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Not Getting Pushed Around by a New VC & the Playbook for Treating Existing Investors with Allocations for Future Financings

ShareAlmost all good companies go through many rounds of funding to pursue innovation and growth as well as accommodate demand from investors that want in on a great deal. I recently spoke on a panel where the topic came up about getting “thrown under the bus” where new investors try to take the entire new round and prevent existing investors from investing additional capital. With many new investors active in the market that have never founded a startup, raised angel and VC funding for their own companies or worked their way up the VC ladder from Associate to General Partner, I wanted to share “old school” etiquette on this matter and give everyone a baseline of what I think is best for all parties. When a startup is hot there will be more demand from investors for the round than available inventory in the round. This either forces the valuation of the round up and up, which will push out sophisticated investors and the least value added investors will end up taking the entire round and the company will be worse off from not having selected the best investors to support the company at a valuation they agreed to be sensible. Often times, the new CEO is heavily influenced by the new VC coming in and the new VC has strong percentage targets of 20% or more and the founders may not want to be diluted by more than 10% and so the sharp elbows come out. Sometimes the CEO will tell existing investors that they are very sorry, but the new investor is taking the entire round and they...

Irony of What’s Suitable for an Angel: Early vs Late Stage Investing

ShareIt’s been over 20 years that I have been talking to angel investors in the Valley and around the world about their individual investment preferences when it comes to direct individual investments and wanted to share some of the results of these conversations. The way the real world works is that until recently most VCs do not invest in pre-seed or seed stage startups. Especially as most Sand Hill Road funds increased in fund size from $50m and $250m to $700m and $1.2bn per fund as a result of 2001 and 2008 downturns. These super-sized VCs need to write bigger checks and invest in later stage financing rounds than they did in the 80’s, 90’s and early 2000’s. So angel investors filled this need for early stage seed investing. Then we saw the birth of micro-VCs like Ron Conway’s SV Angel raising institutional funds and investing at the angel / seed stage like a machine out of their funds with fulltime investment professionals focused on angel investing. We now seem to have an accelerator for every type of startup and the best ones have their own funds and invest seed capital in an institutional manner and nearly all of these financings with the micro-VCs and accelerator funds also include angel investors. This is where we expect to see the angels active. The result of all of this is that angel investors today and in recent years do have access and are welcome to invest in seed stage financings for tech startups in the Valley and around the world. However, once these startups make more progress and progress to a...

We are in a new venture economic cycle in 2016

ShareAt Rubicon Venture Capital we believe 2016 is already a new and different economic cycle from 2015 and 2014 for startups and VCs trying to agree on appropriate valuations and size of financings. The venture economy ebbs and flows much like the public markets, but not as tightly in tune as logic might suggest. Startup CEOs have their own idea of what their valuations should be and how much capital they should raise and how often. Venture capitalists have their own ideas on the same topics and deals get done when both sides agree. Our take is that the venture world has been in an upward boom in recent years and peaked in August of 2015. There was a “Chinese chill” in August followed by a controlled “hitting of the breaks” without skid marks in September, October, November and December. What has happened with venture is a mild market correction; however, not all entrepreneurs or VCs have gotten the news yet. As we all know 2016 began with a hammering of the global public equity markets. Some of our companies already restructured in 2015 cooling burn rates and recapping their companies at more humble valuations raising funding when they didn’t need it. Funding has become more of a continuous process than big forklift monumental “series” financings. Now many mid to late stage companies are lowering expenses, lowering growth expectations, raising more capital ahead of schedule and adopting new operating plans to sail through potential rough waters that may be ahead. What does this mean for Rubicon? Lower valuations for us to invest in. Ability to drag startups through more...

Videos from VC / Angel Investor Workshop @ Silicon Valley Innovation Center

ShareVideos from VC / Angel Investor Workshop @ Silicon Valley Innovation Center Click here to go to Andrew Romans’ YouTube Channel and view the videos. (Read the notes of each video to fast forward through the first 10.5 minutes of Part I. I need more time to break these into shorter videos; so feel free to skip around.) Topics covered Overview & analysis of the market from Pre-Seed, to Seed, Later Stage Seed / Seed Extension, Series, A, B, C, D to the private IPO phenomenon – understanding trends – which are crowded, overpriced, underpriced and key risk points Why investing now is more attractive than ever before What industries, sectors, company stage and geographies are best for you Convertible notes – key points and the meaning beyond the moving parts Priced equity rounds – key points and the meaning beyond the moving parts Valuation concepts on pricing valuations when investing, exiting and risk tied to perceived exit multiples Portfolio construction strategies for angels and VCs – how to allocate your capital Best practices for sourcing deal flow and conducting due diligence Tactics to get into oversubscribed deals Strategies for continuing to invest in portfolio companies a 2nd, 3rd, 4th, 5th time, etc Best practices for post investment information rights, governance, adding value and Different options to invest ranging from Angel List, to other investor platforms, angel groups, demo days, accelerators, VC funds, SPVs, tax breaks for UK, EU and Israeli taxy payers Different options to get liquidity on the secondary market before definitive liquidity event for startup / how to sell some stock before the final exit Questions & Answers from an audience of...

