Go ahead and ask 

Here is the general idea. 

You might be a startup person with a legitimate question you would like an answer to. Or you are the curious type and want to know how something works in VC land.

I won’t claim to be an expert but I might have the answer, could point you to the answer, or I can ask the folks I work with who probably have the answer or I may not have a clue.

If I answer your question, I will post it on the blog but will not print names and emails. This way everyone benefits and the community can help keep me honest or challenge it. 

Comments will be open.

I have played with whale, snapchat and other platforms for this but figure I might as well just use my blog. 

Have at it :: https://seedvc.blog/ask-a-vc/

Good read from Fred on convertibles

Not cars but notes :: http://avc.com/2017/03/convertible-and-safe-notes/

His reasons about why not to do are so good.

2. They obfuscate the amount of dilution the founder(s) is taking. I think many investors actually like this. I do not. I believe a founding team should know exactly how much of the company they own at every second of the journey. Notes hide this from them, particularly the less sophisticated founders.

This one is good. Many times I find even that the founders don’t know what they are talking about and have not figured out their own dilution. They also may not have carved out something for the ESOP and are not taking that into consideration as well.

3. They can build up, like a house of cards, on top of each other and then come crashing down on the founder(s) at some point when a priced round actually happens. This is the worst thing about notes and doing more than one is almost always a problem in the making.

This is the one we see too many times. Rolling notes or extended notes that take a serious Excel expert to figure out how each round is actually priced and who owns what. You have to be careful about this so that you know what each round is doing and how to calculate the dilution.

4. They put the founder in the difficult position of promising an amount of ownership to an angel/seed investor that they cannot actually deliver down the round when the notes convert. I cannot tell you how many angry pissed off angel investors I have had to talk off the ledge when we are leading a priced round and they see the cap table and they own a LOT less than they thought they did. And they blame the founder(s) or us for it and it is honestly not anyone’s fault other than the harebrained structure (notes) they used to finance their company.

Yup. Also, see this. They over promised angels with too high a valuation cap and once you see a few rounds of this by the time you actually calculate it all one will find the dilution and ownership.

The list of stuff he says to do is gold. Freaking gold:

Here are some suggestions for the entire angel/seed sector (founders, angel investors, seed investors, lawyers):

  1. Do priced equity rounds instead of notes. As I wrote seven years ago, the cost of doing a simple seed equity deal has come way down. It can easily be done for less than $5k in a few days and we do that quite often.

  2. The first convertible or SAFE note issued in a company should have a cap on the total amount of notes than can be issued. A number like $1mm or max $2mm sounds right to me.

  3. Don’t do multiple rounds of notes with multiple caps. It always ends badly for everyone, including the founder.

  4. Founders should insist that their lawyers publish, to them and the angel/seed investors, a “pro-forma” cap table at the closing of the note that shows how much of the company each of them would own if the note converted immediately at different prices. This “pro-forma” cap table should be updated each and every time another note is isssued. Most importantly, we cannot and should not continue to allow founders to issue notes to investors and not understand how much dilution they are taking on each time they do it. This is WRONG.

Again. One can do notes. They serve a purpose but I think most founders don’t know what they are doing with them and assume that it is better than equity but in fact dealing with a proper equity round might make more sense. Normally the reason to do a note is speed and you expect that pricing the round later makes more sense than pricing it now. Regardless one shouldn’t do many rounds as notes, leave notes open for too long and delay the hard work of pricing and converting.

Obviously, I am new at this but Fred isn’t!

A new way to product manage?

I have written a few times on Product Management and of course this is something thst can be talked about till the cows come home. It’s a good topic.

I used to work with Cody and have followed his musing at Techstars as well.

I like his latest article and it has me thinking again :: https://medium.com/techstars/why-most-product-roadmaps-are-a-train-wreck-and-how-to-fix-this-12617e3adabc#.eht5nsqxc

And yet every single investor deck, board deck, and company all hands deck has it. And it’s a train-wreck. You know what I’m talking about. The 12-month product roadmap.

Painful but mostly true.

I do agree with the learning construct and that we all know the 12 month roadmap is not written in stone. Meaning in month 3 you may learn something so profound that you completely alter  your roadmap.

For me I tend to think you want to pick a solid high level direction with some sense of what folks are working on and then realize that along the way it will change. The goal is to change based on the data and the learning from how things are going.

Cody sets out an interesting model for how to address that below:

Start Learning Now

As I visit our various Techstars programs across the world, the thing I try to impress upon the companies I meet with is to try to change your company habits into a learning-based culture by doing two things:

  • Every person in the company should have a daily individual learning goal. Each person should wake up each day and have one thing that they plan to learn about their product, market, or customers that day that they can learn in 10 minutes or less without writing code. You can learn it by studying your analytics dashboard, by asking your customers something new that day, or by reviewing sales or purchase data. But make a point of learning something and sharing it back with your team or your company during standup.
  • Have a weekly company-wide learning goal. This should be a goal that the entire company works in some way shape or form toward learning in a given week. It should be established at a weekly all hands or sprint planning session and reported back to the company with lessons learned (ideally in the form of data) the following week. It should be meaningful and may require some work. And if you really get in a habit of doing this well, you’ll soon increase your throughput and will have bandwidth to do more than one company-wide learning goal per week and will soon have a bigger backlog of desired learning goals than you can imagine (which, aha moment here!, becomes your Learning Roadmap!)

Remember, if you don’t have data, you only have hope. And none of us are doing what we’re doing because we hope it will work. We believe it will work and we’re doing everything we can to validate our beliefs every single day.

It reminds me of the Pollenizer guys and their flearn concept :: http://anthillonline.com/fail-learn-flearn-tweet-it-post-it-and-most-importantly-share-it/

Fail and learn and retool. One way to look at product management.

Great stuff!