In The Gutter, the Stars Shine Bright

There were two companion pieces recently published by venture capitalists: why VC returns are going up (WSJ) and investing at the bottom of the VC cycle (NYT).  Both of these pieces look at the amount of money committed to venture firms in 2010 and, somewhat akin to the view of the stars from the gutter, conclude that there is no…

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Summer Funding (happened so fast)…

It has long been a repeated truism that one can't raise venture capital over the summer.  Last year a VC actually looked at the data and finds both that an equal proportion of deals close in the summer months, and that his own firm's busiest closing month was August (followed, oddly, by December, which is usually seen as another holiday…

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Equity Financing Alternatives

Given the limited access to equity capital -- and lower valuations if you can find investors -- a variety of other possibilities are emerging as options for smaller and early-stage companies.  Among these are mezzanine loans, royalty financing, and a new breed of Community Development Financial Institutions (CDFIs). Mezzanine financing becomes increasingly popular when valuations are low, and equity is…

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The Problem with Venture Math

Last month we looked at the external factors partly responsible for the consolidation of the venture industry.  What also bears consideration is the internal economics of the industry itself.  As the industry grew and both the number of funds and fund sizes increased, the returns that venture funds promised their limited partners extended into the stratosphere.  The simple math behind…

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Seed is the new “A”

With the traditional venture model under assault, there is an increased focus on seed-stage funding. Back in September we noted the attempt to create a standardized Series A term sheet. Now there is similar stakeholder interest in moving further upstream, with a prominent Silicon Valley attorney creating a downloadable set of Seed Stage documents free to all parties. The logic…

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What’s the ROI on that Pound of Flesh?

Three young guns – and not a detained Nigerian prince among them – are currently offering investors a chance to invest cash now in return for a percent of future income.  One, a 26-year-old Stanford grad, has even priced it out: 6% of future income for $600,000.  Even with no hurdle rate, this would require her to average annual income…

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Alternative Capital Sources

With many small businesses losing their lines of credit, coupled with the demise in small business lending from commercial banks, alternate sources of capital such as purchase-order financing are on the rise, as the New York Times details.  For companies with large orders and without hard assets, purchase order financing -- and other ways of borrowing against receivables -- has…

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First, gather nuts…

What is the first response to scarcity?  Hoard.  The mantra of every preschool playground holds true for venture investors (as it does for most everyone else).  New data (summarized here) shows that initial company financings are increasingly undertaken by a single VC firm (rather than syndicated across several venture firms).  This is consistent with other trends, particularly since the lack…

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Founder Liquidity

And further on the topic of increased liquidity, the always-observant Mark Suster has a terrific piece on why company founders should be able to take some equity off the table once their firm has reached reasonable milestones. His point is simple, but often overlooked: the alignment between investors and founders breaks down at some midway point between investment and exit. …

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The Future of Term Sheets

The predictable pendulum swing of harsher terms during a buyer's market lead to a lively online discussion on the future of the term sheet.  A dialogue between influential bloggers -- entrepreneurs and venture capitalists alike -- including Chris Dixon, Fred Wilson, and the eponymous Brad Feld extol the benefits of a simple, standardized, Series A term sheet (see posts by…

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