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Re: Venture Fund Economics: Gross and Net Returns

chris dixon — Sun, 03 Aug 2008 18:52:34 -0000

What do you think of "cascading carry structures" where the carry % goes up (e.g. 25% or 30%) when the firm returns greater multiples (e.g. 3x or 4x) on invested capital? It seems strange that a $50M seed VC fund would have the same 20% carry as a $10B buyout fund, and it's probably one reason successful firms seem to always raise bigger and bigger funds instead of staying at the size that suits them best.

Re: Remember when everyone wondered how Google was going to make money?

chris dixon — Wed, 08 Apr 2009 06:42:46 -0000

I did. Remember that pay-for-placement at the time referred to including paid listings in organic listing without labeling them as sponsored.

Re: How to Save Newspapers (Or, Why the NYT Should Acquire Twitter)

chris dixon — Thu, 23 Apr 2009 09:17:59 -0000

how would they buy twitter? NYT market cap is 733M and they are deeply in debt. twitter probably won't sell at this point for under $1B.

Re: Nuts: Twitter Inventor About To Launch His Next Project, Code-named Squirrel

chris dixon — Sat, 09 May 2009 11:15:54 -0000

The only advantage of a swiper versus typing in the number is you get credit for a "card present" transaction.

People have been doing this for a while, although not apparently for the iPhone:
http://waysystems.com/produ...

Re: The problem with taking seed money from big VCs

chris dixon — Sat, 15 Aug 2009 08:42:43 -0000

Thanks for the great comments.

Jeff - Agree that 2 VCs make the situation a little bit better. You get some game theory working to your favor. I would add that it's important that the VCs be of somewhat equal stature (and equal investment amounts, but they usually insist on that). If you have tier 2 firm co-investing with Sequoia and Sequoia doesn't follow on, it'll look bad.

In terms of pre-negotiating the Series A that is triggered with milestones, that sounds a lot like tranching, which I am against for a lot of reasons (it deserves a whole blog post...), but mainly at the early stages the direction often changes and so fixing the milestones can encourage the entrepreneur to manage to the investors instead of what's best for the business.

That said, agree that every startup should have milestones, regardless of financing conditions - it's just good business practice.

Sameer - I think there are some cases where you do in fact need capital at the very beginning. It's true that many internet businesses today can be bootstrapped, but other kinds of startups including more tech heavy internet/software, or for sure hardware, biotech, etc might be better off taking some (non-VC) seed money.

Re: Milestone Based Investing

chris dixon — Sun, 16 Aug 2009 11:12:05 -0000

Hey Fred - Thanks for the comment. Probably obvious but I agree with everything you say here. I tried to follow up with something more constructive today
http://www.cdixon.org/?p=271
and would love to get your thoughts.

Re: Ideal first round funding terms

chris dixon — Sun, 16 Aug 2009 11:58:52 -0000

I agree investors putting cash in should get (1x non participating) preferred stock. I think it's fair. My main point was just against more than that. As an angel I'd do common but I think institutions are well within their rights to ask for preferred.

Re: Ideal first round funding terms

chris dixon — Sun, 16 Aug 2009 16:00:33 -0000

Thanks, David. Re your first point - wouldn't you agree on at least double trigger for employees? Seems crazy to me that an employee can work for years for equity and then get fired right after an acquisition and not get fully vested. Single trigger is much more questionable.

I hadn't thought about your second point. When I think about startups I know in that position either the founders have left or the companies are break even to mildly profitable and the founders are taking better salaries - which at that point seems fair. I guess you'd have to take it case by case...?

Re: The Ideal First Round Term Sheet

chris dixon — Mon, 17 Aug 2009 10:38:41 -0000

Hey furqan - I'm full time as co-founder Hunch and just invest on the side.

Re: Ideal first round funding terms

chris dixon — Mon, 17 Aug 2009 11:40:29 -0000

Bob - Actually I do work for subsistence salary - see: http://www.avc.com/a_vc/200...

I really believe this stuff.

Re: The problem with taking seed money from big VCs

chris dixon — Mon, 17 Aug 2009 17:18:39 -0000

Arron- very interesting. I'd never thought about the signaling value in seed programs. I guess that's why Y-combinator is smart to invest equally in all of them. (Although now that Sequoia invested in Y-combinator will there be a "Sequoia effect" since presumably they'll get first dibs on every company?).

I think VCs are generally a good thing for entrepreneurs and society at large, although there are certainly abuses (but those pale in comparison to other areas of finance such as later stage private equity and hedge funds). As an entrepreneur you just need to know what you are getting in for, including the fact that you now have to "swing for the fences."

