本文译自《How to Fund a Startup》
作者：Paul Graham
译者：Lyle Zhao
原文在：http:/
如何投资一家创业公司
2005年11月
（这篇文章想写成一篇完整的总结，介绍创业公司的创业者能获得什
式。实际上我们就是把我们在Y Combinator公司（译者注：作者的一家孵化器公司
）对所投资的创业者说的那些话的核心内容给公开出来了。）
风险投资就像齿轮一样工作。一家典型的创业公司会经过好几轮投资
想要拿到足够多的钱，从而能够达到一定的速度能转到齿轮的下一轮
很少有创业公司做的完全正确。许多公司获得的投资是不足够的。而
到过度投资了，就像试图一开始就从齿轮的第三个轮转起一样。
我想本文会帮助创业者能够更好的理解投资――不仅仅是投资的技巧
思考的是什么。我最近很吃惊的意识到，我们在创业公司中遇到的所
题，都不是竞争者引起的，而是投资者引起的。相比较起来，对付竞
易些。
我这里并不是暗示说投资者对创业者来说除了拖后腿啥也不干。他们
意方面对创业者还是很有帮助的。我更想说的是创业者和投资者之间
经是特别严重的问题了。竞争对手只不过是打你的下巴而已，但是投
你玩弄于股掌之间。
很明显我们的处境是很不寻常的。并且如果投资者带来的麻烦是对创
威胁，那么如何管理投资者，就是创业者需要学习的最重要的技巧了
让我们从创业公司获得投资的五种来源开始说起吧。这之后我们会描
（非常幸运的）创业公司的整个生命周期，在每一轮是如何成功的转
朋友和家庭
许多创业公司从朋友和家庭那里获得他们的第一轮投资。比如：创业
后，从父母哪里借来1万5千美元来开办一家公司。同时还做一些兼
得公司能够支持18个月。
如果你的朋友或家庭正好很富有，那他们和天使投资者之间的界限就
了。在Viaweb公司我们从我们的朋友Julian那里获得了
但是他很富有，所以很难说他应该被归类为一位朋友还是天使投资者
律师，这太棒了，因为这意味着我们不需要从如此少的初始资金中分
付法律事务的账单了。
从朋友和家庭那里融资的优点是：他们很容易找到的资金来源。你原
们了。但是有3个主要的缺点：你把你的生意和私人生活给混在一起
没有像天使投资或者风险投资公司那样好的关系网；并且他们可能并
者，这也许会使你以后的生活复杂化。
证券交易委员会把“合格投资者”定义为：具有超过100万美元流
过20万美元收入的人。如果一家公司的股东全都是合格投资者，政
低很多。一旦你从一般大众那里获得资金，你能做什么就会受到很多
如果任何投资者都不是合格投资者，那么法律上，一家创业公司的生
杂。在IPO的时候，这不仅仅会增加费用，还会改变最后结果。关
位律师，他说：
当公司公开上市时，证券交易委员会将会认真研究该公司之前的所有
，并且要求公司采取立即行动消除过去违反证券法的行为。这些补救
停止、或者甚至毁掉这次IPO。
当然对任何特定的创业公司来说，能够完成IPO这步的可能性是很
并不像他们可能看起来的那样小。许多最后公开上市的创业公司最开
有可能。（谁又能猜到Wozniak和Jobs在他们业余时间开
成长为那十年最大的IPO呢？）一家创业公司的价值就在于很小的
结果。
我没有向我父母要种子资金，但这并不是因为他们不是合格投资者。
aweb公司的时候，我并不知道合格投资者的概念，也没有停止过
的价值。我没有从父母那里拿钱的原因是我不想让他们失去这些钱。
咨询顾问业务
另一种创业公司获得投资的方式是去找一份工作。最好的工作方式是
项目，在项目里面你可以做你想做的软件，当你开办了创业公司的时
些软件。然后你可以逐渐从一家咨询顾问公司转为一家产品公司，并
经支付了你的开发费用。
对于有孩子的人来说这是一个好计划，因为这种方法冒最小的风险来
公司。这样你就不会有一段没有收入的时间了。然而风险和回报通常
你希望有一个计划能够减小开办一家创业公司的风险，同时也减少了
样的方法，你是做了个交易：减小了财务风险，但是却提高了你的创
的风险。
但是咨询顾问公司本身是创业公司吗？一般来说，不是。一家公司必
新开办的，才能被称为创业公司。在美国有数百万的小企业，但是只
业公司。作为一家创业公司，必须是一个产品生意，而不是一个服务
我不是说必须物理上制造一些东西，而是说必须得有一样东西能够卖
能是为单独的客户做客户定制化的工作。客户化工作是不能被大规模
成为一家创业公司，你需要成为一个卖100万歌曲拷贝的乐队，而
者酒吧表演挣钱的乐队。
咨询顾问业务带来的麻烦是客户有一种可怕的习惯就是会打电话给你
公司生存在破产的边缘，要是你还得分心去应付客户问题，那会足够
特别是在你的竞争对手正在以创业公司的形式全日工作的情况下。
因此你必须非常小心，如果你走咨询顾问业务这条路。你必须主动的
护你的公司以免成长为一棵“长满野草的树”，因为这种资金来源的
是低利润的。[2]
甚至，咨询顾问业务最大的危险可能是：它给了你一个失败的借口。
司，就像在研究生院一样，许多最后驱使你的动力是你的家庭和朋友
一旦你开办一家创业公司，并且告诉所有人你正在做的事情，你就是
要么发达要么完蛋”的道路上了。你现在必须变得富有，否则你就是
对失败的恐惧是一种及其强大的力量。通常它会使人不敢开始做事情
发表了一些明确的雄心壮志之后，它就变了一个方向，并且开始按你
始起作用了。我觉得它就像一种很聪明的柔道，把这种无法抗拒的力
改变的变得富有的目标上面。如果你表明了雄心壮志之后，仅仅是开
某天才会变成创业公司的咨询顾问公司，你不会有这样的力量驱使你
咨询顾问业务，作为一种开发产品的方式，有一个优点是你知道你正
有一个客户想要的东西。但是如果你已经有了开办创业公司所需要的
有足够的远见而不需要走这条路来支持公司。
天使投资者
天使投资者是富有的个人。这个词最开始是被用在百老汇演员的支持
现在一般被用在个人投资者身上。在科技行业挣了钱的天使投资者是
因为两个原因：他们理解你的处境，并且他们是关系网和建议的来源
关系网和建议有可能比资金还更重要。当del.icio.us从
们从Tim O'Reilly那里拿钱，他是投资者中的一个。他投资的金额
险投资投资的金额比起来较小，但是Tim是一个聪明并且有影响力
这边就挺好的。
你可以用做咨询顾问业务挣到的、以及朋友和家庭拿到的资金做任何
。用天使这个词我们现在谈的是做正确的风险投资，因此是时候该介
概念了。这些将会成为创业者的年轻人经常让投资者吃惊，期待他们
，或者公开上市。原因是投资者需要拿回他们的资本。他们只会考虑
公司――这意味着公司能够被收购或者公开上市。
这并不像听上去那么自私。很少有大型科技公司是私人公司，那些存
都被收购或者公开上市了。原因是那些雇员也是投资者――用他们的
他们也希望能够套现。如果你的竞争对手给雇员提供能让他们富有的
你却计划保持私人公司，那么你的竞争对手将会得到最好的人才。因
则并不是投资者强加给创业公司的东西，而是创业公司之所以是创业
原因。
现在我们需要介绍的另一个概念是估价。当某个人购买一家公司的股
含的就给这家公司估了一个价值。如果某个人支付2万美元获得一家
理论上这家公司值20万美元。我说“理论上”是因为对于早期投资
种巫术（译者注：意思是早期投资的估价不是能精确计算的）。当一
加成熟之后，其估价也就变得更加接近其实际市场价值。但是在一家
创业公司，估价的数字只是把公司每个人相应的贡献相加的结果而已
有些投资者在某些方面将能够帮助公司，创业公司经常会让他们以较
资从而“回报”他们。如果我有一家创业公司，并且Steve Jobs想投资，我会让他
只花10美元就买到我的股权，就是为了能吹牛说他是我的投资者。
个投资者上下调整公司估价是不可行的（如果不是非法的话）。创业
着时间将会上升。因此如果你想卖一些便宜的股权给哪些著名的天使
卖，因为早期公司有较低的估价是很自然的。
有些天使投资者联合在一起成为辛迪加。任何城市只要有人开办创业
一个或者更多天使投资组织。在波士顿最大的是Common Angels。在湾区最大的是B
and of Angels。在天使投资协会你可以找到离你比较近的天使投资
大多数天使投资者不属于这些组织。实际上，越著名的天使投资者，
于某个组织。
当你把你的创意拿给天使投资组织的时候，有些会要向你收取费用。
对不需要这样做。
从个人天使投资者那里拿投资，而不是从一家天使投资组织或者投资
资，这样做有个危险，就是他们是没有太多的名声需要保护的。一家
资公司不会把你压迫的太无法容忍，因为如果这传出去，别的创业者
他们了。而对于个人天使投资者，你没有这样的保护，就像我们在我
公司遇到的情况一样。许多创业公司都会遇到非常窘迫需要投资者怜
――你没钱了并且唯一能拿到钱的地方就是你原来的投资者。当我们
困境，我们的投资者的处理方式并不是一家著名风险投资公司可能会
。
但是天使投资者也有相应的优点：他们没有风险投资公司那么多的规
能够做到，比如，允许创业者在一轮投资中把一部分股权直接卖给投
分套现。我认为这将会变得越来越普遍；一般来说创业者是急于套现
并不像风险投资所害怕的那样，比如说卖50万美元价值的股权就会
注于这个生意。
天使投资会压迫我们，但是同样也会让我们干套现之类的事情，所以
天使投资是感激胜过愤怒的。（就像在一个家庭中一样，创业者和投
系是很复杂的。）
找到天使投资者的最好方式是通过私人介绍。你也可以尝试直接给离
投资组织直接打电话，但是天使投资者，就像风险投资公司一样，会
重的人推荐来的项目更加关注。
天使投资者的交易条款差别很大。没有普遍接受的标准。有时天使投
款像风险投资公司的条款一样可怕。而有些天使投资者，特别是最早
只用一份两页纸的协议就可以投资。
只是偶尔做投资的天使投资者也许自己并不知道他们想要什么条款。
资这家创业公司。他们想要什么样的反稀释保护？他们其实根本不知
况下，交易条款就是随机化的：天使投资者让他的律师起草一份“香
，并且条款最后会变成那个律师认为很“香草味”的那些东西。实际
着，他能从他的公司找到的已有的协议里面有些什么东西。（很少有
头开始新起草的。）
这些很八股的文件是小创业公司的一个大问题，因为这些文件会变成
的一个大杂烩。我知道一家创业公司从天使投资者那里得到的是五百