The “carve out” is another tool in the toolbox of both the founder / hired CEO and VC

ShareI had a meeting last night with an entrepreneur and old friend of mine visiting Silicon Valley from Tel Aviv in my San Francisco office and then we went 1:1 afterwards (without my Rubicon team) for a drink. I was keen to learn about the opportunity to invest in his new startup, but I also wanted to hear how my previous investment I made 7 years earlier into his last startup would work out for both him and me. His last startup (I will not name names in this post) is an Israeli company backed by Pitango, Carmel and other leading VCs from Israel. The two co-founders left the company about 18 months ago after nearly 10 years of building up this first startup. Both now have new tech companies we’re looking at potentially investing in. The previous company continues to grow revs with solid profit margins, but has failed to scale to the level we had all initially hoped for, but is still a valuable asset. They have a meaningful liquidation stack of over $40m total that needs to be paid off to the VCs and bond holders before the founders’ common shares (founder stock) would receive any consideration from the exit. This means that it is possible that their previous company where they raised over $40m of VC funding might be sold for less than the $40m invested. They have a 1x liquidation preference they need to pay the VCs back and a few million dollars venture debt that gets paid out before the VCs. So the waterfall of liquidation preferences looks like this: 1) venture debt, 2) VCs,...

The pre-IPO phenomenon (large private financings) is good for founders, employees & VCs

ShareI thought to share this email response I sent to a journalist asking me if I am worried as a VC about the current private IPO phenomenon. I am not. Her email to me is included in bold and my response is in normal font. OK, Victoria, here are my thoughts with your email highlighted in bold. You wrote: Hi Andrew, I also was wondering if you could share with me some of your thoughts as I am working on my next Huffington Post article. As you might know, there are now more than 100 VC-backed companies with valuations that exceed $1 billion that are still private.  There was a report on CNBC this morning that VC-backed private market valuations now exceed public market valuations by 100% to 200% in many cases, making it more difficult, if not impossible, for these companies to have an IPO in the current environment.  Further, many of these companies are now requiring cash, but without a public market, are having a cash crisis.  It appears that many unicorns are no longer non-public by choice. I do not agree with this. These unicorns are successfully raising amounts of cash equal to or greater than the amount one might expect them to raise in an IPO. Because they offer a senior liquidation preference to the new investors the new investors can support unusually high valuations, because the newest investor knows that she will get 100% of her capital out of the deal prior to any other investor getting their money back. At this point the new investor practically does not care what the valuation is, because they have a nearly zero...

Join us in London for Blurred Lines in VC Sept 1, 2015

ShareJoin us for “Blurred Lines in VC – London” Hosted by Rubicon Venture Capital Register here: http://BlurredVC.eventbrite.com Featuring a panel of London VCs moderated by Andrew Romans, General Partner of Rubicon based in San Francisco, discussing the ever-changing nature of the startup and venture capital landscape, plus time for networking, drinks and canapés. The venture capital and startup worlds are going through major shifts today. Some call Seed Extension or Later Stage Seed the new Series A. Seed financing rounds are now covering product development through to revenue and product market fit with Series A coming in later and bigger. We’ll invite our panel of venture capital investors to discuss the increasingly blurred lines between Seed and Series A rounds, massive startup valuations, the “Private IPO” phenomenon and what they look for in their next investments. AGENDA 6:00 pm – 6:30 pm: Registration & Networking 6:30 pm – 7:30 pm: Venture Capital Panel – “Blurred Lines in VC” followed by questions 7:30 pm – 9:00 pm:  Networking, Cocktails, Hors d’oeuvres VENTURE CAPITAL PANEL  Andrew Romans Rubicon Venture Capital @RomansVentures @RubiconVCModerator    Damien Lane Episode1 Hussein Kanji Hoxton Ventures @hkanji Nick Brito Fidelity Growth Partners Europe Paul Jenkinson WHITESPACE VENTURES Jerry Ennis Smart Anchor Ventures Register here: http://BlurredVC.eventbrite.com...

The VC Giraffe Killer – No Asshole Policy and the Importance of Getting a Good Fit with Your VC Partner

ShareReading the news of US dentist Walter Palmer killing Cecil the lion for sport and social media descending on him forcing the closure of his dental business made me think of this contribution to my last book about a VC who paid €200k to kill a giraffe. In this case I will keep the identity of the VC confidential. Good behavior in the business world and the VC industry matter more than ever in a new world of camera enabled smart phones connected to endless lists of friends and contacts on social media. It can be a matter of life and death for your business #ReputationsMatter. Here is the contribution from Dutch entrepreneur Martijn Tjho, former CEO of Fuga (IndependentIP), to my last book. I never included it in the book, because McGraw Hill, my publisher, forced me to cut more than two thirds of my word count to shorten the book to roughly 200 pages. So I’m happy to share this great story with you now. A few lessons here. When you are taking a salary cut or no salary to work on a startup one of the few things you can control is whom you decide to work with. When you work in banking, consulting or a big corporate I can almost guarantee you will be surrounded by assholes and be forced to deal with it. As a co-founder of a tech startup we adopted a “no asshole policy” in 1997 and have stuck with it. Things can get rough at a startup. If you have a world class asshole on your team or board it will just weaken...