Re: Ideal first round funding terms

chris dixon — Mon, 17 Aug 2009 17:21:17 -0000

John - I am not an expert on this but I think most institutional investors basically insist that you become a C-corp because their investors (LPs) require it because they don't want to be liable for taxes on profits. Most individual investors don't care and might even prefer a pass-through entity (S corp or LLC).

Re: Ideal first round funding terms

chris dixon — Mon, 17 Aug 2009 18:53:00 -0000

Hey matt - Well, first let me clarify what I mean by subsistence salaries. If someone is a single parent with 2 kids and lives in a major city and doesn't have savings, subsistence to me might be >$100K. The point is enough to not have them spend time counting pennies but little enough that they make any "real" money on the equity.

Also I'm sure it varies by stage. I am thinking particularly at the seed stage, which is what I'm most familiar with. I'd expect at your stage you hire sales people etc at market cash comp prices and I expect that's the best strategy.

Re: The Ideal First Round Term Sheet

chris dixon — Mon, 17 Aug 2009 19:46:17 -0000

I invested a lot. But that wasn't my point. Nor was I trying to say I'm "wealthy." I think the reason the startup world is so much better for society than, say, the hedge fund world is most people in startups really believe in what they are doing and get compensated when they create products/services of real value.

Re: Ideal first round funding terms

chris dixon — Mon, 17 Aug 2009 22:03:37 -0000

Hi Tom -
Thanks for the comments. I'd generally agree with what you say. I'd definitely agree that the particular attorney matters more than the firm just as the particular VC does more than the VC firm.
On fees I agree I'm being aggressive (on the low side) but think it's doable, especially if you agree to "standardization" as Fred Wilson suggests.
I haven't done foreign deals - I expect your are right about that.

Re: The Ideal First Round Term Sheet

chris dixon — Tue, 18 Aug 2009 01:46:14 -0000

hey fred. i'm trying for a trifecta with this one. i think i'm all out of ammo after this final one :) http://www.cdixon.org/?p=259

Re: Ideal first round funding terms

chris dixon — Tue, 18 Aug 2009 10:36:27 -0000

Andy - I would hope all engineers do an expected value calculation. If they don't believe the company is exceptional, they shouldn't join.

Re: Founder vesting

chris dixon — Tue, 18 Aug 2009 16:09:54 -0000

Re founder vesting upfront - People always think of this point as founder vs VCs, whereas in my experience founders should also be thinking about what happens when a co-founder leaves. In early stage deals, the investors are almost always betting on the founders, and the last thing they are going to do is whimsically fire them. Meanwhile, cofounders get burnt out, circumstances change, etc.

Re: Ideal first round funding terms

chris dixon — Sat, 22 Aug 2009 13:24:54 -0000

Thanks, Davide. I strongly favor 1x non-participating liquidation preference.

Re: Why you shouldn’t keep your startup idea secret

chris dixon — Sat, 22 Aug 2009 14:30:34 -0000

Greg - I suppose, but remember 99% at those companies don't control resources to copy your project. I suppose there is some risk, if you happen to talk to the one person who does, and they love your idea and hadn't thought of it etc.

Re: Dividing equity between founders

chris dixon — Sun, 23 Aug 2009 10:43:13 -0000

Well, to keep it super simple I just personally used a regular loan with the expectation everyone would be fine letting me convert it.

Re: Dividing equity between founders

chris dixon — Sun, 23 Aug 2009 13:17:12 -0000

Aditya - I don't see why location should be a determinant of the equity split. Perhaps it could be a determinant of cash salary, but that seems like all to me. If you create, say, 50% of the value in the company, you should get 50% of the equity.

Re having co-founders apart - If there is some strategic reason you need to (e.g. sales office in US, operations in India) it can make sense, but if that's not the case I'd say it's highly preferable to have everyone together in the same location.

Re: TheFunded term sheet

chris dixon — Mon, 24 Aug 2009 16:44:08 -0000

Hi Adeo - Thanks but I took most of the inspiration for this from you :)

Initial founder vesting - makes sense. Best settled between founders. My main points is just to try to raise awareness that founder vesting can be fairer for everyone involved if a founder leaves - it's not just founders vs VCs.

Re: TheFunded term sheet

chris dixon — Mon, 24 Aug 2009 18:21:10 -0000

Daniel - thanks, that was an awkwardly worded sentence. What I mean is: having more of your stock vested at the start protects you from VCs firing you capriciously. Having you and your co-founders have less vested at the start protects founders from other founders leaving early with a lot of equity. I have found in practice that the second occurrence is as or more likely than the first. Is that clearer?

Re: Ideal first round funding terms

chris dixon — Mon, 24 Aug 2009 18:23:09 -0000

Martin - Actually these terms were written by a founder who is also an active investor and who prefers these terms as an investor as well. I certainly try to only invest in people I trust but only a few are close friends.

I'd be curious which protections you think are important and missing.