：在决定投资之后，天使投资者给他们一份70页的协议。创业公司
钱来请律师读这个文件，更不要说谈判这些条款了，所以这个交易就
这个问题的一个解决方案是让创业公司的律师起草协议，而不是天使
。有些天使投资者可能会不愿意这么做，但是有些却可能欢迎这么做
没有经验的天使投资者在签给你大额支票的时候可能会脚底发凉。在
司，首轮投资的两个天使投资者中的一个，拖了好几个月才付钱给我
还不停的向我们的律师唠叨，还好这个律师也是他自己的律师。
很明显为什么投资者会拖延。因为投资于创业公司是很有风险的！当
两个月年龄的时候，你所等的每一天都能给出1.7％的更多的数据
景。但是投资者是用低价购买股权的，这已经算是获得补偿了，再拖
。
不管公平不公平，如果你允许的话，他们会一直拖延。甚至风险投资
做。并且投资拖延对于创业者来说是件很让人分心的事情，他们应该
司工作，而不是总在操心投资者的事情。那创业公司该怎么做呢？对
购者，你唯一的杠杆工具就是竞争对手。如果一个投资者知道你有其
排着队，他就会急着把钱付给你了，不仅仅是因为他会担心丢掉这笔
为如果有其他投资者感兴趣，你肯定是值得投资的。对于收购也是一
想购买你的时候，这之前往往是没有人想购买你的，而在这之后就变
购买你了。
完成交易的关键是绝对不要停止寻找新投资者。当一个投资者说他想
，或者一个收购者说想购买你的时候，在你拿到支票之前不要相信他
者说YES的时候你的自然反应是放松下来，并且回去写代码了。唉
必须接着找更多的投资者，只是为了让这个投资者真的开始有所行动
种子资金公司
种子资金公司和天使投资者类似的方面是：他们对早期公司进行相对
资。和风险投资公司类似的方面是：他们是以公司生意的方式来进行
不是像那些只是偶尔做投资的个人投资者。
现在，几乎所有的种子资金公司都会被称为“孵化器”，Y Combinator公司也被称
为孵化器，仅仅是因为我们做的是最早期的投资。
据美国商业孵化器协会的统计，美国大约有800家孵化器。这是一
，因为我认识很多创业公司的创业者，但是没有一家是从孵化器里面
那孵化器到底是什么呢？我自己其实都不很确定。其定义上看起来应
的场所里面工作。那就是“孵化器”这个名字的来历。各种孵化器在
不同之处。一个极端是那种城市从州政府那里获得资金的孵化器项目
的大楼作为“高科技孵化器”，就好像这个城市没有变成一个创业公
就是因为少了一个好的办公室场所一样。另一个极端是像创意实验室
那里为新创业公司激发新创意，并且雇佣人才来为这些创意工作。
那些泡沫时代（译者注：指90年代的互联网泡沫）的孵化器，现在
已经死了。他们和风险投资公司很相似，除了他们在所投资的创业公
加重要一些的地位。不仅创业公司在他们提供的场所里面工作，他们
室人员、律师、会计师、等等。
孵化器与风险投资公司相比，倾向于对创业公司施加更多的控制，但
公司却尽量更少的施加控制。我们只是提供种子资金、建议、以及关
们不想对我们投资的创业公司有任何控制。我们认为：创业公司按照
运营，相比在投资者的办公室里面工作，是更好的方式。所以我们很
一家“孵化器”，尽管可能这是无法避免的，因为只有我们一家是这
有一个词能够描述我们。如果我们非得被称为什么，最好的词应该是
（译者注：作者自造了一个孵化器的反义词excubator）。
为我们确实鼓励人们逃离办公室的小格子间）
因为种子资金公司是公司而不是个人，找到他们比找天使投资者要更
他们的网站，并且发一封电子邮件给他们就行。个人推荐的作用各个
但总的来说不像天使投资者或者风险投资公司那么重要。
事实上种子资金公司是公司的形式也意味着其投资流程更加标准化。
资组织通常也是这样）种子资金公司可能会对他们投资的每家创业公
交易条款。交易条款是标准化的，这并不意味着条款对你就是有利的
他创业公司已经签了同样的协议并且他们运营的很好，就说明条款是
种子资金公司与天使投资和风险投资公司不同之处是：他们只投资于
公司，常常是在这些公司还仅仅是一个创意的时候。天使投资和风险
偶尔会这么做，但是他们也会投资更加后期的公司。
对于早期公司来说，会出现的问题是各不相同的。比如，创业公司在
有可能会完全重新定义他们的创意。所以种子资金投资者往往更关注
的创意。对于所有的风险投资情况都是这样的，但是对于种子阶段的
显的。
和风险投资公司一样，种子资金公司的一个优势是他们能提供给创业
但是因为种子资金公司是进行更加早期阶段的投资，他们需要提供各
。比如，一家种子资金公司应该能够给出关于如何去寻找风险投资商
险投资公司明显不需要这么做；但是风险投资公司应该能够给出关于
行官团队”的建议，而对种子阶段投资来说这并不是一个需要考虑的
在最早期的阶段，有许多问题是技术上面的，所以种子资金公司在帮
题的同时，应该也能帮助解决技术问题。
种子资金公司和天使投资者通常希望在创业公司的初创阶段进行投资
转手给风险投资公司进入下一轮。偶尔也有创业公司会在种子资金的
被收购，并且我认为这种情况以后会变得越来越常见。
Google公司就非常积极的进行这种收购，并且现在Yahoo
家公司现在开始直接和风险投资公司进行竞争。这是一个聪明的进步
着下一轮投资来提高一家创业公司的价格呢？当一家创业公司到了某
风险投资公司有足够的信息来对其进行投资了，那么收购者也应该有
购买它了。事实上，因为收购者的技术深度优势，能够得到更多的信
险投资公司能挑出更好的创业公司。
风险投资基金
风险投资公司和种子资金公司一样，他们都是公司的形式，但是风险
别人的资金进行投资，并且投资的金额更大。风险投资公司每个投资
元。所以他们倾向于在创业公司生命的后期进行投资，并且获得风险
，以及投资条款也更加苛刻。
“风险投资家”这个词有时被用来泛指任何风险投资者，但是风险投
类型的投资者有一个明显的区别：风险投资公司被组织为基金的形式
基金或者共同基金。基金经理被称为“一般合伙人”，能够每年获得
管理费，加上基金收益的20％作为提成。
不同风险投资公司的表现也差别非常大，因为风险投资这门生意，一
就一直成功，做的差就一直失败。而当一项投资获得很高收益，就像
Kleiner公司和Sequoia公司做到的那样，又会为风险
于这种合理的推理，很多创业者都希望从成功的风险投资公司那里获
个极端（对于失败者）的循环是：做的差的风险投资公司将会只能得
的风险投资公司拒绝掉的交易，这导致他们会一直做得很差。
结果是，现在美国有上千个风险投资基金，可能只有大约50个是赚
新基金来说就很难再进入这个圈子了。
可以判断出，那些二三流的风险投资公司对创业者来说可以算是个便
能不像著名风险投资公司那么聪明或者有很好的关系网，但是他们很
好的交易。这意味着从他们那里你应该能够得到更好的投资条款。
现在感觉好点了吧？最明显的区别是估价：他们从你公司拿走的要更
是钱，还有权力。我认为创业者一直当CEO的情况会越来越常见，
面会做出限制，以后也更加难以解雇他们。
我预测最戏剧化的变化将是，风险投资公司会允许创业者部分套现，
分股份直接卖给风险投资公司。传统的风险投资公司在最终的“流动
，会坚持不让创业者得到任何东西。但是他们这样的做法对于这个交
而走险的。从我个人经验来看，这种反对从创业者那里购买股份的做
，但是风险投资正在变得越来越是一个卖方市场，情况会越来越好。
从不太著名的风险投资公司那里拿钱的一个缺点是，人们会假设认为
，就是你是被更显赫的风险投资公司给拒绝了。但是，就像你是从哪
一样，一旦你开始有一些表现可以衡量之后，你的风险投资公司的名
何意义了。所以你越有自信，你就越不太需要一个著名的风险投资公
eb公司获取的资金完全都来自于天使投资；下面这种情况从来都不
上：需要靠一个著名的风险投资公司来使得我们更加引人注目。[5
接受不知名风险投资公司的资金的另一个危险是，和天使投资者一样
么声誉是需要保护的。我怀疑在黑客圈子中风险投资公司的名声之所
原因就是这些二三流的公司。那些一般合伙人自身没有什么能力，并
的更困难的问题等着去解决，因为顶级的风险投资公司把所有最好的
，留给二三流公司的都恰恰是那些很可能会完蛋的创业公司。
比如，二三流公司更加可能会假装想和你做成一笔交易，这样你就会
他们这时候才去决定看他们是否是真的想做。一位经验丰富的CFO
最好的风险投资公司除非真的想做成一笔交易，否则一般不会拿出一
。二三流公司会有更高的反悔概率――有可能是50％这么高。原因
流公司获得一个交易机会时，其最大的恐惧是其他大公司可能会注意
机会。而大公司不会有这样的担忧。
陷入这样的圈套可能真的会使你受到伤害。就像一位风险投资商对我
如果你在和四家风险投资公司谈判的时候，告诉其中三家你已经接受
款表，之后你再打电话告诉他们你其实是开了个玩笑，很明显这样做
搞砸了。
不是所有为风险投资公司工作的人都是合伙人。大多数公司也有一些
员，被称为经理或者分析员。如果你接到一个来自风险投资公司的电
们的网站，查一下给你打电话的人是不是一位合伙人。通常很有可能
职位的雇员；他们会在互联网上搜索，帮他们老板寻找能够进行投资
较低职位的雇员会倾向于对你的公司有很正面的评价。他们这样做并
的；他们希望相信你有一个很好的前景，因为如果他们公司投资于一
公司对他来说将是很大的成就。你不要被这种乐观情绪给误导了。是
的决定，并且他们看事情的眼光会更加挑剔的。
因为风险投资公司进行较大金额的投资，和资金一起进入创业公司的
预。大多数干预只有当创业公司遇上麻烦的时候才会开始起作用。比
公司通常会在交易中写明：在任何股份出售行为中，他们都可以首先
资。因此如果公司被以一个低价给出售了，创业者将得不到任何东西
资公司现在会要求：在任何股份出售行为中，他们可以在普通股的持
说，你）拿到任何东西之前，拿回其投资的4倍金额。但是我想这是
种不正当行为。
大额投资的另一个区别是：创业者通常被要求接受“延期兑现”――
票，并且在今后4到5年时间内再拿回来。风险投资公司不会想投资
家创业者随时可能放弃走开的公司。财务上，延期兑现没有什么作用
情况下这意味着创业者拥有更少的权力。如果风险投资公司获得了公
权，并且解雇了其中一位创业者，他就失去了所有没有兑现的股票，
别的保护条款。因此延期兑现会被用在需要强迫创业者服从命令的情
