready to sign on the dotted line to secure your next funding round in no time. Related Resource: Down Round: Understanding Down Round Funding and How to Avoid It By Emily Lazration, CoverWallet Emily is the Content Marketing Specialist at CoverWallet, a tech company that makes it easy for businesses to understand, buy, and manage commercial insurance online. She has written for several outlets including Inc., Ooma, and Fundera covering small business news and advice.

What is a Convertible Note? A convertible note is a type of short term debt that converts into equity. Convertible note holders essentially get paid interest in the form of discounted equity shares, rather than regularly scheduled payments. They are often used by early stage startups when closing a seed round, and later stage companies looking for more cash in a ‘bridge’ round before their next planned fundraise. Convertible notes have a few key components: Conversion Discount — The discount at which the investor will receive shares at the date of maturity or the next ‘qualified financing’ (i.e. the next round of funding). Valuation Cap — The cap on the valuation (i.e. price) that the investors will pay for their equity during the company’s next fundraise. Interest Rate — This interest rate will be added to the principal amount invested when the debt converts into equity. Most convertible notes in 2020 have a low rate to keep the value primarily on the equity conversion & reflect the current interest rate environment. Maturity Date — Like some other forms of debt, convertible notes have a maturity date at which the investor can request full payment back from the company. This date is mostly designed to set expectations for the date of the next round of funding. It depends. They have some clear advantages in that they tend to allow deals to get done faster. However, many in the VC community have been critical, citing that they come with more complexity and hidden risk down the road if both sides are not careful. Related resource: Liquidation Preference: Types of Liquidation Events & How it Works Are Convertible Notes Good or Bad? When Convertible Notes Are Good Convertible notes are good for quickly closing a Seed round. They’re great for getting buy in from your first investors, especially when you have a tough time pricing your company. Paul Graham wrote a post in 2010 called ‘High Resolution Fundraising’ in which he argued that innovation in convertible securities allows for more accurate & personalized pricing in early stage funding. If you need the cash to get you to a Series A that will attract a solid lead investor at a fair price, a convertible note can help. When Convertible Notes Are Bad Convertible notes are destructive when used carelessly. Having too many notes or poorly structured notes outstanding can put your company and later negotiations at risk by complicating your cap table. You should partner with a lawyer who understands the ins and outs of convertible notes, and educate yourself prior to closing a round with this type of funding. Convertible notes are great for speed in Seed rounds, but they must be well thought out to avoid problems later on. What Happens When a Convertible Note Matures? When a convertible note is issued, both the investor and founders are expecting the debt to ‘mature’ by converting to equity during a financing round within the next 1 to 2 years. However, notes also come with maturity dates, enabling the investor to get their money back (with some interest added to the principal) if that financing round does not happen on time. There have been instances in which companies are either acquired before their initial equity round or choose to not raise any equity funding. These are both rare occurrences, but they create tough situations. See investors are not making an exceptionally high risk investment just to get their principal back plus a small interest rate. VC’s and angels win by having huge outliers in their portfolio – if they don’t get equity and you become a unicorn, they lose. It’s best for founders to add language into their convertible notes that state what investors can expect to get in these situations. Do You Have to Pay Back a Convertible Note? Convertible notes are just like any other form of debt – you’ll need to pay back the principal plus interest. In an ideal world, a startup would never pay back a convertible note in cash. However, if the maturity date hits prior to a Series A financing, investors can choose to demand their money back. This could effectively bankrupt the company. After all, the startup raised the money because they didn’t have the cash in the first place. If a company raises money using multiple convertible notes, this risk is even greater. Because of this, neither side of the table wants a convertible note to reach its maturity date prior to the next round of funding. Is a Convertible Note Debt or Equity? Convertible notes begin as short term debt, but convert into equity during a later round of financing by allowing the investor to receive a discount on shares at a future date. The investor technically has downside protection in the event that the company goes out of business until the note converts. They are entitled to their principal in a liquidity event prior to the conversion date, or if the note reaches maturity prior to a qualified financing. Related Resource: A User-Friendly Guide on Convertible Debt How Does a Convertible Note Convert? A convertible note converts at the next ‘qualified financing round.’ In most cases, convertible notes are issued during a seed round, with the Series A round being the expected conversion event. However, it’s critical to understand the terms at which the note will convert because it will have a huge impact on dilution (this article goes into depth on convertible instruments and dilution). There are three options, all of which are explained in great detail in this post from CooleyGo and this one from Alexander Jarvis Pre Money Method In this instance, the convertible note converts based on the pre-money Series A valuation of the company. The dilution in this case will be passed from the founders on to the note holders and new Series A investors. Percent Ownership Method With this method, the note will convert based the percent ownership that the incoming Series A investor expects to receive. Founders bear the brunt of all of the dilution, which benefits the convertible note holder in addition to the new investor. Dollars Invested Method This method is unique in that it includes the value of the convertible note in the post money valuation of the company. In the Pre Money Method, the founder is favored at the expense of investors, while in the Percent Ownership Method, the founder gets diluted more than they expect. The Dollars Invested Method serves as a middle ground between the two, and allows the dilution to be shared amongst the Seed investors, Series A investors, and founders. Why Are Convertible Notes Used By Startups? Convertible debt has obvious advantages in that it can allow you to get deals done faster. By giving your first investor(s) a good deal, you compensate them for taking a risk on your team by allowing them the option to take a future stake in your company at a discount, while protecting their downside risk. However, you should be warned that these early benefits can come with nasty long-term consequences if you are careless with convertible notes. It’s best to be careful, do your research, and understand the terms so that you’re protected for future rounds. When Should Convertible Notes Be Used? When they can help you close your seed round faster: If a company is trying to raise a seed round, one of the biggest challenges they’ll face is getting the first investor to say yes. There is an old saying in the startup world that the most common question investors ask is ‘who else is investing?’ There is a ‘herd mentality’ stereotype that is often applied to VC’s. Even though it drives founders crazy, investors have a point. Startups almost always need cash to succeed, and if they’re not fundable, they’ll fail. For an investor to see a return, the company will need many other investors to see the same value. No investor takes more risk in this regard than angels or early stage VC’s. They need to take the first chance on a company, typically long before it has any substantial financial or user data to make a convincing funding argument that’s based on fundamentals. Angels are making high risk bets on an idea, a team, and a market. Convertible notes allow founders to provide better deals to investors who take this risk, and ultimately give you a chance to scale your company. To give you more time to determine a valuation: One of the most difficult problems when getting an early stage deal done is agreeing on a valuation. Seed stage founders don’t have much data to help price their company, and every investor wants to wait until someone else agrees on a given valuation to get on board. Investors keep the company arms length, waiting for another fund or angel to take the first step. With convertible notes, founders can offer better terms to an investor who writes the first check, and delay having to put a firm price on their company. Notes also enable companies to avoid extra legal fees associated with negotiations that take place during equity financing . This allows them to save cash and get deals done faster (although there are now templates like Series Seed documents that make this easier). When Should Convertible Notes NOT Be Used? When they can overcomplicate your cap table: If a company raises money with multiple convertible notes, the