The idea for ShelfMade came while I was getting on a plane. as they are calling people to board the plane, I am furiously opening browser tabs filled with interesting looking articles from reddit and ycombinator. The funny thing is that I had just purchased a Wired magazine ten minutes earlier.
It struck me that I read a lot, I want to choose what I read and being forced to read on a computer screen sucks.
But the point of this article is to give you reading material for your plane ride to meet with Paul Graham or any VC for that matter.
It’s absolutely essential that you read the Venture Hacks website before you meet your next VC. Nivi and Naval really know their stuff about venture capital, they are looking out for you the entrepreneur and their writing style is understandable. Their goal is to help hackers understand the process of venture capital – pretty important if you’re meeting with a VC, huh?
Term Sheet Hacks is a collection of articles absolutely perfect for ShelfMade. Since we won’t be up and running by the time you interview with YC you have to save the articles and print them out yourself. Here is a selection of the advice.
Whether you negotiate a proportional or investor-leaning board, your term sheet will probably state that the CEO of the company must fill one of the common board seats. This may seem reasonable. One of the founders is probably the CEO and you were going to elect him to the board anyway.
Don’t accept this term. The investors are looking several moves ahead of you.
If you accept this term and hire a new CEO, he will take one of the common seats. The common shareholders will not have the right to elect that seat. If the new CEO turns out to be aligned with the investors, the new coalition of CEO + investors will control the board of directors.
Option Pool Shuffle: Option pools can be very complicated, but basically the option pool dilutes the shares of the company for future employee stock options. The way the investors set terms for the option pool can really hurt the founders effective valuation.
Summary: Don’t let your investors determine the size of the option pool for you. Use a hiring plan to justify a small option pool, increase your share price, and increase your effective valuation.
As a programmer and entrepreneur you probably already know everything about convertible debt. Just to brush up you may want to skim this article before your next seed round.
Seed stage debt rounds are much simpler than equity rounds, especially if your investors are angels. There isn’t a lot to hack in these agreements. You need to be more careful if you raise debt from venture capitalists, but a debt financing with a VC is still much simpler than an equity financing with a VC.
Why is debt a great alternative to equity in a seed round? Convenience, suitability, control, cost, and speed.
Finance is a major step for startups. It is important to do your homework and at least understand the landscape.