一家创业公司拿到真正投资的最显而易见的改变是：创业者们将不再
制权。十年前风险投资公司都会坚持让创业者不再担任CEO，把工
的一位商业人员。现在情况不全是这样了，部分是因为泡沫破灭的灾
普通的商业人员并不一定就会是一位伟大的CEO。
但是就算当创业者越来越能够一直担任CEO的情况下，他们也不得
因为董事会会变得更有权力。在种子资金投资阶段，董事会一般只是
果你想和其他董事会成员谈话，你只需要朝隔壁房间喊就行了。这样
投资公司的资金进来后就变了。在一个典型的风险投资交易中，董事
险投资家、两位创业者、以及一位两边都能接受的外部人士组成。董
终的权力，这意味着创业者现在不得不去用说服而不是用命令的方式
这并不像听上去那么差。Bill Gates也是相同的情况；他并没有Microsoft公司的
对控制权，理论上他也必须去说服而不是用命令的方式。但是实际上
是在命令，不是吗？只要公司运转正常，董事会不会做过多干预。当
利的时候危险就来了，就像Steve Jobs 在Apple公司遇到的情况一样。（译者注：
90年代中期Apple公司发展不顺，Steve Jobs 被董事会赶出公司。）
和天使投资者一样，风险投资公司更喜欢投资于通过他们认识的人介
因此尽管几乎所有风险投资基金都有地址，你可以发送商业计划书给
险投资公司私人场合都承认通过这种方式获得投资的机会几乎是零。
我，他从不知道会有创业公司是通过这种方式获得投资的。
我怀疑风险投资公司“开个窗口”接受商业计划书的目的，更多的是
趋势的一种方式，而不是作为交易的来源。事实上，我强烈反对把你
随机的发送给风险投资公司，因为他们认为这是你懒惰的证据。应该
获得个人介绍。就像一位风险投资家说的：
我不难被找到。我认识很多人。如果你都不能通过某种方式找到并联
么能够创造一家成功的公司呢？
创业公司创业者面临的最困难问题之一就是决定何时去联系风险投资
只有一次机会，因为他们很依赖第一印象。并且你不可能先联系某一
另一些公司留到以后再联系，因为（第一）他们会问你都和谁谈了，
；或者（第二）他们之间会互相交谈。如果你和一家风险投资公司谈
你几个月前已经被别的公司拒绝了，那你绝对很可能会被再次拒绝。
那么你该何时去联系风险投资公司呢？当你能够说服他们的时候。如
人注目的简历，并且你的创意不是很难被理解的，你很早就可以联系
。但是如果创业者是不知名人物，并且你的创意非常新颖，你可能不
险投资公司之前，先自己干一段时间，并且证明用户喜欢你的东西。
如果多家风险投资公司对你有兴趣，他们有时会愿意一起分享这个交
在风险投资行业内的地位接近，就更加有可能会这么做。这样的交易
是很有好处的，因为你获得多家风险投资公司对你的成功都有兴趣，
问其中任何一家给你关于其他风险投资公司的建议。一位我认识的创
两家公司一起投资的交易是很棒的。这会花费你多一点的股份，但是
司互相制约（可以询问其中一家是否另一家的行为过分了）是无价的
当你和风险投资公司谈判的时候，记住他们的谈判次数比你多的多。
了很多创业公司，而这可能是你第一次寻找投资。但是你不要被他们
况给吓倒。一般来说创业者平均是比风险投资家聪明一点的。因此就
复杂、不熟悉的情况时候做的事情一样：谨慎行事，怀疑一切看起来
不幸的是，风险投资公司通常会把那种以后会让创业者大吃一惊的投
议中，并且通常会说这是行业的标准。标准，真是胡扯，整个行业仅
并且正在快速演变。 “标准”的概念是个有用的东西，仅仅当你是在操作小规模事
情的时候（Y Combinator公司为每个交易使用同样的条款，因为对于
段投资不值得去花时间谈判单个交易），但是对于风险投资公司级别
用了。在那个级别，每个谈判都是不一样的。
大多数成功的创业公司都会从上述5种来源中的不止一种获得资金。
混淆的是，资金来源的名字也会被用来作为不同投资轮次的名字。解
作如何进行的最好方式就是通过一个假想的创业公司的案例。
第1轮的阶段：种子资金投资
我们这个创业公司是从三个朋友有一个创意开始的――要么是他们有
什么东西，或者只是简单的想到“让我们开办一家公司吧”。假设他
些食物和处所的来源。但是如果你是已经有了食物和住所，你可能也
东西是必须要做的：要么是学校作业，或者是一份工作。因此如果你
一家创业公司，你未来的资金状况肯定也将会有些变化。
许多创业公司的创业者说他们开办公司的时候并没有任何计划做什么
这实际上并不像看起来那么普遍：许多人是不得不声明在辞职后才想
则他们的前雇主就应该拥有那个创意了。
三个朋友决定冒这个险。因为大多数创业公司都是处在竞争激烈的生
仅仅希望能全职为其工作，甚至是想超过全职工作用上更多的精力。
中的某几个或者所有人都辞掉了工作或者离开了学校。（有些创业公
以留在研究生院里，但是至少其中一个必须把这个公司作为他的全职
他们一开始是在他们的某个公寓里面开办公司，并且因为他们没有任
就不需要购买什么办公设施。他们的主要费用是建立公司，需要花费
法律事务和注册费，以及创业者的生活费。
“种子资金投资”这个词的含义很广泛。对于一些风险投资公司来说
着50万美元，但是对于大多数创业公司来说，意味着几个月的生活
帮朋友从某位富有的叔叔那里拿到1万5千美元开始办公司，他们给
司股份作为回报。在这个阶段只有普通股。他们留了20％股份作为
池（他们把这个数字设的有点高，因此如果很早公司就被收购，并且
没有分完，就会被分配给他们自己），另外三位创业者各占25％的
他们接下来的生活真的很节约，他们认为他们能用这笔钱支持5个月
月的运营时间，你需要从什么时候开始寻找下一轮投资？答案是：马
者要花费时间，并且在他们答应投资之后还要花费时间（通常总比你
长）来完成这笔交易。因此如果我们这帮朋友知道他们正在做什么，
开始到处找天使投资者。但是毫无疑问他们的主要工作还是完成他们
这帮朋友在最开始的阶段有可能会得到更多的资金，但是现在这种资
的状况能够给他们一个更好的教训。对于创业公司来说，节约就是力
越低，你的选择就越多――不仅仅是在这个阶段，而是在你达到盈利
刻。当你具有一个更高的“燃烧点”（译者注：指资金耗尽的时间期
你总会处于时间压力之下，这意味着（第一）你没有时间很好的发展
且（第二）你最后通常会被强迫接受你不喜欢的交易。
每家创业公司的法则都应该是：花最少的钱，干最快的活。
经过十个星期的工作之后，三个朋友开发了一个原型系统，能够给人
最后会是什么样子。原型不是他们最开始想做的那个样子――在写代
他们有了一些新的创意。并且原型只是最终产品会是什么样子的一小
是这一小部分已经包括了一些以前从没有人做过的东西了。
他们还写了一个商业计划书，至少是提纲，主要说明了5个基本问题
是什么，为什么用户需要它，市场有多大，他们将如何挣钱，以及谁
有为什么公司将能够打败他们。（最后一点应该写的明确一些，而不
很差”或者“我们真的工作很努力”之类的。）
如果你必须在花时间在演示系统和商业计划书两者之间选择的话，尽
在演示系统上面吧。软件本身不仅仅更有说服力，而且是一种探索你
方法。
第2轮的阶段：天使投资
写原型系统的同时，这帮朋友通过他们的关系网去寻找天使投资者。
以被用来演示的时候，他们找到了一些。当他们演示原型系统的时候
使投资者愿意投资。现在这帮朋友想要更多的资金：他们希望获得足
金，并且可能会雇用一些别的朋友。他们打算融资20万美元。
天使投资者同意按照公司投资前估价为100万美元来进行投资。公
的新股份分给天使投资者；如果说这个交易前一共有1000股的话
的200股。天使投资者现在拥有1200股中的200股，或者说
的股东的份额百分比被用1/
样子：
股东
------------------------------
天使投资者
叔叔
每位创业者
期权池
总计
为了让事情保持简单，我让天使投资者直接用现金购买股份的交易方
天使投资者更有可能是用可转换贷款的方式进行投资。一笔可转换贷
款，但是之后可以被转换成股份；最后和购买股份的效果是一样的，
投资者更多的保护，防止在未来的投资中被风险投资公司压制。
在这个交易中谁支付法律费用账单呢？创业公司，记住，现在只有几
了。在实践中这变成一个问题，最后通常被用一些临时办法给解决掉
业公司找到律师，愿意用较低费用来做这笔交易，因为他们希望如果
后能够做以后的生意。也有可能是某个人有位律师朋友。还有可能是
钱给他的律师，让他来代表两边。（如果你接受最后这种方式，你要
是真的在代表你，而不是仅仅给你提供建议，或者说他只对投资者承
一位投资了20万美元的天使投资者可能会希望在董事会中占据一席
获得优先股，这是一种特殊类型的股票，相比其他每个人都有的普通
额外的权利。典型的这种权利包括对重要战略决策的否决权、免于在
中被稀释的保护权、以及当公司被出售时优先拿回投资的权利。
有些投资者可能会希望创业者能接受一定数目的延期兑现，而有些却
风险投资公司相比天使投资者更有可能这么要求。在Viaweb公
那里成功融资250万美元，没有接受延期兑现，很大程度是因为我
的，当听到这个想法的时候都很惊讶的表示了反对。在实践中这倒变
，因为这让我们很难被投资者所摆布。
我们的经验是不太寻常的；而延期兑现在这个规模的投资是比较常见
ator公司不会要求延期兑现，因为（第一）我们投资金额很小，
认为这是不需要的，并且认为能够变富有的希望已经足够驱使创业者
是可能如果我们是投资数百万美元，我们就会是另外的想法了。
我还要补充一下，延期兑现也是创业者用来在互相之间进行保护的方
一个问题：如果其中一个创业者想退出公司的话，该怎么办的问题。
者在开办公司的时候自己就约定了这一条。
天使投资交易要花费2个星期时间来完成，因此我们的公司现在一共
月的生命了。
你获得天使投资资金的第一大笔钱之后的那个时刻，一般会是一家创
的最快乐的一个阶段。这有点像成为了一位博士后：你没有紧急的财
也没有很多的责任要完成。你开始做一些比较有趣的工作了，比如设
需要花费时间在官僚问题上面，因为你还没有雇用任何官僚主义者进
就好好享受吧，尽可能的多做些事情，因为以后你再也不可能像现在
率了。
随着一笔明显是用不完的钱安全的存在银行里面，创业者开心的开始
的原型系统变成了能够发布的系统了。他们又雇用了一位朋友――开