cap table can get complex and the founders may place themselves in an uncomfortable position. This is especially the case if they don’t hit the next qualified financing on time. Convertible notes are still debt prior to their conversion. You may be liable to pay back cash that you don’t have if your future round doesn’t go as planned. This also gets awkward if founders don’t raise another round of funding at all (i.e. if the company gets acquired, hits profitability, or goes out of business). The key is to remove the complexity by trying to include these scenarios in your thinking prior to closing the seed financing. We suggest reading more about this from Jose Ancer on his insightful blog: Silicon Hills Lawyer. When they come with extra dilution and liquidation multiples: We touched on dilution in convertible note conversion earlier in this post, but they can also pose another challenge: liquidation multiples. Here’s a quick example on how a hidden liquidation multiple can surface with a convertible note: Let’s say an investor who gives us a convertible note worth $1M at a $10M valuation cap (more math to come later). If we raise a $20M seed round, this investor ends up owning roughly 10% of a company that is now worth $20M. They only paid $1M, but now are entitled to $2M in the event of a liquidation. This investor will now receive 2x what they paid in the event of an early liquidation that is worth less than the initial valuation. This is quite disadvantageous for the founder (and potentially other investors). You can avoid this situation by adding some additional language to your convertible notes – similar to this this paragraph suggested by Mark Suster (but consult your lawyer first). Related Resource: Everything You Should Know About Diluting Shares What the pros say: Many investors, such as Jason Lemkin, Fred Wilson, and many others have been critical of convertible notes. They would rather put a price on the company and believe that, due to their experience, they can negotiate a fair price quickly. They also argue that the valuation cap essentially puts a price on the company by default. If you’re willing to price your company, why not just raise the equity and avoid the headache that can come with the conversion? Jason Lemkin also argues that investors who invest with convertible debt are less incentivized to be involved early on. After all, they don’t yet have any control or stake in the company. To some investors, the complexity of convertible notes is not worth the time saved – it’s simply pushing important conversations down the road while exposing both sides of the table to unnecessary risk. Convertible Note Examples Let’s say you’re a founder of a seed stage company who just raised $1M via convertible note. The valuation cap is $10M and the discount rate is 20%. Then, you raise a Series A round 18 months later at a $20M valuation. If there are 1M shares outstanding, then new investors will pay $20 per share, while the investor who issued the convertible note will receive equity based on either a valuation cap or the discount – typically whichever is most advantageous for the investor on a price per share basis. Example 1 - If the note converts based only on the $10M valuation cap, then the $1M invested will convert into a $10 per share price vs a $20 per share price ($20/share multiplied by ($10M cap divided by $20M Series A valuation), turning the $1M investment into $2M in simple terms. The $1M investment will now convert into 100,000 shares. The seed investor will get an effective 50% discount on the shares ($10/share vs $20/share) and a 100% return on their investment. Example 2 — On the other hand, if the note converts at the 20% discount rate, the investor will be able to buy the shares for $16/share rather than $20/share. This would allow the investor to convert their $1M investment into 62,500 shares ($1M / $16/share) rather than 50,000 shares had they invested in the Series A. The $1M investment converts into equity worth 1.25M, a 25% return on their investment. In this case, the investor would convert the shares on the basis of the cap, because it provides better economics. The math works out similar to what would have happened had they simply invested $1M at a $10M post money valuation, but they did not have to bear as much risk as typical equity holders and likely got less dilution. The investor, in exchange for taking an early chance on a company, gets a better deal than those who came in later. This is an overly simple example of how a convertible note works, but it’s useful to see how the conversion math looks in practice. Looking for more resources on fundraising, investor updates, and navigating the unsteady waters of startups? Subscribe to our newsletter — The Visible Weekly, Curated resources and insights delivered every Thursday.

