finance
Simple and Fair Investor Term Sheets
FFI Plain Preferred Term Sheet -
Techcrunch today highlights the publication of the template term sheet (shown above) from The Funded Founder Institute.
The Funded campaigns and spreads information designed to make VC deals fairer for the founders, and there has been growing discussion that the series A term sheet should be standardised. Out of that discussion has actually come some consensus between entrepreneurs and VCs, and you'll find the result here: http://www.docstoc.com/docs/10303638/FFI-Plain-Preferred-Term-Sheet
It's US focused, but the VC deal-structure principles are similar worldwide, so it could be modified for other countries.
Using something like this could save both sides a fortune in professional fees - which'll be a big help in small early stage rounds.
Meanwhile Techcrunch has previously reported that the Y-Combinator incubator has released similar documents suitable for smaller Angel rounds.
The documents are listed here: http://www.ycombinator.com/seriesaa.html
Understanding the Credit Crunch
It's difficult to get to grips with exactly how those in charge of the main financial organisations have made such a mess - and also difficult for us to admit that nearly everybody has played a part (anyone who has bought a house in the boom, remortgaged their house, taken on debt to fuel simple consumption, etc etc).
In fact, it's come to light that the bankers didn't really understand it all at the time either!
So for those of us who want to understand why we're in the situation we're in I've gathered together some of the best explanations from across the web.
The video above is called 'The Crisis of Credit Visualised' and is a quickfire, well crafted explanation.
This one is more of an expert classroom overview:
And then if you want to delve in a bit deeper, here's an episode of the American radio programme This American Life, which delves into how banks created the mess - and how it might be solved. It's brilliant.
Pre-Budget Report Reaction
Well I have to admit to being a little underwhelmed by the Pre-Budget Report (PBR) that the Chancellor unveiled yesterday. I think it'll have little effect to be honest.
Most of it had been leaked in advance of course (why bother with the actual announcement when you spin every single element so much in advance?) so there were no surprises. And unfortunately I think the economy needed some positive surprises. The VAT announcement would have had more impact if pulled like a rabbit from a hat rather than slowly built up in advance.
But leaving the style of the announcement aside let's look at the details announced, and there are a lot of small bits of good news, even if there isn't one big great thing:
- Struggling businesses will be able to spread their VAT, corporation tax and NI contribution payments over a longer timetable. This extra leniancy will help - but they're still going to charge interest, it's just the penalty fees that will be waived. If you are having cash flow issues and would like to defer paying your tax, contact the Business Payment Support Line on 0845 302 1435
- The rise in corporation tax for small firms from 21p to 22p - planned for April 2009 - will be deferred. This was a daft idea in the first place, especially when combined with a tax cut for larger firms. But note that they've only deferred it.
- Tax repayment scheme for previously profitable businesses will be extended so up to
Survival - The VC's Advice
The Silicon Valley blogs have been buzzing over the last few days with details of a number of presentations and letters to hi-tech companies by their venture capital backers. These presentations were designed to inform CEOs about the outlook for the economy, and share the experiences and advice of the investors - all with the intention of helping their companies survive.
I'm going to summarise them here, because they give a very interesting and insightful perspective - and some great advice.
Sequioa
Sequia Capital is possibly Silicon Valley's most respected venture capital firm. They've backed many of the web's best-known companies from their first steps.
Last week they held a meeting for the CEOs of their investee companies - with the intention of delivering a short sharp shock.
Here are the slides from the presentation:
The analysis in here is fantastic - and well worth studying in depth. But the key messages are:
- This is not a short term problem. Prepare for tough years rather than months. Don't expect bumper good times to return for 15 years.
- You need to make sure your company is cashflow positive.
- You need to cut costs (but smartly - my addition), reviewing salaries, using commissions and other performance incentives - and using zero based budgeting (more in a later post on this).
- Focus on only the genuinely valuable and likely sales in your pipeline, get rid of the noise.
- Spend every dollar as if it were your last.
Benchmark Capital
This VC firm has lots of similar advice, but it was particularly interesting to read them quoting a CEO they know who went through the dotcom crash...
Recently, I spoke with an entrepreneur who as a CEO during the dot?com crash and oversaw a headcount reduction from 130 to 28 (through two major layoffs), and eventually back to profitability and an IPO. If you think a 10% layoff is tough, imagine laying?off 78% of your employees. It is one of the hardest things I have ever seen anyone do. I recently asked him how that experience has shaped the way he ould advise people on running a startup. He had a list at the tip of his tongue (included now):
1. You don
The Equity Equation
Paul Graham runs Y!Combinator a special seed-fund/incubator for tech startups.
He recently wrote an article titled The Equity Equation in which he shares his idea for a simple formula for entreprneurs to work out what is a good price.
The formula is:
1/(1 - n)
The Pre-Budget Report - Two Fingers to Entrepreneurs
In his ten years as Chancellor, Gordon Brown introduced many initiatives to encourage entrepreneurship, or expanded on existing programmes.
Business Plan Vs. Reality - a must read
Here is a brilliant blog post in which an entrepreneur reveals the differences between their financial plan and financial reality, and explains the reasons.
Writing a business plan is so difficult because of all the unknown factors, and the fact it is so difficult to get benchmark figures from other businesses.
Birmingham, land of opportunity
Equity funding and trading in Britain is about to take a step back in time - for the better.
In 1973 the regional stock exchanges in Britain were merged with the London Stock Exchange, but that step is about to be reversed in Birmingham, where the Regional Development Agency is set to open Investbx this summer.
The Budget and Funding for Fast-Growth Companies
Over the last couple of days some further details have been emerging about the small print behind the budget.
The Budget & Entrepreneurs
I was in London yesterday, and then meetings all day today, so I'm only now getting a moment to blog about the budget and my views about its impact on entrepreneurs.
I received the first headlines from news sites on my PDA as the speech was ongoing, but then, as soon as the chancellor sits down,the Treasury news-machine gears up and press releases start arriving by email with more details.
From Burn Rate to Nest Egg
If you've read any of my books, particularly How to Fund Your Business, you'll know that I keep hammering home how important it is to manage and monitor your cash flow.
Cash is the fuel for your business - and you wouldn't want to be in a plane when it runs low on fuel. The same goes for your business.
Entrepreneurs should charge more!
One of the most common pieces of advice I give to the entrepreneurs I mentor, or the readers of my books I end up chatting to, is to charge more money!
It's amazing how common it is for owners of start-up businesses to undervalue the work they do.
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