一位咨询顾问，从而可以先试用他一下――然后一个月之后成了第1
给他只够生活的最少金额的工资，加上公司的3％股份，以受限制股
4年时间中延期兑现。（因此这之后期权池的份额下降到13.7％
一些钱来请了一位自由职业的图形设计师。
你该给早期雇员多少股份？具体数额变化很大，没有一个标准数字。
一位真的很好的雇员，而且真的是在很早期的阶段，那么聪明的做法
者一样多的股份。一个通用法则就是一位雇员获得的股份数额随和公
项式递减。换句话说，你将会有多富有和你加入公司有多早之间是乘
如果你有朋友希望你去为他们的创业公司工作，在做决定之前就不要
的时间了。
一个月之后，也就是第4个月结束前，我们这帮朋友已经有了可以发
渐的通过口口相传他们开始有了用户。看着系统被真实的用户使用着
并不认识的人――这给了他们许多新的创意。他们还发现他们现在得
器的负荷问题了。（在那个创业公司只需要写VisiCalc这种
者的生活是多么的放松啊。）
到了第6个月结束前，系统开始有了一个稳定的功能核心，并且还有
在开发着。人们开始为这个系统写东西，并且创业者在他们的领域开
家了。
我们这里假设他们的创业公司是那种能够花费数百万美元或者更多的
们需要花很多钱用于市场营销，或者建造某种昂贵的基础设施，或者
销售人员。因此他们决定开始和风险投资公司谈谈。他们从各种来源
险投资公司的引见：他们的天使投资者能帮他们找一些；他们在某些
一些；还有些风险投资公司读到他们的故事后开始给他们打电话。
第3轮的阶段：A系列投资
带上他们现在新鲜出炉的商业计划书，并且能够演示一个真实工作着
者开始拜访他们获得引见的风险投资公司。他们发现风险投资公司很
深莫测。他们全都问同样的问题：你还找了别的什么人？（风险投资
中女生：他们对在风险投资追逐者心中的地位非常敏感，并且他们对
趣取决于其他风险投资公司对其显示出来的兴趣）
其中一家风险投资公司说他们想投资，并且给了创业者一份投资条款
条款表就是一份总结，如果他们确定做这个交易的话，这个交易的条
；之后律师会把细节给填进去。如果接受了投资条款表，创业公司就
时间内拒绝其他的风险投资公司，这段时间这家风险投资公司将进行
要的“尽职调查”。尽职调查是对一家公司的背景调查：目的是发现
公司沉没的隐藏炸弹，比如产品的严重设计缺陷、公司受到的未裁决
知识产权问题、等等。风险投资公司的法律和财务方面的尽职调查是
但是技术方面的尽职调查一般来说可以看成一个玩笑。[8]
尽职调查最终揭露出公司里面再没有隐藏的炸弹，并且6个星期之后
交易了。这里是投资条款：按照400万美元的投资前估价进行20
意味着交易完成之后，风险投资公司将拥有公司的1/
。风险投资公司还坚持交易之前期权池要被增大，加上额外的100
股份总数是750，表格变成下面这样：
股东
------------------------------
风险投资公司
天使投资者
叔叔
每位创业者
雇员
期权池
总计
这幅图在几个方面是不太现实的。比如，可能最后比例看起来像这个
险投资公司不太可能让原有的股份持有者都留下。事实上，创业公司
可能被替换掉，就好像被重新开业一样。而且，投资的资金有可能分
后面每一部分附带有各种不同的条件――尽管在二三流的风险投资公
资了很多不确定的创业公司中迷失了自己）的交易中，相比在顶级公
要更加普遍。
并且毫无疑问的，任何读到这里的风险投资公司人员都可能会笑翻在
假想风险投资公司让天使投资者保留了他10.3％的公司股份。我
中，为了简化情况，我让每个人都很舒服。但在现实世界，风险投资
投资者的方式就像：一个妒忌的丈夫对他妻子的前男朋友的感觉一样
资公司他们来说，这家创业公司在他们投资之前就是根本不存在的。
我不想给你一个印象就是你去找风险投资公司之前必须先进行一轮天
个例子里面我把情况充分延伸来显示多种投资资金来源一起起作用。
可以直接从种子资金投资到风险投资公司这一轮；2005 SFP（译者注：Y Combinat
or公司2005年的夏季投资活动）中有家公司就是这样的。
创业者被要求在4年时间内延期兑现其股份，并且董事会现在的组成
风险投资商、两位创业者、以及一位两边都能接受的第5人。天使投
放弃了其董事会席位。
在现在这个时刻，我们的创业公司已经没有什么关于投资方面的新东
或者说至少，没有什么好东西可教了。[10] 创业公司在这时候几乎肯定会雇用更多
的人；不管怎么样这几百万资金总得派上用场。公司也许会接受另外
是以更高的估价。如果他们格外幸运，也可能会走到IPO，我们也
虑其实际目的，IPO在理论上也可以看成是一轮投资。但是如果不
的话，这就已经超越本文的范围了。
交易失败的情况
任何经历过一家创业公司的人会发现前面说的情况少了点什么：灾难
创业公司有一个共同点的话，那就是总是有些做错的事情。并且总是
方面做错。
比如，我们的假想创业公司从来没有在某一轮花费超过一半的资金和
一轮投资。这相比典型的情况是太理想化了。许多创业公司――甚至
创业公司――都会在某些时刻几乎把钱给花完了。对于创业公司最糟
当他们把钱花完的时候，因为他们制定的计划总是增长，而从来都不
但是最不现实的事情就是我描述的一系列交易最后都完成了。在创业
面，交易是不可能完成的。交易总是失败的。如果你开办过一家创业
会记得这句话：鸟儿飞，鱼儿游，交易都失败。
为什么？交易看起来都失败的部分原因是你总是会对你自己撒谎。你
成，因此你开始相信它将会完成。但是更正确的说法是，创业公司交
有预警的――预警比购买房地产的交易要多的多。原因是这是一个非
境。那些投资或者购买一家创业公司的的人倾向于做最坏的打算。他
之前，并不真的承担他们说的那些风险。并且遇到情况他们会很慌张
经验的天使投资者是这样，大公司也是这样。
因此如果你是一家创业公司的创业者，正在奇怪为什么有些天使投资
的电话了。你至少应该想到在许多金额比你大100倍的交易里面同
生着，心里会舒服一些。
我这里描述的这家创业公司历史的例子就像一个提纲――尽可能的精
被完善成为一幅完整的图画。要想获得一幅完整的图画，只要加上每
就可以了。
是不是一个很可怕的前景？在某个角度上是这样。但是同时在另一个
是很鼓舞人心的。创业公司的非常不确定性吓跑了几乎每个人。人们
高――特别是年轻人，那些明显最不需要稳定的人。并且开办一家创
任何一项严肃的事业，仅仅决定开始去做，你就已经做到成功的一半
那天，大多数的其他赛跑者都是不会出现的。
注释
[1] 这些政策法规的目的是为了保护寡妇和孤儿免受不规范的投资方案
有100万美元流动资产的人被认为能够保护自己。但是无意的推论
最高回报的投资方式，像对冲基金，却只有富人才有能力投资。
[2] 咨询顾问业务是产品公司走向死亡的地方。IBM是最著名的例子
顾问公司就像明明是从坟墓开始，却试图走出一条路通向生存的世界
[3] 如果“离你近”不意味着湾区、波士顿、或者西雅图，你就该考虑
从没听说在费城有很多创业公司吧，这不是偶然的。
[4] 投资者经常被比作绵羊。他们就像绵羊，但那是对他们境遇的一种
绵羊的行事方式自有其原因。如果所有的绵羊都朝着一个特定地方走
草地。但是这时出现了一只狼，你想他会吃掉羊群中间的一只绵羊，
一只呢？
[5] 这一部分是因为自信，一部分还是因为无知。我们当时自己都不知
投资公司是引人注目的。我们以为软件做得好就行了。但是最后事实
至少还是沿着正确方向的：高估做一个好产品的重要性永远要好于低
[6] 我遗漏了一个来源：政府资助。我不认为这些资助值得一般的创业
。当政府设立资助项目来鼓励创业公司的时候可能是认真的，但是他
，另一只手拿钱：申请流程非常费劲，对你拿钱去做的事情限制非常
找份工作可能更会容易拿到这些钱。
你应该特别怀疑那些以某种社会工程学为目的的资助――比如鼓励更
在密西西比开办。提供免费资金在一个不太可能成功的地方开办创业
就不是免费的。
有些政府机构运作风险投资组织，进行投资而不是进行资助。比如中
了一个风险投资基金，叫做In-Q-Tel，模仿私有的基金并且
。他们可能是值得去联系的――如果你不介意是从中央情报局拿钱的
[7] 期权通常会被同样金额的受限制股票所取代。雇员会直接获得股份
不需要归还股份的权利，而不只是获得购买股份的权利。为这种目的
然被称为“期权池”。
[8] 第一流的技术人员一般不会被雇用来为风险投资公司作技术方面的
因此创业公司创业者的最困难的部分，就是经常得礼貌的回答风险投
查他们的所谓“专家”问出的愚蠢问题。
[9] 风险投资公司会任意分配新股，用这种方式不断的清除天使投资者
来对这种情况有一个标准的诡辩：天使投资者不再对公司有什么帮助
配再持有他们的股份。这毫无疑问对于投资意味着什么，反映出了一
；就像任何投资者一样，天使投资者因为他们在早期承担的风险获得
似的逻辑，我们也可以说当公司公开上市之后，风险投资公司就应该
们的股份了。
[10] 公司可能遇到的一个新问题是估价下降：当某一轮投资中的估价低
情况。估价下降是个坏消息；通常普通股持有人会受到打击。在风险
资条款表中最可怕的条款就是如何处理估价下降――比如“完全反稀
像听上去那样可怕。
创业者往往会忽略这些条款，因为他们认为公司将会要么成为巨大的
全失败。但是风险投资公司知道另外的形式：创业公司在最终成功之
幸时刻的情况并非是不常见的。因此还是值得去谈判一下反稀释条款
你不需要，并且风险投资公司也会试图让你感觉你不会遇到这些麻烦
感谢Sam Altman、Hutch Fishman、Steve Huffman、Jessica Livingston、Sesha
Pratap、Stan Reiss、Andy Singleton、Zak Stone、和Aaron Swartz阅读本文的草
稿。
November 2005
(This article is meant to be a complete summary of funding options
for s
tartup founders. In effect we're open-sourcing the kernel of what
we tel
l founders about funding at Y Combinator.)