TL;DR — We are excited to announce Visible Connect, our investor database. Visible Connect uses first hand data and directly integrates to our Fundraising CRM. You can give Visible Connect a try here. Fundraising is a challenging, time consuming process for startups. One of those challenges is finding the right investors. Founders spend countless hours trying to understand: Is this investor active? What deals have they done recently? Will they lead? Take a board seat? What geographies do they invest in? What stages? What verticals? What size checks do they typically write? Have they raised a new fund recently? Do they have certain traction metrics or growth rates they like to see? The current patchwork of data sources & resources lack the founder first mentality, can be cost prohibitive and lack insightful data for founders who are fundraising. This isn’t a novel idea. Founder-friendly individuals who know the pain of fundraising consistently try to solve aspects of this problem with lists like Joe Floyd’s Emergence Enterprise CRM and Shai Goldman’s Sub $200M fund list. We believe these efforts should be coordinated and data aggregated for the benefit of founders everywhere. Introducing Visible Connect In the spirit of the Techstars #givefirst mentality, we are thrilled to announce Visible Connect. Our attempt at curating the best investor information in the world and opening it up as a resource for founders to derive investor insights and run more efficient fundraising processes. Visible Connect allows founders to find active investors using the fields we have found most valuable, including: Check size — minimum, max, and sweet spot Investment Geography — where a firm generally invests Board Seat — Determines the chances that an investment firm will take a board of directors seat in your startup/company. Traction Metrics — Show what metrics the Investing firm looks for when deciding whether or not to invest in the given startup/company. Verified — Shows whether or not the Investment Firm information was entered first-handed by a member of the firm or confirmed the data. And more! Visible Connect + Fundraising Pipelines Once you filter and find investors for your startup, simply add them to your Fundraising Pipeline in Visible to track and manage your progress (You can learn more about our Fundraising CRM here). We believe great outcomes happen when founders forge relationships with investors and potential investors. One of the benefits of the current system is that founders with options are forced to be thoughtful about who they reach out to. However, not all founders feel they have options. They need to know that they do. We believe Connect is not a tool for founders to ‘spray and pray’ or spam investors with template cold emails. There will be no contact emails provided on the database for this reason. We believe founders waste precious time trying to figure out investor fit and profile for their given stage when they could be spending that time building potentially fruitful relationships with the right investors. It should not be a core competency of a founder to understand all of the investment thesis for venture investors. Connect Data Sources We collect data in three principal ways: Primary information – Direct attestations from venture capitalists, accelerators and other investment firms about their business Secondary information – investor lists provided to us by venture capitalists (co-investors) or startup founders aggregated in the course of a fundraise or the ordinary course of business Public information – third party data sources that are not labeled as proprietary or have terms of use associated. These sources may include: deal flow newsletters, public lists and databases, social media posts, journalistic articles, and more We’d like to give special thanks to all the individuals who gave their time to build data sources used in the compilation of this ongoing project. The AllRaise Airtable of investors. All Raise is on a mission to accelerate the success of female founders and funders to build a more prosperous, equitable future. Data from the team at Diversity VC The Southeast Capital Landscape built by Embarc Collective, Modern Capital, Launch Tennessee, and HQ1 Joe Floyd and the Enterprise Fundraising CRM Shai Goldman and the Sub $200M VC fund list Crunchbase Open Data Map API NVCA’s membership database The Fundery’s Essential VC Database for Women Entrepreneurs Venturebeat’s NYC lead investor roster This public airtable aggregating investors who invest in underrepresented founders (anyone know who we can give credit to?) David Teten’s list of Revenue-based Investors (and Chris Harvey’s tweet about it) Tech In Chicago’s list of Chicago VCs Clay and Milk’s list of Midwestern VCs Brian Folmer of XRC Labs Nick Potts of Scriptdrop Ideagist’s list of accelerators and incubators in California Jason Corsello’s Future of Work Investors Dan Primack’s Pro Rata Newsletter (We manually enter this data daily) Evan Lonergan’s Excoastal (We manually enter this data weekly) Austin Wood’s Tech Between the Coasts (We manually enter this data weekly) We’re always looking to bring on more data sources, contributors and maintainers of the project. If you want to submit a data source or help contribute you can fill out this Airtable form.

