Archives / May, 2007

Trends in Compensation Packages in Venture-Backed Companies

As we continue our series on Compensation, let’s look at some recent compensation trends. In general, while compensation is on the rise, the rate of increase slowed between 2005 and 2006. Founder compensation (in whatever role they play) is rising faster than non-founder compensation. There are some theories on this including (a) founders are becoming…

Do Venture Capitalist Ever Use Their Redemption Rights?

Q: Have you experienced a company which grows along nicely, but does not offer a liquidity event? In the funding agreement, there is a clause for redemption rights. Is this used so that the VC can get out of the investment? A: (Jason). Yes, we’ve experienced companies growing nicely without liquidity events. And yes, we…

Budgets in Early Stage Companies

Q: When performing diligence on a new investment I will dig through management’s projections. Even though I am a finance guy I try to understand the costs associated with the software development.  Probably needless to say, I have been burned by cost overruns quite a few times.  The Companies burn through our cash on development…

Decision Making Using Noninstrumental Information

Will Price from Hummer Winblad has today’s great VC post up titled Decision Making and the Venture Capital Process. I’m certain that every entrepreneur that has ever raised money from a VC has experienced this phenomenon. 

How Important is Brand Image at The Early Stages?

Q: I’m involved in a start up where we’ve made a lot of progress.  We’re currently in our coding stage but there are a lot of undefined areas as far as usability and layout are concerned.  A few of the team members strongly believe its necessary to get professional help from experienced designers on usability…

Burn Rate for a Seed Financing

Q: What is the typical and expected burn rate of the funds raised from a seed round before proceeding with the Series A round? I know this time-frame will vary from case to case, obviously, but with a typical internet start-up, is there an average or expected burn rate of the seed round funds before…

What Percentage of A Company Does a Typical Entrepreneur Own at Exit?

Q: On average, what percentage of a company does the “typical” entrepreneur own by the time of a “successful” exit? Obviously, huge YMMW, but what’s a reasonable expectation, say, assuming two founders, middle-of-the-road terms from investors, two or three rounds of funding, and an acquisition? Or is the range so broad as to be meaningless?…

Equity Compensation Terms

As part of your offer, there will likely be an equity component (if there isn’t, your first question after receiving the offer should be “so – what equity are you offering me as part of this package?”) The equity component will either be a grant of stock options or restricted stock – both with some…

Open Source Discussion

We get a lot of questions about open source software.  Today at our Boulder OpenCoffee Club meeting, we had a presentation by Doug Young regarding his thoughts on open source issues that developers face.  It was a great discussion.  (Unfortunately) every developer needs to keep their open source “house” in order and to that affect,…

Deferred Cash Compensation

Along the lines of our last compensation post, cash is at an extreme premium in pre-VC funded companies. In that vein, you might be presented with a situation where you “defer some of your salary” until after the first institutional financing. This means that you are theoretically earning this portion of your salary and once…