Venture funding works like gears. A typical startup goes through
several
rounds of funding, and at each round you want to take just enough
money
to reach the speed where you can shift into the next gear.
Few startups get it quite right. Many are underfunded. A few are
overfun
ded, which is like trying to start driving in third gear.
I think it would help founders to understand funding better-- not
just t
he mechanics of it, but what investors are thinking. I was
surprised rec
ently when I realized that all the worst problems we faced in our
startu
p were due not to competitors, but investors. Dealing with
competitors w
as easy by comparison.
I don't mean to suggest that our investors were nothing but a drag
on us
. They were helpful in negotiating deals, for example. I mean more
that
conflicts with investors are particularly nasty. Competitors punch
you i
n the jaw, but investors have you by the balls.
Apparently our situation was not unusual. And if trouble with
investors
is one of the biggest threats to a startup, managing them is one of
the
most important skills founders need to learn.
Let's start by talking about the five sources of startup funding.
Then w
e'll trace the life of a hypothetical (very fortunate) startup as
it shi
fts gears through successive rounds.
Friends and Family
A lot of startups get their first funding from friends and family.
Excit
e did, for example: after the founders graduated from college, they
borr
owed $15,000 from their parents to start a company. With the help
of som
e part-time jobs they made it last 18 months.
If your friends or family happen to be rich, the line blurs between
them
and angel investors. At Viaweb we got our first $10,000 of seed
money f
rom our friend Julian, but he was sufficiently rich that it's hard
to sa
y whether he should be classified as a friend or angel. He was also
a la
wyer, which was great, because it meant we didn't have to pay legal
bill
s out of that initial small sum.
The advantage of raising money from friends and family is that
they're e
asy to find. You already know them. There are three main
disadvantages:
you mix together your business and personal life; they will
probably not
be as well connected as angels or venture firms; and they may not
be ac
credited investors, which could complicate your life later.
The SEC defines an "accredited investor" as someone with over a
million
dollars in liquid assets or an income of over $200,000 a year. The
regul
atory burden is much lower if a company's shareholders are all
accredite
d investors. Once you take money from the general public you're
more res
tricted in what you can do. [1]
A startup's life will be more complicated, legally, if any of the
invest
ors aren't accredited. In an IPO, it might not merely add expense,
but c
hange the outcome. A lawyer I asked about it said:
issuances of stock by the company and demand that it take immediate
act
ion to cure any past violations of securities laws. Those remedial
actio
ns can delay, stall or even kill the IPO.
Of course the odds of any given startup doing an IPO are small. But
not
as small as they might seem. A lot of startups that end up going
public
didn't seem likely to at first. (Who could have guessed that the
company
Wozniak and Jobs started in their spare time selling plans for
microcom
puters would yield one of the biggest IPOs of the decade
alue of a startup consists of that tiny probability multiplied by
the hu
ge outcome.
It wasn't because they weren't accredited investors that I didn't
ask my
parents for seed money, though. When we were starting Viaweb, I
didn't
know about the concept of an accredited investor, and didn't stop
to thi
nk about the value of investors' connections. The reason I didn't
take m
oney from my parents was that I didn't want them to lose it.
Consulting
Another way to fund a startup is to get a job. The best sort of job
is a
consulting project in which you can build whatever software you
wanted
to sell as a startup. Then you can gradually transform yourself
from a c
onsulting company into a product company, and have your clients pay
your
development expenses.
This is a good plan for someone with kids, because it takes most of
the
risk out of starting a startup. There never has to be a time when
you ha
ve no revenues. Risk and reward are usually proportionate, however:
you
should expect a plan that cuts the risk of starting a startup also
to cu
t the average return. In this case, you trade decreased financial
risk f
or increased risk that your company won't succeed as a startup.
But isn't the consulting company itself startup
mpany has to be more than small and newly founded to be a startup.
There
are millions of small businesses in America, but only a few
thousand ar
e startups. To be a startup, a company has to be a product
business, not
a service business. By which I mean not that it has to make
something p
hysical, but that it has to have one thing it sells to many people,
rath
er than doing custom work for individual clients. Custom work
doesn't sc
ale. To be a startup you need to be the band that sells a million
copies
of a song, not the band that makes money by playing at individual
weddi
ngs and bar mitzvahs.
The trouble with consulting is that clients have an awkward habit
of cal
ling you on the phone. Most startups operate close to the margin of
fail
ure, and the distraction of having to deal with clients could be
enough
to put you over the edge. Especially if you have competitors who
get to
work full time on just being a startup.
So you have to be very disciplined if you take the consulting
route. You
have to work actively to prevent your company growing into a "weed
tree
," dependent on this source of easy but low-margin money. [2]
Indeed, the biggest danger of consulting may be that it gives you
an exc
use for failure. In a startup, as in grad school, a lot of what
ends up
driving you are the expectations of your family and friends. Once
you st
art a startup and tell everyone that's what you're doing, you're
now on
a path labelled "get rich or bust." You now have to get rich, or
you've
failed.
Fear of failure is an extraordinarily powerful force. Usually it
prevent
s people from starting things, but once you publish some definite
ambiti
on, it switches directions and starts working in your favor. I
think it'
s a pretty clever piece of jiujitsu to set this irresistible force
again
st the slightly less immovable object of becoming rich. You won't
have i
t driving you if your stated ambition is merely to start a
consulting co
mpany that you will one day morph into a startup.
An advantage of consulting, as a way to develop a product, is that
you k
now you're making something at least one customer wants. But if you
have
what it takes to start a startup you should have sufficient vision
not
to need this crutch.
Angel Investors
Angels are individual rich people. The word was first used for
backers o
f Broadway plays, but now applies to individual investors
generally. Ang
els who've made money in technology are preferable, for two
reasons: the
y understand your situation, and they're a source of contacts and
advice
.
The contacts and advice can be more important than the money. When
del.i
cio.us took money from investors, they took money from, among
others, Ti
m O'Reilly. The amount he put in was small compared to the VCs who
led t
he round, but Tim is a smart and influential guy and it's good to
have h
im on your side.
You can do whatever you want with money from consulting or friends
and f
amily. With angels we're now talking about venture funding proper,
so it
's time to introduce the concept of exit strategy. Younger would-be
foun
ders are often surprised that investors expect them either to sell
the c
ompany or go public. The reason is that investors need to get their
capi
tal back. They'll only consider companies that have an exit
strategy-- m
eaning companies that could get bought or go public.
This is not as selfish as it sounds. There are few large, private
techno
logy companies. Those that don't fail all seem to get bought or go
publi
c. The reason is that employees are investors too-- of their time--
and
they want just as much to be able to cash out. If your competitors
offer
employees stock options that might make them rich, while you make
it cl
ear you plan to stay private, your competitors will get the best
people.
So the principle of an "exit" is not just something forced on
startups
by investors, but part of what it means to be a startup.
Another concept we need to introduce now is valuation. When someone
buys
shares in a company, that implicitly establishes a value for it. If
som
eone pays $20,000 for 10% of a company, the company is in theory
worth $
200,000. I say "in theory" because in early stage investing,
valuations
are voodoo. As a company gets more established, its valuation gets
close
r to an actual market value. But in a newly founded startup, the
valuati
on number is just an artifact of the respective contributions of
everyon
e involved.
Startups often "pay" investors who will help the company in some
way by
letting them invest at low valuations. If I had a startup and Steve
Jobs
wanted to invest in it, I'd give him the stock for $10, just to be
able
to brag that he was an investor. Unfortunately, it's impractical
(if no
t illegal) to adjust the valuation of the company up and down for
each i
nvestor. Startups' valuations are supposed to rise over time. So if
you'
re going to sell cheap stock to eminent angels, do it early, when
it's n
atural for the company to have a low valuation.
Some angel investors join together in syndicates. Any city where
people
start startups will have one or more of them. In Boston the biggest
is t
he Common Angels. In the Bay Area it's the Band of Angels. You can
find
groups near you through the Angel Capital Association. [3] However,
most
angel investors don't belong to these groups. In fact, the more
promine
nt the angel, the less likely they are to belong to a group.
Some angel groups charge you money to pitch your idea to them.
Needless
to say, you should never do this.
One of the dangers of taking investment from individual angels,
rather t
han through an angel group or investment firm, is that they have
less re
putation to protect. A big-name VC firm will not screw you too
outrageou
sly, because other founders would avoid them if word got out. With
indiv
idual angels you don't have this protection, as we found to our
dismay i
n our own startup. In many startups' lives there comes a point when
you'
re at the investors' mercy-- when you're out of money and the only
place
to get more is your existing investors. When we got into such a
scrape,
our investors took advantage of it in a way that a name-brand VC
probab
ly wouldn't have.
Angels have a corresponding advantage, however: they're also not
bound b
y all the rules that VC firms are. And so they can, for example,
allow f
ounders to cash out partially in a funding round, by selling some
of the
ir stock directly to the investors. I think this will become more
common
; the average founder is eager to do it, and selling, say, half a
millio
n dollars worth of stock will not, as VCs fear, cause most founders
to b
e any less committed to the business.
The same angels who tried to screw us also let us do this, and so
on bal
ance I'm grateful rather than angry. (As in families, relations
between
founders and investors can be complicated.)
The best way to find angel investors is through personal
introductions.
You could try to cold-call angel groups near you, but angels, like
VCs,
will pay more attention to deals recommended by someone they
respect.
