I’ve come up with a rough guideline:
- If valuation is > $100m pre,
- And founder sells < 5% of her holdings,
- It’s not that big of a deal, and probably a good idea. If it makes things less stressful for the founders, that’s better for everyone.
Where I get anxiety is if it’s neither of those too cases. If the founder is selling > 5%, she’s not just getting a little liquidity … she’s selling out a material amount of her stake. That’s worrisome.
And if the price she or he is selling is less than $100m pre, it sort of tells me they aren’t really building a Unicorn.
If you think you are building a Unicorn, why sell > 5% of your shares at < 1/10th the exit price?
No one would. It’s just getting good. Anyone would want to hold in that scenario, other than to get some
Continue reading "What is considered a fair or happy medium secondary amount for the founders to take off the table at a Series B VC funding round?"
I try to look at two things in Vertical SaaS:
- Will everyone in the industry use it? and
- Is the app so core, they can charge $20,000+ a year for it?
Even a fairly small business can pay $20,000 a year for one app, usually. Oftentimes, only one. But if it’s the core ERP of their business, what they truly run their company on, that one app … they often can afford $20,000+ and up.
If I see evidence of that, I get very bullish, even if the market doesn’t seem huge.
Now what if you just can’t get $20k+ up from SMBs and SMEs in a vertical?
Then market size starts to be super important. There’s a whole other category of apps SMBs and SMEs can afford that cost $99-$299 a month or so. There are a ton of apps that end up being $3k-$6k a year.
Continue reading "How big should the addressable market be to go into vertical SaaS? Is it a good idea to avoid the addressable market if it appears small?"
If you’ve raised $10m-$15m, I’m assuming you are somewhere between $2m and $10m in ARR (revenue).
The answer is almost always the same: double down on what is working.
You’ll be tempted to use the capital to enter new markets, to expand into new segments, to try out new verticals.
Tiny experiments are OK. But almost always, the fastest and easiest way to go from $1m to $10m is to double down on what is working:
But usually – don’t do it. There’s usually just too much of a mismatch on economics.
If the contractor is good, they will ask for a ton of equity. You are so early. They will want a lot of the company. You want to give that VP of Sales 0.5% to work for you for free? Well, if you are pre-revenue, it’s just not work it. The math doesn’t pencil out.
If the contractor is mediocre, they may not ask for a lot of equity. But that’s a sign right there.
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No, but I do think about it now.
When I started my first company in California, I had $0 in the bank anyway
. You don’t think about it
. Everything is upside. I couldn’t have founded it anywhere other than Silicon Valley, anyway. I did buy my founders stock to get long-term capital gains, but that was it.
When I started by second company in California, I thought about it a little more.
But taxes were lower then than today, and again, I needed to build it in Silicon Valley. However, I began to think of M&A returns on an after-tax basis
Today, after two exits — I think about it a lot
. Probably every week. Federal + California taxes on both capital gains and ordinary income are at a personal maximum for me. I think about every
financial action I take in terms of tax inefficiency.
And today, right or Continue reading "Did you consider moving states to avoid high income taxes (California, New York) when you sold your company?"
No, there are folks that try but I think the combination of (x) a long bull run & the rise of Founder Power and (z) Twitter and social media sort of killed it.
Back in the day when I was a second-time founder, I found The Funded a cathartic (if chaotic) way to do due diligence on potential investors.
Fast forward to today though, and in hot deals, all the investors lean forward. You can quickly reach out to their prior investment CEOs and do your own diligence. And you can get a sense of who more and more VCs are from social media. And the rise of 100s of micro-VCs mean more and more founders already have an ally on the cap table to give them insights and references on later stage VCs.
So there’s still a need but perhaps The Funded’s initial white space has now been filled Continue reading "There used to be a website for startups and entrepreneurs called The Funded. It seems to have died, is there a current equivalent?"