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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...

Where are the Best Risk / Reward Valuations in Venture Capital Today?

ShareThe venture capital market is constantly changing with supply / demand dynamics fluctuating from one geography to another, sector-to-sector and weekly shifts in micro and macro economic confidence. Here’s my current perspective on the differences among 1) Seed, 2) Series A & B and 3) Later Stage Growth financings. Key take-aways: 1) Seed is over priced where startup valuations are higher than these companies can be sold for today – investors betting on the future potential – increasingly easy for all investors to access seed financings 2) Series A & B rounds are priced lower than the company could be sold for today – optimal risk / reward inflection point – difficult for most investor to access these financings 3) Later stage growth values the company higher than it could IPO or be sold for today but build in protections for newest investors – very hard for average investor to access yet increasingly crowded Seed market has become crowded and valuations are higher than you could sell the company for today The seed market had transformed from a small set of angel and seed stage institutional investors accessing elite deal flow via personal relationships and networks to a new world of a larger number of active angels funding a bigger pool of non-elite seed stage deals. We now have more entrepreneurship than ever before with thousands of seed stage deals augmented by thousands of accelerators each churning out constant cohorts of startup batches continuously where any angel or seed stage investor can attend demo days and get introduced to the founders for direct investments. The number of players in seed is growing quickly...

Culture Radio: Podcast Discussing Culture & Venture Captial

ShareCheck out this podcast interview on Culture Radio. Download it to your phone and listen on your commute or your next airplane ride. Click here to PLAY OR DOWNLOAD THE EPISODE HERE. EPISODE 21: A CLOSE LOOK AT THE IMPACT OF VENTURE CAPITAL IN THE BUSINESS LANDSCAPE WITH ANDREW ROMANS DISCLAIMER: Listen to the podcast. That’s easier and I can see having glanced at the transcript below that it’s not word-for-word accurate. If English is not your first language this not perfectly accurate transcript may be of interest. Otherwise I encourage you to LISTEN TO IT HERE.   THE QUESTIONS [7:55] Andrew, what do you think drew you to the VC world? As you grow up, was there something that shaped and formed you to this direction? Answer: I grew up in Short Hills / Madison, New Jersey. Even there, I was an entrepreneur. I founded a company called the “Freshmen Assassination Game.” When I saw that movie “Gotcha” and said, “Who wants to go to school when you could be playing an assassination game?” That sounds fun. And the good thing about that business is I didn’t need any investors. You know, I collected $2 per student. Gave $1 to the sole survivor and kept the bucks from everybody myself. So I had little businesses running all through high school and college. I had a big t-shirt business in college. And so, I was just a hardcore entrepreneur, you know, from the core and my soul. [25:10] Was there a moment in your career over the last 20 years where there the lights went on for you? Answer: The honest answer is it’s...

When to Quit Your Startup vs Never Give Up!

ShareAbout 13 years ago I attended a party in London with the theme “Never Give Up!” It was organized by an angel investor buddy of mine from the Silicon Valley who is a true round-the-world ticket traveler with entrepreneur networks everywhere. It was a bunch of entrepreneurs that got together on a Saturday night to get loaded, share their challenges and motivate each other to “never give up” with their startups regardless of hard times. It was a big party and I don’t remember meeting any entrepreneurs that I thought were “VC fundable” that night. I had a good time, but I recall saying to my wife as we walked out of there that those entrepreneurs are more serial killers than serial entrepreneurs. I think it is an important thing for founders and junior cofounders to consider when it is the right time to give up, quit that startup and move on. Most startups fail, because they run out of cash. When the startup is generating cash from customers or investors it becomes more complex for the founder to lift her head up from the ball and look at the entire playing field and think. I live in the Silicon Valley and commute most days to our office in San Francisco and I think that being at the very far west end of western civilization means that most of us are separated from our parents and family. Being far away from these conservative forces like your Jewish mother telling you to quit that startup and take a job at an accounting firm like your brother is part of the secrete...