Deal terms with angels vary a lot. There are no generally accepted
stand
ards. Sometimes angels' deal terms are as fearsome as VCs'. Other
angels
, particularly in the earliest stages, will invest based on a
two-page a
greement.
Angels who only invest occasionally may not themselves know what
terms t
hey want. They just want to invest in this startup. What kind of
anti-di
lution protection do they want
the deal terms tend to be random: the angel asks his lawyer to
create a
vanilla agreement, and the terms end up being whatever the lawyer
consid
ers vanilla. Which in practice usually means, whatever existing
agreemen
t he finds lying around his firm. (Few legal documents are created
from
scratch.)
These heaps o' boilerplate are a problem for small startups,
because the
y tend to grow into the union of all preceding documents. I know of
one
startup that got from an angel investor what amounted to a five
hundred
pound handshake: after deciding to invest, the angel presented them
with
a 70-page agreement. The startup didn't have enough money to pay a
lawy
er even to read it, let alone negotiate the terms, so the deal fell
thro
ugh.
One solution to this problem would be to have the startup's lawyer
produ
ce the agreement, instead of the angel's. Some angels might balk at
this
, but others would probably welcome it.
Inexperienced angels often get cold feet when the time comes to
write th
at big check. In our startup, one of the two angels in the initial
round
took months to pay us, and only did after repeated nagging from our
law
yer, who was also, fortunately, his lawyer.
It's obvious why investors delay. Investing in startups is risky!
When a
company is only two months old, every day you wait gives you 1.7%
more
data about their trajectory. But the investor is already being
compensat
ed for that risk in the low price of the stock, so it is unfair to
delay
.
Fair or not, investors do it if you let them. Even VCs do it. And
fundin
g delays are a big distraction for founders, who ought to be
working on
their company, not worrying about investors. What's a startup to
do
h both investors and acquirers, the only leverage you have is
competitio
n. If an investor knows you have other investors lined up, he'll be
a lo
t more eager to close-- and not just because he'll worry about
losing th
e deal, but because if other investors are interested, you must be
worth
investing in. It's the same with acquisitions. No one wants to buy
you
till someone else wants to buy you, and then everyone wants to buy
you.
The key to closing deals is never to stop pursuing alternatives.
When an
investor says he wants to invest in you, or an acquirer says they
want
to buy you, don't believe it till you get the check. Your natural
tenden
cy when an investor says yes will be to relax and go back to
writing cod
e. Alas, you can't; you have to keep looking for more investors, if
only
to get this one to act. [4]
Seed Funding Firms
Seed firms are like angels in that they invest relatively small
amounts
at early stages, but like VCs in that they're companies that do it
as a
business, rather than individuals making occasional investments on
the s
ide.
Till now, nearly all seed firms have been so-called "incubators,"
so Y C
ombinator gets called one too, though the only thing we have in
common i
s that we invest in the earliest phase.
According to the National Association of Business Incubators, there
are
about 800 incubators in the US. This is an astounding number,
because I
know the founders of a lot of startups, and I can't think of one
that be
gan in an incubator.
What is an incubator
be that you work in their space. That's where the name "incubator"
come
s from. They seem to vary a great deal in other respects. At one
extreme
is the sort of pork-barrel project where a town gets money from the
sta
te government to renovate a vacant building as a "high-tech
incubator,"
as if it were merely lack of the right sort of office space that
had til
l now prevented the town from becoming a startup hub. At the other
extre
me are places like Idealab, which generates ideas for new startups
inter
nally and hires people to work for them.
The classic Bubble incubators, most of which now seem to be dead,
were l
ike VC firms except that they took a much bigger role in the
startups th
ey funded. In addition to working in their space, you were supposed
to u
se their office staff, lawyers, accountants, and so on.
Whereas incubators tend (or tended) to exert more control than VCs,
Y Co
mbinator exerts less. We just supply seed money, advice, and
introductio
ns. We don't want any control over the startups we fund. And we
think it
's better if startups operate out of their own premises, however
crappy,
than the offices of their investors. So it's annoying that we keep
gett
ing called an "incubator," but perhaps inevitable, because there's
only
one of us so far and no word yet for what we are. If we have to be
calle
d something, the obvious name would be "excubator." (The name is
more ex
cusable if one considers it as meaning that we enable people to
escape c
ubicles.)
Because seed firms are companies rather than individual people,
reaching
them is easier than reaching angels. Just go to their web site and
send
them an email. The importance of personal introductions varies, but
is
less than with angels or VCs.
The fact that seed firms are companies also means the investment
process
is more standardized. (This is generally true with angel groups
too.) S
eed firms will probably have set deal terms they use for every
startup t
hey fund. The fact that the deal terms are standard doesn't mean
they're
favorable to you, but if other startups have signed the same
agreements
and things went well for them, it's a sign the terms are
reasonable.
Seed firms differ from angels and VCs in that they invest
exclusively in
the earliest phases-- often when the company is still just an idea.
Ang
els and even VC firms occasionally do this, but they also invest at
late
r stages.
The problems are different in the early stages. For example, in the
firs
t couple months a startup may completely redefine their idea. So
seed in
vestors usually care less about the idea than the people. This is
true o
f all venture funding, but especially so in the seed stage.
Like VCs, one of the advantages of seed firms is the advice they
offer.
But because seed firms operate in an earlier phase, they need to
offer d
ifferent kinds of advice. For example, a seed firm should be able
to giv
e advice about how to approach VCs, which VCs obviously don't need
to do
; whereas VCs should be able to give advice about how to hire an
"execut
ive team," which is not an issue in the seed stage.
In the earliest phases, a lot of the problems are technical, so
seed fir
ms should be able to help with technical as well as business
problems.
Seed firms and angel investors generally want to invest in the
initial p
hases of a startup, then hand them off to VC firms for the next
round. O
ccasionally startups go from seed funding direct to acquisition,
however
, and I expect this to become increasingly common.
Google has been aggressively pursuing this route, and now Yahoo is
too.
Both now compete directly with VCs. And this is a smart move. Why
wait f
or further funding rounds to jack up a startup's price
eaches the point where VCs have enough information to invest in it,
the
acquirer should have enough information to buy it. More
information, in
fact; with their technical depth, the acquirers should be better at
pick
ing winners than VCs.
Venture Capital Funds
VC firms are like seed firms in that they're actual companies, but
they
invest other people's money, and much larger amounts of it. VC
investmen
ts average several million dollars. So they tend to come later in
the li
fe of a startup, are harder to get, and come with tougher terms.
The word "venture capitalist" is sometimes used loosely for any
venture
investor, but there is a sharp difference between VCs and other
investor
s: VC firms are organized as funds, much like hedge funds or mutual
fund
s. The fund managers, who are called "general partners," get about
2% of
the fund annually as a management fee, plus about 20% of the fund's
gai
ns.
There is a very sharp dropoff in performance among VC firms,
because in
the VC business both success and failure are self-perpetuating.
When an
investment scores spectacularly, as Google did for Kleiner and
Sequoia,
it generates a lot of good publicity for the VCs. And many founders
pref
er to take money from successful VC firms, because of the
legitimacy it
confers. Hence a vicious (for the losers) cycle: VC firms that have
been
doing badly will only get the deals the bigger fish have rejected,
caus
ing them to continue to do badly.
As a result, of the thousand or so VC funds in the US now, only
about 50
are likely to make money, and it is very hard for a new fund to
break i
nto this group.
In a sense, the lower-tier VC firms are a bargain for founders.
They may
not be quite as smart or as well connected as the big-name firms,
but t
hey are much hungrier for deals. This means you should be able to
get be
tter terms from them.
Better how
pany. But as well as money, there's power. I think founders will
increas
ingly be able to stay on as CEO, and on terms that will make it
fairly h
ard to fire them later.
The most dramatic change, I predict, is that VCs will allow
founders to
cash out partially by selling some of their stock direct to the VC
firm.
VCs have traditionally resisted letting founders get anything
before th
e ultimate "liquidity event." But they're also desperate for deals.
And
since I know from my own experience that the rule against buying
stock f
rom founders is a stupid one, this is a natural place for things to
give
as venture funding becomes more and more a seller's market.
The disadvantage of taking money from less known firms is that
people wi
ll assume, correctly or not, that you were turned down by the more
exalt
ed ones. But, like where you went to college, the name of your VC
stops
mattering once you have some performance to measure. So the more
confide
nt you are, the less you need a brand-name VC. We funded Viaweb
entirely
with angel money; it never occurred to us that the backing of a
well kn
own VC firm would make us seem more impressive. [5]
Another danger of less known firms is that, like angels, they have
less
reputation to protect. I suspect it's the lower-tier firms that are
resp
onsible for most of the tricks that have given VCs such a bad
reputation
among hackers. They are doubly hosed: the general partners
themselves a
re less able, and yet they have harder problems to solve, because
the to
p VCs skim off all the best deals, leaving the lower-tier firms
exactly
the startups that are likely to blow up.
For example, lower-tier firms are much more likely to pretend to
want to
do a deal with you just to lock you up while they decide if they
really
want to. One experienced CFO said:
y want to do a deal. The second or third tier firms have a much
higher b
reak rate-- it could be as high as 50%.
It's obvious why: the lower-tier firms' biggest fear, when chance
throws
them a bone, is that one of the big dogs will notice and take it
away.
The big dogs don't have worry about that.
Falling victim to this trick could really hurt you. As one VC told me:
d a term sheet, and then have to call them back to tell them you
were ju
st kidding, you are absolutely damaged goods.
Here's a partial solution: when a VC offers you a term sheet, ask
how ma
ny of their last 10 term sheets turned into deals. This will at
least fo
rce them to lie outright if they want to mislead you.
Not all the people who work at VC firms are partners. Most firms
also ha
ve a handful of junior employees called something like associates
or ana
lysts. If you get a call from a VC firm, go to their web site and
check
whether the person you talked to is a partner. Odds are it will be
a jun
ior person; they scour the web looking for startups their bosses
could i
nvest in. The junior people will tend to seem very positive about
your c
ompany. They're not pretending; they want to believe you're a hot
prospe
ct, because it would be a huge coup for them if their firm invested
in a
company they discovered. Don't be misled by this optimism. It's the
par
tners who decide, and they view things with a colder eye.
Because VCs invest large amounts, the money comes with more
restrictions
. Most only come into effect if the company gets into trouble. For
examp
le, VCs generally write it into the deal that in any sale, they get
thei
r investment back first. So if the company gets sold at a low
price, the
founders could get nothing. Some VCs now require that in any sale
they
get 4x their investment back before the common stock holders (that
is, y
ou) get anything, but this is an abuse that should be resisted.