Naval Ravikant, the founder of AngelList, recently began a new project called Spearhead. The program gives founders $1M to start angel investing, and seeks to educate those who wish to enter the space. The Spearhead podcast, meant to scale these efforts, is a treasure trove of insights not just for those who wish to be angels, but for entrepreneurs looking to raise a Seed round. You can find the full podcast & transcribed episodes at spearhead.co. Here are 7 insights for founders from the podcast: Angels build brands. Be aware of who you’re associating yourself with. Investors in early stage companies need not just deal flow, but access to the best deals. To get access, angels build brands. They do this in many different ways – Jason Lemkin built the SaaStr conference, Naval built AngelList, and Fred Wilson blogs. You should be mindful that the brands you associate yourself with in the early days can have an impact on the future of your company. Angels with great brands can get you access to key hires, new customers, & helpful mentorship. Future investors may also use the brand of your angels as a signal as to whether or not they should invest. If your early stage investors have have a track record of success, securing later funding gets easier. Avoid angels who put too much on the line. It can lead to bad behavior. If an angel invests so much into your company that they stand to lose a large portion of their net worth if you fail, this could lead to tense situations. This applies to family member & friend investments as well. Angel investing is a high risk sport, you should only play with people who understand this. Don’t use FOMO as a fundraising tactic. The best angels refuse to be pressured into a deal. Telling a high level angel investor that they ‘only have 24 hours to get into the round!’ can backfire. There is a fine line with this, as social proof and scarcity are tools that you need to leverage when fundraising. However, being overly aggressive or pushy makes people hesitant about working with you – especially investors with experience and strong brands. Social proof is key. Angels are often wary about getting involved in deals where they have no network connections to the founders or fellow investors. Naval & Nivi explain this by saying that good angels should be cautious about deals that are made up of complete strangers. If a founder is raising money and none of their direct connections or past investors are involved, that may be a bad sign. Similarly, if an angel with excellent judgement writes a huge check to a company, it sends a message to other investors that they’re a strong bet. Cold emailing is part of the fundraising process, but you’ll have far more success with people you already know. Your network is critical. Build it before you have to. Get your psychology right. Great founders often toe the line between visionary & madness. To build a massive company, you need to attempt something that most people don’t think will work. It takes a special mindset to do this. Naval explains that great angels don’t expect founders to be ‘coachable’ or have perfect records, as they sometimes have to operate as an outsider at first to be successful. Instead, founders should be aggressive and seek to build traction. However, you should avoid the perils of over-aggressiveness. If you prioritize hyper growth at the expense of traction, you can end up ‘blitzfailing’ as David Sacks explains on a guest episode of Spearhead. You need to keep your genius in check, and ensure that you’re prioritizing the right things in your business. Build a technical network. Angels are looking for huge returns in exchange for taking a chance on you. This is an all or nothing game, and you’ll need to be very right when others are wrong. It’s often the only way to generate massive returns. This is why you should solve technical challenges where you have what Naval calls ‘specific knowledge.’ Many of the most valuable startup opportunities are in technology. Build relationships with scientists & technologists at the source of new developments. These people can give you access to angels who seek to invest in tech companies, in addition to talent and insight that comes from the source of innovation. Get your team right. Angel investors are betting on founding teams more than their initial ideas. Pivots are common in startups, and savvy early stage investors understand this. When a company pivots, the common denominator ends up being the team the angels invested in. Naval explains that you should seek to create a company of world class builders, salespeople, & community creators. These are vague categories that take on different meanings in different industries. A builder could be a software engineer or a logistics expert, while a seller could be a fundraiser or a marketer. The key is to have both. An amazing product with no distribution won’t win, and Naval calls the outsourcing of product development a “red flag.” Team up with skilled people who have the 3 traits Naval & Nivi look for in partners – intelligence, energy, and integrity. If you do this, you’ll attract investment, and be more likely to whether the inevitable storms that come with starting a company. When marketing any product, you start by understanding your customer. Why wouldn’t you do the same when selling investment opportunities in your company? We think that Spearhead is a great entry point into understanding the psychology of an angel investor, and hope that you can use these insights when raising funding for your early stage startup. Want more advice delivered to your inbox every Thursday? Subscribe to our Founders Forward Newsletter. We search the web for the best tips to attract, engage and close investors, then deliver them to thousands of inboxes every week.