From Venture Beat:
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3. If you want advice, ask for money. And visa versa. If you go asking for money, VCs give you an earful on how to run your company. If you go asking smart people for advice, eventually you’ll do well enough that those advisors will refer you VCs. This is assuming that you get good advice and follow it. Here’s more on the value of advisors.
4. Money has karma too. Too much money can actually kill a startup because it raises expectations about what kind of return will be possible. Big amounts of money are like drugs. They’re addictive. But it means you can’t go after small markets, even if you can build a highly profitable company. Going after niche markets is a problem because early stage investors know you’re not finance-able by later stage investors, so they won’t fund you. It’s game theory, looking back from the end. As for being lean, Sequoia Capital has taught us why it’s important.
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7. Negotiate from power. Reason follows. Investors will make all kinds of arguments as to why they need a multiple liquidation preference, one-sided no-shops, big option pools, board control and other clauses. But often these arguments will make no sense or ring hollow. Ravikant’s recent favorite comment came from an investor who wanted board control because he “wanted to be heard.” Usually these nonsense arguments go away if you have multiple term sheets and a “hot deal.”
8. It’s not smart money. It’s wise money. Wise investors see long-term potential. Entrepreneurs often choose VCs based on how well the VC knows the company’s industry or has a specific skillset (like good at business development or understands the technology.) The entrepreneurs think that this is what “smart money” means. But really, the job of a VC is not to figure out your industry better than you or to fill a gap in your team. Their job is corporate governance — financing issues, recruiting, firing a CEO (or possibly you!), or mergers and acquisitions. These issues require wisdom – understanding the long term consequences of your actions. As such, what you’re really looking for is better described as “wise money.”
9. Vesting is good for founders. If you keep board control, you won’t have to worry about your investors firing you. However, you still need vesting in case one founder drops out or doesn’t scale and the others are left building the company. If 25 percent of the company is owned by a founder who had to be removed in year one, the company is effectively a zombie.
10. Hire founders. Get people who are as motivated as you are to join you.
About nathan kaiser