Another difference with large investments is that the founders are
usual
ly required to accept "vesting"-- to surrender their stock and earn
it b
ack over the next 4-5 years. VCs don't want to invest millions in a
comp
any the founders could just walk away from. Financially, vesting
has lit
tle effect, but in some situations it could mean founders will have
less
power. If VCs got de facto control of the company and fired one of
the
founders, he'd lose any unvested stock unless there was specific
protect
ion against this. So vesting would in that situation force founders
to t
oe the line.
The most noticeable change when a startup takes serious funding is
that
the founders will no longer have complete control. Ten years ago
VCs use
d to insist that founders step down as CEO and hand the job over to
a bu
siness guy they supplied. This is less the rule now, partly because
the
disasters of the Bubble showed that generic business guys don't
make suc
h great CEOs.
But while founders will increasingly be able to stay on as CEO,
they'll
have to cede some power, because the board of directors will become
more
powerful. In the seed stage, the board is generally a formality; if
you
want to talk to the other board members, you just yell into the
next ro
om. This stops with VC-scale money. In a typical VC funding deal,
the bo
ard of directors might be composed of two VCs, two founders, and
one out
side person acceptable to both. The board will have ultimate power,
whic
h means the founders now have to convince instead of commanding.
This is not as bad as it sounds, however. Bill Gates is in the same
posi
tion; he doesn't have majority control of Microsoft; in principle
he als
o has to convince instead of commanding. And yet he seems pretty
command
ing, doesn't he
rfere much. The danger comes when there's a bump in the road, as
happene
d to Steve Jobs at Apple.
Like angels, VCs prefer to invest in deals that come to them
through peo
ple they know. So while nearly all VC funds have some address you
can se
nd your business plan to, VCs privately admit the chance of getting
fund
ing by this route is near zero. One recently told me that he did
not kno
w a single startup that got funded this way.
I suspect VCs accept business plans "over the transom" more as a
way to
keep tabs on industry trends than as a source of deals. In fact, I
would
strongly advise against mailing your business plan randomly to VCs,
bec
ause they treat this as evidence of laziness. Do the extra work of
getti
ng personal introductions. As one VC put it:
way to reach me, how are you going to create a successful company
One of the most difficult problems for startup founders is deciding
when
to approach VCs. You really only get one chance, because they rely
heav
ily on first impressions. And you can't approach some and save
others fo
r later, because (a) they ask who else you've talked to and when
and (b)
they talk among themselves. If you're talking to one VC and he
finds ou
t that you were rejected by another several months ago, you'll
definitel
y seem shopworn.
So when do you approach VCs
have impressive resumes and the idea isn't hard to understand, you
coul
d approach VCs quite early. Whereas if the founders are unknown and
the
idea is very novel, you might have to launch the thing and show
that use
rs loved it before VCs would be convinced.
If several VCs are interested in you, they will sometimes be
willing to
split the deal between them. They're more likely to do this if
they're c
lose in the VC pecking order. Such deals may be a net win for
founders,
because you get multiple VCs interested in your success, and you
can ask
each for advice about the other. One founder I know wrote:
ng able to play the two firms off each other (as well as ask one if
the
other is being out of line) is invaluable.
When you do negotiate with VCs, remember that they've done this a
lot mo
re than you have. They've invested in dozens of startups, whereas
this i
s probably the first you've founded. But don't let them or the
situation
intimidate you. The average founder is smarter than the average VC.
So
just do what you'd do in any complex, unfamiliar situation: proceed
deli
berately, and question anything that seems odd.
It is, unfortunately, common for VCs to put terms in an agreement
whose
consequences surprise founders later, and also common for VCs to
defend
things they do by saying that they're standard in the industry.
Standard
, schmandard; the whole industry is only a few decades old, and
rapidly
evolving. The concept of "standard" is a useful one when you're
operatin
g on a small scale (Y Combinator uses identical terms for every
deal bec
ause for tiny seed-stage investments it's not worth the overhead of
nego
tiating individual deals), but it doesn't apply at the VC level. On
that
scale, every negotiation is unique.
Most successful startups get money from more than one of the
preceding f
ive sources. [6] And, confusingly, the names of funding sources
also ten
d to be used as the names of different rounds. The best way to
explain h
ow it all works is to follow the case of a hypothetical startup.
Stage 1: Seed Round
Our startup begins when a group of three friends have an idea--
either a
n idea for something they might build, or simply the idea "let's
start a
company." Presumably they already have some source of food and
shelter.
But if you have food and shelter, you probably also have something
you'
re supposed to be working on: either classwork, or a job. So if you
want
to work full-time on a startup, your money situation will probably
chan
ge too.
A lot of startup founders say they started the company without any
idea
of what they planned to do. This is actually less common than it
seems:
many have to claim they thought of the idea after quitting because
other
wise their former employer would own it.
The three friends decide to take the leap. Since most startups are
in co
mpetitive businesses, you not only want to work full-time on them,
but m
ore than full-time. So some or all of the friends quit their jobs
or lea
ve school. (Some of the founders in a startup can stay in grad
school, b
ut at least one has to make the company his full-time job.)
They're going to run the company out of one of their apartments at
first
, and since they don't have any users they don't have to pay much
for in
frastructure. Their main expenses are setting up the company, which
cost
s a couple thousand dollars in legal work and registration fees,
and the
living expenses of the founders.
The phrase "seed investment" covers a broad range. To some VC firms
it m
eans $500,000, but to most startups it means several months' living
expe
nses. We'll suppose our group of friends start with $15,000 from
their f
riend's rich uncle, who they give 5% of the company in return.
There's o
nly common stock at this stage. They leave 20% as an options pool
for la
ter employees (but they set things up so that they can issue this
stock
to themselves if they get bought early and most is still unissued),
and
the three founders each get 25%.
By living really cheaply they think they can make the remaining
money la
st five months. When you have five months' runway left, how soon do
you
need to start looking for your next round
time to find investors, and time (always more than you expect) for
the
deal to close even after they say yes. So if our group of founders
know
what they're doing they'll start sniffing around for angel
investors rig
ht away. But of course their main job is to build version 1 of
their sof
tware.
The friends might have liked to have more money in this first
phase, but
being slightly underfunded teaches them an important lesson. For a
star
tup, cheapness is power. The lower your costs, the more options you
have
-- not just at this stage, but at every point till you're
profitable. Wh
en you have a high "burn rate," you're always under time pressure,
which
means (a) you don't have time for your ideas to evolve, and (b)
you're
often forced to take deals you don't like.
Every startup's rule should be: spend little, and work fast.
After ten weeks' work the three friends have built a prototype that
give
s one a taste of what their product will do. It's not what they
original
ly set out to do-- in the process of writing it, they had some new
ideas
. And it only does a fraction of what the finished product will do,
but
that fraction includes stuff that no one else has done before.
They've also written at least a skeleton business plan, addressing
the f
ive fundamental questions: what they're going to do, why users need
it,
how large the market is, how they'll make money, and who the
competitors
are and why this company is going to beat them. (That last has to
be mo
re specific than "they suck" or "we'll work really hard.")
If you have to choose between spending time on the demo or the
business
plan, spend most on the demo. Software is not only more convincing,
but
a better way to explore ideas.
Stage 2: Angel Round
While writing the prototype, the group has been traversing their
network
of friends in search of angel investors. They find some just as the
pro
totype is demoable. When they demo it, one of the angels is willing
to i
nvest. Now the group is looking for more money: they want enough to
last
for a year, and maybe to hire a couple friends. So they're going to
rai
se $200,000.
The angel agrees to invest at a pre-money valuation of $1 million.
The c
ompany issues $200,000 worth of new shares to the angel; if there
were 1
000 shares before the deal, this means 200 additional shares. The
angel
now owns 200/
s shareholders' percentage ownership is diluted by a sixth. After
the de
al, the capitalization table looks like this: shareholder shares
percent
------------------------------
r 250 20.8 option pool 200 16.7 ---- ----- total 1200 100 To keep
things
simple, I had the angel do a straight cash for stock deal. In
reality t
he angel might be more likely to make the investment in the form of
a co
nvertible loan. A convertible loan is a loan that can be converted
into
stock later; it works out the same as a stock purchase in the end,
but g
ives the angel more protection against being squashed by VCs in
future r
ounds.
Who pays the legal bills for this deal
a couple thousand left. In practice this turns out to be a sticky
proble
m that usually gets solved in some improvised way. Maybe the
startup can
find lawyers who will do it cheaply in the hope of future work if
the s
tartup succeeds. Maybe someone has a lawyer friend. Maybe the angel
pays
for his lawyer to represent both sides. (Make sure if you take the
latt
er route that the lawyer is representing you rather than merely
advising
you, or his only duty is to the investor.)
An angel investing $200k would probably expect a seat on the board
of di
rectors. He might also want preferred stock, meaning a special
class of
stock that has some additional rights over the common stock
everyone els
e has. Typically these rights include vetoes over major strategic
decisi
ons, protection against being diluted in future rounds, and the
right to
get one's investment back first if the company is sold.
Some investors might expect the founders to accept vesting for a
sum thi
s size, and others wouldn't. VCs are more likely to require vesting
than
angels. At Viaweb we managed to raise $2.5 million from angels
without
ever accepting vesting, largely because we were so inexperienced
that we
were appalled at the idea. In practice this turned out to be good,
beca
use it made us harder to push around.
Our experience was unusual; vesting is the norm for amounts that
size. Y
Combinator doesn't require vesting, because (a) we invest such
small am
ounts, and (b) we think it's unnecessary, and that the hope of
getting r
ich is enough motivation to keep founders at work. But maybe if we
were
investing millions we would think differently.
I should add that vesting is also a way for founders to protect
themselv
es against one another. It solves the problem of what to do if one
of th
e founders quits. So some founders impose it on themselves when
they sta
rt the company.
The angel deal takes two weeks to close, so we are now three months
into
the life of the company.
The point after you get the first big chunk of angel money will
usually
be the happiest phase in a startup's life. It's a lot like being a
postd
oc: you have no immediate financial worries, and few
responsibilities. Y
ou get to work on juicy kinds of work, like designing software. You
don'
t have to spend time on bureaucratic stuff, because you haven't
hired an
y bureaucrats yet. Enjoy it while it lasts, and get as much done as
you
can, because you will never again be so productive.
