Author Archive

Know Your Communication Strategy When Raising Money

Today’s interesting post is from Matt Eventoff and talks about how startups need a communications strategy while raising money – not all that dissimilar from a disgraced politician.  Thanks Matt!

How To Wind Down Your Company – New Series

Of the most popular posts that Brad and I have created are our series on Term Sheets, Compensation, and Mergers and Acquisitions.  One of the subjects that we’ve wanted to tackle has been the dissolution of companies.  It’s never fun to think about failure, but it happens a lot.

Unfortunately, we haven’t gotten around to it yet, so it was with great joy that my friend Roger Glovsky elected to write the series himself.  This is post one of the series and I’m really excited to introduce Roger to our readers.  Take it away, Roger.

This is a follow-up to Jason Mendelson’s recent interview on how to handle start-up failures. It is a timely topic for entrepreneurs who may be running low on cash or worrying about “hitting the wall.” Jason offers critical advice about how entrepreneurs should manage their relationships with directors and investors and why they should reserve enough money to wind down operations in an orderly manner. Although much has been written about how to start a new venture, very little has been written about how to shut down a failed venture. It was Jason’s suggestion that I write more about it. This is the first in a series of blogs about how to deal with business failure, how to minimize liabilities, and how to keep your spirits up and your business reputation intact.

Every entrepreneur or investor who lived through the dotcom bust has their “war stories” or knows an entrepreneur who failed. In fact, the venture capital model is based upon failure. The NVCA estimates that 40 percent of venture backed companies actually fail (another 40 percent produce moderate returns and only 20% actually have high returns). Therefore, failure is part of the business of investing and starting companies. The key to success may be in knowing how to deal with failure, which is what we want to discuss in this series of articles. There may be more than one way to successfully fail and we hope this series will encourage more people to discuss (or perhaps debate) the proper way to shut down a business venture.

Start-up failures are legendary. The classic image is that of a race car driver that hits the proverbial wall at 200 mph. The end result is “crash and burn.” However, if you crash and burn, you don’t live to race again another day. As an entrepreneur, hitting the wall means running out of money and burning bridges; you will likely end up destroying relationships with all the people who supported your start-up venture. If you value the entrepreneurial life, then you may want to do a second or third start-up. You don’t want to hit the wall at 200mph. You want to walk away, and live another day to do a new start-up and pursue a new dream, and this time win the race. Brad Parker, a successful entrepreneur, once described professional racing as a “series of controlled crashes”. I think the same theory applies to start-ups. The operative word is “controlled”. The question is how do you wind down a business in a controlled manner so that you can preserve your relationships and start a new venture again someday.

When a business fails, anyone with a financial interest could have a potential claim on the failed entity including investors, lenders, trade creditors, employees, suppliers, customers, and the government (e.g. the IRS or state taxing authority). If those interests and claims are not properly addressed during the wind down process, the officers, directors and stockholders could be held personally liable. How you treat each of the affected persons is critical to successfully shutting down a business. From the moment you first decide that failure is a possibility, it is important to take control of the process and work with legal counsel as well as tax and accounting professionals to properly address the issues.

The articles that follow will strive to outline the process for shutting down a business in practical terms. The questions we intend to address are: When should you decide to shut down a business? What approvals are needed to shut down a business? Who do you tell first? How should assets be disposed of? What is a fair price for the sale of assets? How do software and web-based businesses differ from traditional bricks and mortar? What happens to intellectual property like software and domain names? What happens to customer lists and customer information? How should debts be paid? What business obligations can you be personally liable for? What business records do you need to have? How long do you need to keep them? When is the business officially terminated? These are just a few sample questions. Feel free to suggest your own.

We welcome your comments on this topic and encourage you to share your own real-life experiences in shutting down a business. Why did you shut down your business? What steps did you take? What would you do differently? How would you advise others?

Roger Glovsky is a founding partner of Indigo Venture Law Offices, a business law firm based in Massachusetts, which provides legal counsel to entrepreneurs and high-tech businesses. Mr. Glovsky is also founder of LEXpertise.com, a collaboration and networking site for lawyers, and writes a blog called The Virtual Lawyer.

The above content is intended to serve as a general discussion of the subject matter and is provided for informational purposes only. It is not legal advice and should not be construed as such. Do not act upon this information without seeking professional advice or rely on this website or use the content as a substitute for consultation with professional advisors.

How to Run a Great Board Meeting

Today, the great post is by my partner Brad.  He has a great post on how to run a great board meeting.  Should be required reading in my opinion.

Communications Advice for Pitching Venture Capitalists

Today’s post is from Matt Eventoff – a communications consultant who has good tips for entrepreneurs who are pitching VCs.

