VC Spotlight of the Week – Josh Kopelman

A serial entrepreneur and investor, Josh Kopelman is our first VC to be featured that resides outside the traditional hotbeds, as he lives in Philly.  While it may not be a VC hotbed, Josh’s track record and background should definitely put it on the map.

Name: Josh Kopelmankopelman

Company: First Round Capital

Blog:  Redeye VC (One of our liked blogs!)

Bio: Josh has been a successful founder of many companies over the years (Infonautics, Half.com, etc.) and has been awarded eight patents as well.  He has also been an EIR for Comcast. More about him here!

Miscellaneous/Interesting Facts: Josh’s company, First Round Capital, is one of the cooler VCs out there if you ask us.  They have a strong portfolio and are also purveyors of the Dorm Room Fund, one of the first/only student run VCs in the biz.  Very cool to get students involved at an early stage, check it out here! Bonus interview with Josh about Dorm Room Fund below!

Also, if you do not subscribe to their newsletter, the First Round Review, we highly recommend it as it is C:V. required reading!

 

Advertisements

Term Sheet Madness – Denver Finals

The Finals continue!  All info here at Term Sheet Central!  Denver round 1 here!

1. Board of Directors vs. 2. Vesting

Explanations:

Board of Directors: One of the biggest control mechanisms and defining aspects of the company.  The Board of Directors is the management team that sets direction and helps the company achieve their vision.

Vesting: The time period and speed at which you earn your equity in the company.  Simple in theory, huge implications in practice.

  • Example: If you have a 4 year vesting schedule at 25% a year on 100 shares, you will get 25 shares a year for 4 years.  If you leave after 2 years, you get 50 shares and 50 shares is “left on the table” unvested.

C:V.’s Chief Term-ologist’s Take:  Easily the strongest region and two of the fiercest competitors in the entire tournament.  The Board is a consistent powerhouse with their far-reaching ability to provide advice, structure, and idea validation to the founders but Vesting is no push-over.  Its timing effects and potential implications on employee retention and performance are underrated. This matchup will be a close one.

Outcome: Matchups like these are what the madness is all about. Had the selection committee done better when seeding, this could have been the finals.  Alas, it is not and the Board has simply too strong of a balanced-attack style to be upset.  Board Advances.

 

Term Sheet Madness – Palo Alto Finals

The Regional Finals are upon us!  See here for Term Sheet Central and here for Palo Alto Round 1!

1. Price (Valuation) vs. 2. Pay to Play

Explanations:

Price (Valuation): The amount of funding received in the round.  Can be referred to in aggregate ($40M) or price per share ($6/Share). This can be used to determine pre/post money valuation.

Pay to Play: Investors will have the option to purchase their “pro rata” share in a future financing (i.e. Right of First Refusal), but if they choose not to participate (Pay), the remainder of their allotment of ownership will be converted from preferred to common stock (preventing them to Play).

C:V.’s Chief Term-ologist’s Take: Price looks to continue its hot streak in this competition but will be met with resistance by Pay to Play.  In the end, we feel that Price should be able to advance on its ability to heavily impact all future rounds of a firm even though Pay to Play’s ability to allow only the truly committed investors to remain preferred shareholders should not be forgotten.

Outcome: Price advances to the Term Sheet Madness Finals!  Get the scissors out! (Well, in this tournament, it’s probably more fitting to break out the pen/DocuSign link…)

Monday Morning Memo

champ_1

The Sun is shining, Bubba has a new jacket, and we got a lot on tap for the week.  All in all a great start to our Monday – read on for our MMM!

Recap of Last Week: We had our VC spotlight on Jeff Bussgang, ROTW on Crittercism (#Critters), and more Term Sheet Madness!

What Lies Ahead: Look for the Term Sheet Madness finals and more spotlights, rounds, and all things you have come to know and love about C:V.!

VC Spotlight of the Week – Jeff Bussgang

Entrepreneur, Author, Professor, and VC.  Not a bad background if you ask us. Jeff is our first “Quadruple-threat” we have featured and his book Mastering the VC Game is an ABSOLUTE must read for anyone in/looking to get into startupland/VC and required reading here at C:V.

Name: Jeff Bussgangbussgang

Company: Flybridge Capital Partners

Blog:  Seeing Both Sides (One of our liked blogs!)

Bio: Jeff is a “double-Crimson” with both a B.A. and M.B.A. from Harvard and is a former entrepreneur (Upromise, Open Market) turned VC. He is also a guest lecturer at Harvard as well (so maybe he is a “triple-Crimson”?).  Full background here!