With an apparently inexhaustible sum of money sitting safely in the
bank
, the founders happily set to work turning their prototype into
somethin
g they can release. They hire one of their friends-- at first just
as a
consultant, so they can try him out-- and then a month later as
employee
#1. They pay him the smallest salary he can live on, plus 3% of the
com
pany in restricted stock, vesting over four years. (So after this
the op
tion pool is down to 13.7%). [7] They also spend a little money on
a fre
elance graphic designer.
How much stock do you give early employees
re's no conventional number. If you get someone really good, really
earl
y, it might be wise to give him as much stock as the founders. The
one u
niversal rule is that the amount of stock an employee gets
decreases pol
ynomially with the age of the company. In other words, you get rich
as a
power of how early you were. So if some friends want you to come
work f
or their startup, don't wait several months before deciding.
A month later, at the end of month four, our group of founders have
some
thing they can launch. Gradually through word of mouth they start
to get
users. Seeing the system in use by real users-- people they don't
know-
- gives them lots of new ideas. Also they find they now worry
obsessivel
y about the status of their server. (How relaxing founders' lives
must h
ave been when startups wrote VisiCalc.)
By the end of month six, the system is starting to have a solid
core of
features, and a small but devoted following. People start to write
about
it, and the founders are starting to feel like experts in their
field.
We'll assume that their startup is one that could put millions more
to u
se. Perhaps they need to spend a lot on marketing, or build some
kind of
expensive infrastructure, or hire highly paid salesmen. So they
decide
to start talking to VCs. They get introductions to VCs from various
sour
ces: their angel investor connects them with a couple; they meet a
few a
t conferences; a couple VCs call them after reading about them.
Step 3: Series A Round
Armed with their now somewhat fleshed-out business plan and able to
demo
a real, working system, the founders visit the VCs they have
introducti
ons to. They find the VCs intimidating and inscrutable. They all
ask the
same question: who else have you pitched to
girls: they're acutely aware of their position in the VC pecking
order,
and their interest in a company is a function of the interest other
VCs
show in it.)
One of the VC firms says they want to invest and offers the
founders a t
erm sheet. A term sheet is a summary of what the deal terms will be
when
and if they do a deal; lawyers will fill in the details later. By
accep
ting the term sheet, the startup agrees to turn away other VCs for
some
set amount of time while this firm does the "due diligence"
required for
the deal. Due diligence is the corporate equivalent of a background
che
ck: the purpose is to uncover any hidden bombs that might sink the
compa
ny later, like serious design flaws in the product, pending
lawsuits aga
inst the company, intellectual property issues, and so on. VCs'
legal an
d financial due diligence is pretty thorough, but the technical due
dili
gence is generally a joke. [8]
The due diligence discloses no ticking bombs, and six weeks later
they g
o ahead with the deal. Here are the terms: a $2 million investment
at a
pre-money valuation of $4 million, meaning that after the deal
closes th
e VCs will own a third of the company (2 / (4 + 2)). The VCs also
insist
that prior to the deal the option pool be enlarged by an additional
hun
dred shares. So the total number of new shares issued is 750, and
the ca
p table becomes: shareholder shares percent
----------------------------
--- VCs 650 33.3 angel 200 10.3 uncle 50 2.6 each founder 250 12.8
emplo
yee 36* 1.8 *unvested option pool 264 13.5 ---- ----- total 1950
100 Thi
s picture is unrealistic in several respects. For example, while
the per
centages might end up looking like this, it's unlikely that the VCs
woul
d keep the existing numbers of shares. In fact, every bit of the
startup
's paperwork would probably be replaced, as if the company were
being fo
unded anew. Also, the money might come in several tranches, the
later on
es subject to various conditions-- though this is apparently more
common
in deals with lower-tier VCs (whose lot in life is to fund more
dubious
startups) than with the top firms.
And of course any VCs reading this are probably rolling on the
floor lau
ghing at how my hypothetical VCs let the angel keep his 10.3 of the
comp
any. I admit, this is the Bambi version; in simplifying the
picture, I'v
e also made everyone nicer. In the real world, VCs regard angels
the way
a jealous husband feels about his wife's previous boyfriends. To
them t
he company didn't exist before they invested in it. [9]
I don't want to give the impression you have to do an angel round
before
going to VCs. In this example I stretched things out to show
multiple s
ources of funding in action. Some startups could go directly from
seed f
unding to a VC round; one of the companies in the 2005 SFP did.
The founders are required to vest their shares over four years, and
the
board is now reconstituted to consist of two VCs, two founders, and
a fi
fth person acceptable to both. The angel investor cheerfully
surrenders
his board seat.
At this point there is nothing new our startup can teach us about
fundin
g-- or at least, nothing good. [10] The startup will almost
certainly hi
re more people at this point; those millions must be put to work,
after
all. The company may do additional funding rounds, presumably at
higher
valuations. They may if they are extraordinarily fortunate do an
IPO, wh
ich we should remember is also in principle a round of funding,
regardle
ss of its de facto purpose. But that, if not beyond the bounds of
possib
ility, is beyond the scope of this article.
Deals Fall Through
Anyone who's been through a startup will find the preceding
portrait to
be missing something: disasters. If there's one thing all startups
have
in common, it's that something is always going wrong. And nowhere
more t
han in matters of funding.
For example, our hypothetical startup never spent more than half of
one
round before securing the next. That's more ideal than typical.
Many sta
rtups-- even successful ones-- come close to running out of money
at som
e point. Terrible things happen to startups when they run out of
money,
because they're designed for growth, not adversity.
But the most unrealistic thing about the series of deals I've
described
is that they all closed. In the startup world, closing is not what
deals
do. What deals do is fall through. If you're starting a startup you
wou
ld do well to remember that. Birds fly; fish swim; deals fall
through.
Why
ie to yourself. You want the deal to close, so you start to believe
it w
ill. But even correcting for this, startup deals fall through
alarmingly
often-- far more often than, say, deals to buy real estate. The
reason
is that it's such a risky environment. People about to fund or
acquire a
startup are prone to wicked cases of buyer's remorse. They don't
really
grasp the risk they're taking till the deal's about to close. And
then
they panic. And not just inexperienced angel investors, but big
companie
s too.
So if you're a startup founder wondering why some angel investor
isn't r
eturning your phone calls, you can at least take comfort in the
thought
that the same thing is happening to other deals a hundred times the
size
.
The example of a startup's history that I've presented is like a
skeleto
n-- accurate so far as it goes, but needing to be fleshed out to be
a co
mplete picture. To get a complete picture, just add in every
possible di
saster.
A frightening prospect
very uncertainty of startups frightens away almost everyone. People
ove
rvalue stability-- especially young people, who ironically need it
least
. And so in starting a startup, as in any really bold undertaking,
merel
y deciding to do it gets you halfway there. On the day of the race,
most
of the other runners won't show up.
Notes
[1] The aim of such regulations is to protect widows and orphans
from cr
ooked investment schemes; people with a million dollars in liquid
assets
are assumed to be able to protect themselves. The unintended
consequenc
e is that the investments that generate the highest returns, like
hedge
funds, are available only to the rich.
[2] Consulting is where product companies go to die. IBM is the
most fam
ous example. So starting as a consulting company is like starting
out in
the grave and trying to work your way up into the world of the
living.
[3] If "near you" doesn't mean the Bay Area, Boston, or Seattle,
conside
r moving. It's not a coincidence you haven't heard of many startups
from
Philadelphia.
[4] Investors are often compared to sheep. And they are like sheep,
but
that's a rational response to their situation. Sheep act the way
they do
for a reason. If all the other sheep head for a certain field, it's
pro
bably good grazing. And when a wolf appears, is he going to eat a
sheep
in the middle of the flock, or one near the edge
[5] This was partly confidence, and partly simple ignorance. We
didn't k
now ourselves which VC firms were the impressive ones. We thought
softwa
re was all that mattered. But that turned out to be the right
direction
to be naive in: it's much better to overestimate than underestimate
the
importance of making a good product.
[6] I've omitted one source: government grants. I don't think these
are
even worth thinking about for the average startup. Governments may
mean
well when they set up grant programs to encourage startups, but
what the
y give with one hand they take away with the other: the process of
apply
ing is inevitably so arduous, and the restrictions on what you can
do wi
th the money so burdensome, that it would be easier to take a job
to get
the money.
You should be especially suspicious of grants whose purpose is some
kind
of social engineering-- e.g. to encourage more startups to be
started i
n Mississippi. Free money to start a startup in a place where few
succee
d is hardly free.
Some government agencies run venture funding groups, which make
investme
nts rather than giving grants. For example, the CIA runs a venture
fund
called In-Q-Tel that is modelled on private sector funds and
apparently
generates good returns. They would probably be worth approaching--
if yo
u don't mind taking money from the CIA.
[7] Options have largely been replaced with restricted stock, which
amou
nts to the same thing. Instead of earning the right to buy stock,
the em
ployee gets the stock up front, and earns the right not to have to
give
it back. The shares set aside for this purpose are still called the
"opt
ion pool."
[8] First-rate technical people do not generally hire themselves
out to
do technical due diligence for VCs. So the most difficult part for
start
up founders is often responding politely to the inane questions of
the "
expert" they send to look you over.[9] VCs regularly wipe out
angels by
issuing arbitrary amounts of new stock. They seem to have a
standard pie
ce of casuistry for this situation: that the angels are no longer
workin
g to help the company, and so don't deserve to keep their stock.
This of
course reflects a willful misunderstanding of what investment
means; li
ke any investor, the angel is being compensated for risks he took
earlie
r. By a similar logic, one could argue that the VCs should be
deprived o
f their shares when the company goes public.
[10] One new thing the company might encounter is a down round, or
a fun
ding round at valuation lower than the previous round. Down rounds
are b
ad news; it is generally the common stock holders who take the hit.
Some
of the most fearsome provisions in VC deal terms have to do with
down r
ounds-- like "full ratchet anti-dilution," which is as frightening
as it
sounds.
Founders are tempted to ignore these clauses, because they think
the com
pany will either be a big success or a complete bust. VCs know
otherwise
: it's not uncommon for startups to have moments of adversity
before the
y ultimately succeed. So it's worth negotiating anti-dilution
provisions
, even though you don't think you need to, and VCs will try to make
you
feel that you're being gratuitously troublesome.
Thanks to Sam Altman, Hutch Fishman, Steve Huffman, Jessica
Livingston,
Sesha Pratap, Stan Reiss, Andy Singleton, Zak Stone, and Aaron
Swartz fo
r reading drafts of this.