I reinforce that having a clear message is really important.  If you get off on the wrong foot in a presentation and can’t clearly definite your value proposition, you risk losing the interest of the VC and never getting it back. 

How To Get A Job In Venture Capital

I (Jason) get asked often how I got into venture capital and how interested folks may get involved as well.

I always tell them that I "fell" into the job, as most folks that I know who are VCs and that everyone has a different and unique story.

I then point them to my partner Seth’s blog post on the subject which I think is the best written authority on the subject.

Today, however, I received a paper that one of my students, Judd Rogers, wrote on the subject.  He takes Seth’s thoughts and puts a little bit of analytical muscle behind the subject.  It’s an interesting read for those wanting to know potential career paths toward VC.

Ask the VC Live – University of Michigan

I (Jason) will be visiting the University of Michigan in a couple of weeks to speak to different campus constituencies about entrepreneurship and venture capital.

As part of that, I’m going to plant my butt in a conference room on campus for a couple of hours and talk to anyone that wants to come by and chat, pitch me, talk about venture capital, etc.

Location:  Lorch Hall (Economics Building) Room 171, 611 Tappan, Ann Arbor

Time: 3pm to 5pm

Date: Friday, April 3rd, 2009

Students, professors, members of the community all invited.

What Do Venture Capitalists Think About Young Entrepreneurs?

Q: With a number of great companies being born of ideas coming from a youthful group of entrepreneurs, how are investors reacting to twenty-somethings fresh out of college, with little to no professional experience, without a strong network of seasoned industry experience and with a inconceivable amount of life learning still ahead of them?

Assuming all else is favorable in an investors eyes, what are investors weary of and how can young entrepreneurs prepare for this? In addition, what advice to you have for the young person seeking to build a team of "time-tested, battle-hardened" professionals?

A: (Jason)  We think young-entrepreneurs are great.  In fact, we like spending time with the younger set so much that we are active mentors and investors with Techstars.  And certainly with our fund, we wouldn’t hesitate to fund a first-time entrepreneur with a great idea. 

I think the key to being a young entrepreneur is being self aware.  Know what you know and also know what you don’t.  If you can communicate to a prospective investor that you are smart, have a great idea AND are emotionally intelligent and realize what other skills sets you’ll need to surround yourself with, then I don’t think being young and / or inexperienced will hurt your chances.  In fact, youthful exuberance is infectious and sometimes younger folks will think outside the box more often than older ones who are set in their ways. 

What we are weary about would be the young / first-time team that thinks they "know everything."  I’ve seen this from time-to-time and it’s an immediate turnoff.  One can still be confident and driven and self aware.  No good and experienced VC would expect a twenty-year old to know everything and be prepared for anything that can happen in a startup company, so don’t pretend that you do.  Even after all of our years, we still haven’t seen "everything."

The key is putting a good team around you, or asking your funding partner for help and advice in building a team.  Make sure that you have this discussion BEFORE you commit to an investor, as you don’t want an after-investment surprise.

Most VCs have great networks of executives and can help place particular skill sets into their companies.  Otherwise, you can put together a team before taking on funding and to attract the "veteran" players, you’ll have to have a compelling idea and a mature set of twenty-somethings (in your case).

Good luck to you.   

Crash Course Video

Thanks to my friends at Kendall Media Group, here is the video of my recent Venture Capital Crash Course at the Silicon Flatirons. 

I give a 25 minute presentation and then hold an hour town-hall question and answer session.  Great questions were asked, so if you are interested in what goes through a VC’s head, take a gander.

The video is really well done.  The slides are integrated into the presentation.  I’d highly recommend Craig Kendall if you need any video creation or editing work.  Thanks Craig for putting all the time into the video.  Here’s a bit about Craig:

Founded on 13 years web and video experience and a passion for top quality video, Craig Kendall is the founder of Kendall Media Group and eventon.tv. Currently partnering with many Boulder area technology programs including IgniteBoulder, the Boulder Denver New Tech Meetup, and Silicon Flatiron’s Crash Course for Entrepreneurs, eventon.tv is helping provide video recording and production for the web. Having recently returned to Colorado after 13 years in Tennessee, Craig is thrilled to be part of the technology community in Colorado."There’s some really amazing things happening in the Boulder/Denver area as far as technology and entrepreneurship and Kendall Media Group is excited to be a part of it," says Craig. Reach out to Craig at craig at kendallmediagroup dot com.

Crash Course on Venture Capital

I’ve received some requests to see the materials from the presentation last week. Video should be arriving at a later date, but for now, here are the slides.

Beers with Brad in Seattle

If you are in Seattle and interested in startups, entrepreneurship, venture capital, or TechStars, Brad will be in Seattle having a party to talk about these topics.  All the details can be found here.  The date is February 25th.