I grew up in Silicon Valley, and I’ve been immersed in the startup world for my entire career. This set of Medium posts is my attempt to distill the lessons I’ve learned in my career into a framework designed to help entrepreneurs everywhere to thrive and succeed.
I started my first business at the age of 18. It went bankrupt within two years. Since then I’ve founded four more companies, sometimes with better results. I’ve raised angel capital, I’ve raised venture capital, I’ve spent it all and then raised some more. I’ve hired some great people and watched teams flourish…
Geoffrey Moore wrote the seminal book Crossing the Chasm about how tech companies can get from a few early-adopter customers to the many mainstream customers they need for growth and success.
But my experience is that the biggest “chasm” for most entrepreneurs to cross is the one that happens much earlier in the process— it’s the chasm between having a startup idea and getting to a launch-ready, funding-ready venture. The sad fact is that most startups die in this valley of death. Gone, forgotten, and buried in unmarked graves.
There are many reasons why so few entrepreneurs cross this chasm…
My first full-time job, at the age of 21, was with a company in San Francisco. One day the Feds came marching into the accounting office and arrested the CFO. It turned out that he had been writing himself company checks for $50K to support his personal gambling habit. He kept thinking he’d win back the money and put it back into the company bank account before anyone noticed. But he kept losing, kept sticking his hand back into the cookie jar, and eventually the whole mess caught up with him.
So, you have an awesome startup idea and you want some help getting it launched, funded, and on a path to success? In the old days you’d go out and find a business mentor in the community who could help with that. Or maybe just a rich uncle.
Back in 1972, Eugene Kleiner decided he could combine the roles of “business mentor” and “rich uncle” together into one thing, so he took the money and experience he had gained during his career at Fairchild Semiconductor, rented some office space on an obscure stretch of Sand Hill Road in Menlo Park…
Some people think a venture capitalist is just a crazy rich guy who likes writing checks to entrepreneurs. It’s a little more complicated than that.
Venture Capital firms are actually managing other people’s money, much like a mutual fund. The partners decide to raise a fund, they go out and pitch individuals and organizations on putting money into that fund, and after ten years the fund is dissolved and 80 percent of the profits are paid out those who put money into the fund while 20% of the profits go to the partners who managed the fund.
This is called…
A term sheet is simply a non-binding document outlining the terms of a proposed investment. If accepted, it then becomes a guide for the lawyers who will draw-up the actual legal documents required to complete the financing. As with anything, all of these terms are negotiable. So let’s dive in and understand what they are mean.
This example is for a Series A (first equity financing) for an awesome new startup named Breakfust.
Here are line items on the term sheet, followed by (in italics) an explanation of each:
Any financing where the investor is buying part of the company in return for the capital invested. The investor now has a claim to a percentage of all future profits of the company, and to a share of any future sale (or liquidation of the company). Unlike debt there is no operating repayment obligation, per se. The ownership share of an equity investor is always
New Capital / (Pre-money Valuation + New Capital) So, for example, if we agree that Pre-money Valuation of the company is $2M, and the investor is putting in $1M, then the investor now owns…
What is a business model, exactly? The definition I like to use is as follows: A business model describes the rationale by which an organization creates, delivers, and captures value.
We create value by solving a problem customers have, we deliver that value to customers in some way, and we capture the value in the form of economic profit.
Some business models are simple. A baker knows that people value fresh bread, she delivers that value to them via…
One of Silicon Valley’s most infamous recent failures is Juicero. The startup received $120 million in venture capital from leading investors including Kleiner Perkins and Google Ventures and then proceeded to go bankrupt within three years.
The Juicero press as a wifi-connected device that sat on your kitchen counter and made delicious fruit and vegetable juice on-demand. It used proprietary single-serving packets of pre-juiced fruits and vegetables sold exclusively by the company by subscription.
The founder compared himself to Steve Jobs, and hired very expensive industrial designers to create a beautiful machine.
The machine sold for $699 (later lowered to…
One of the worst things an entrepreneur can say in a venture capital pitch is “And best of all, we have no competition!”.
There is competition for everything. If you claim you have no competition then that either means there is zero demand for what your startup does, or it means you don’t know how to use Google search. Either way, you look like a fool.
In fact, competition is usually a good thing. If there are other companies successfully selling something like what you’re selling then that means there is established demand what what you offer. Now you just…