Amsterdam Feb 5th VC – Entrepreneur Event

ShareJoin me in Amsterdam Feb 5th 18h30 at www.B-Amsterdam.nl for…http://vc-nl.eventbrite.com The Future of Venture Capital A Workshop for Angel Investors, Venture Capitalists, Family Offices & Entrepreneurs REGISTER HERE FOR FREE USING PROMO CODE “RUBICON”: http://vc-nl.eventbrite.com Early stage investing is undergoing a renaissance. The lines between seed and series A are blurring as the cost of launching new startups has decreased (and is increasing for some). Learn of new models, strategies and platforms for VCs and angel investors to collaborate to invest in early stage companies from seed to IPO. Learn how angels can invest small amounts of capital in Series A, B, C, D and later financing rounds typically only available to VCs and other institutional investors. Learn how VCs can harness the power of angel and family office networks and most effectively invest in early stage seed rounds of startups while keeping a focus on Series A and beyond building successful, scalable venture portfolios that are just as innovative as the companies they finance. Welcome remarks by Ricardo van Loenen, cofounder of B. Amsterdam, the largest co-working space in Amsterdam. Agenda 18:30: Registration, beer, wine, softdrinks & networking 19:00: Presentation followed by Questions & Answers 20:00: Wine, beer, softdrinks & networking 21:00: Event close Andrew Romans, General Partner, Rubicon Venture Capital & Author of THE ENTREPRENEURIAL BIBLE TO VENTURE CAPITAL: Inside Secrets from the Leaders in the Startup Game Andrew Romans is the author of the acclaimed McGraw Hill published book THE ENTREPRENEURIAL BIBLE TO VENTURE CAPITAL: Inside Secrets from the Leaders in the Startup Game which brings together stories and wisdom from over 40 VCs. Now availalbe in Chineseand Russian...

Romans’ Five Forces Venture Model: Mapping Differing Incentives in Complex VC Financings

ShareThis blog post is taken from my book. Most successful VC-backed companies raise an average of three to seven VC funding rounds. When a company is raising its second or third VC funding round, the CEO, founders, board, and all parties should be aware of the different forces at play. They must understand the different perspectives and effectively negotiate the best outcome for their individual interests, balanced by their fiduciary duties to the company. Understanding what the other party wants is key to being successful in any negotiation, more so in a complex negotiation with multiple parties at the table. I find it useful to consider an analog model to the Porter Five Forces Model, but populated with ven-ture-related forces. Porter’s model puts the client company or the competitive industry rivalry in the center and considers the impact of five different forces. The classic Porter analysis is shown in Figure 3.1. When looking at a B or later financing round for a company, map out a diagram with the operating company raising the financing in the middle, and the various influencing forces surrounding that center. Figure 3.1  Classic Porter Analysis   A hypothetical “Romans’ Five Forces Analysis” is shown in Figure 3.2. Each company is unique and each situation unique, hence the value in mapping this out and making sure the CEO is on the case. Figure 3.2 Romans’ Five Forces Analysis I’ve seen incumbent VCs push for an up round or a flat round when the new VC is pricing the deal as a down round. The new investor will want to secure a position in the deal with the lowest possible valuation where the existing...

The Future of Venture Capital – A White Paper

ShareI have observed the venture capital industry with scores of companies over numerous decades from many sides of the table: as an entrepreneur raising VC funding, as an advisor to VCs on which companies they should invest in, an advisor / investment banker helping startups raising funding and M&A, as an angel investor investing my own capital, and finally as a venture capitalist investing other people’s money. I also have a geographical perspective of what’s happened and needs to happen in the US, Europe on a country-by-country level and Israel. I leave you with a few of my thoughts on the future of venture capital. My key views: VCs must create and structure their investment firms to add value to the startup far beyond the cash invested. The old model of just invest and join the board is not enough anymore. Rest in Peace (RIP) old VC model. The big VCs got much bigger, the mid-sized VCs died out and a large group of new VCs showed up to invest at the earliest stage followed by a just now emerging new group of funds addressing the mid sized fund market again. The old VCs must demonstrate plans for succession or face a rapid decline in their brands. Look at Boston…last one out turn off the lights (for tech not biotech)! If they do not take great care the junior partners they have been grooming to become general partners for the past 10 years will jump ship and start their own funds or become CEOs. Startups themselves got cheaper to start and there are a ton more of them. At...