Miscellaneous/Interesting Facts: We mentioned it above, but it is worth mentioning again, if you haven’t ordered his book already, stop everything and go get it!  This is right up there with Venture Deals in terms of C:V. favorites.

Seriously…

do-it

Round of the Week – Crittercism

2014-growth-chart-3-1024x819

MAU strikes again!  Mobile App Performance Management (mAPM) company Crittercism raised a $30M C round to assist in their expansion to the B2B app market.  We can only imagine how much larger their MAU will be once they do infiltrate the corporate world…

Name: Crittercism

Website: https://www.crittercism.com/

Funding to Date: $48M ($1.2M Seed, $5.5M A, $12M B, $30M C)

Deal Notables: Being tasked with fixing the “blue screen of death” for apps is quite an undertaking but Crittercism seems to have a solid direction of how to get there.  Interesting to note that two of their goals are to 1) Deliver more product capabilities/Expand their value-add and 2) Expand their distribution and partnership channels.  Hmmmm… where have we seen those tactics before...

P.S. if you were wondering, they already have plenty of “Lighthouse” customers

Term Sheet Madness – Boston Round 1

We wrap up 1st round play in Boston!  Term Sheet central here!

1. Liquidation Preference vs. 4. Employee Option Pool

Explanations: 

Liquidation Preference*: The determining term on how the proceeds of an exit will be shared.  The preference is given to preferred shareholders before common stock holders and can have vast implications for investors/entrepreneurs. Three types with very basic examples below:

  • Fully Participating: Receive shares on an “As-converted” basis i.e. if you have 2x Liquidation preference on 20% stake in a $100M post-money valuation (i.e.a $20M investment).  If the firm sells for $240M you will receive $40M (2x preference) and then 20% of remaining $200M or $40M for a total of $80M or 33% Ownership.  Founders receive remaining $160M.  C:V. Thought: Yikes.
  • Capped Participation:  Will only participate up until a limit (i.e. 2x cap).  In this case, the firm makes more than double their money so they will not participate and simply receive 20% of $240M or $48M.  Founders receive remaining $192M. C:V. Thought: Less Yikes.
  • Non-Participating:  Firm sells for $240M, investors receive 20% or $48M.  Founders receive remaining $192M. C:V. Thought: Normal.

*Editor’s Note: we combine participation and preference in this term

Employee Option Pool: The amount of equity to be held for future issuance to employees. This can be a sneaky way to lower a company’s pre-money valuation if one is not too careful (larger option pool than prior cap table).  This is also a key term as it will help determine the resources a founder will have when allocating and attempting to attract new talent to the company.

C:V.’s Chief Term-ologist’s Take: While Options are key retention measures for future employees, poorly structured liquidation preferences can have devastating ramifications for “less than spectacular” exits on founder/employee ownership.  You can work to redeploy your options at later rounds, but attempting to get rid of a fully participating 3x liquidation preference is an evil nobody EVER wants to deal with.

Outcome:  Liquidation preference fends off an inspired comeback in the 2nd half from Option Pool to advance.

 

 2. Antidilution vs. 3. Conversion Rights

Explanations:

Antidilution: A protective measure in the unfortunate case of a down round, it offers investment protection for investors by redefining the ownership of their initial investment.  Two types below:

  • Full Ratchet:  The harshest of the provisions, this translates the equity ownership from the prior round to the new price at the lower round.  i.e. If the original round was 20% on $100M Post (i.e. $20M investment) and the new round only valued the company at $50M the investors would then be awarded shares to keep their ownership the same at $20M or 40% of the new company. (See, we weren’t kidding that this was basically draconian…)
  • Weighted Average: A more forgiving provision that puts the incentive on both sides of the table.   The weighted average model only considers the new shares being issued and not the entire pool.

Conversion Rights: The ability to convert preferred equity into common stock. Automatic conversion gets infuriating interesting when investors “must” convert at different prices upon an IPO.  If one investor has a $20M auto-conversion and a later round investor has a $60M conversion and the company wants to price an IPO at $50M then the later round investor can stall until the company can float an offering that will reach their $60M auto-conversion price.

C:V.’s Chief Term-ologist’s Take: While Conversion can get interesting upon an IPO, antidilution provisions can effectively cram-down any remaining founder ownership.  You tell us an original founder that is truly motivated to succeed after having half of his/her share taken at the B round and we will tell you about our cousin from Nigeria….

Outcome: In a less than eventful 2 v 3 matchup, Antidilution blows out Conversion to advance.