What to look for?• Find
people who have a similar work ethic as you.• Find people with complimentary skill sets.• Find people with a similar approach to product development as you.• Find people with similar values.
SimpleGeo✓ Matt Galligan is an
established designer with expert knowledge of CSS, HTML, and branding.✓ Joe Stump is an expert in building scalable web infrastructure, recruiting engineers, and programming processes.๏ Both are extremely opinionated product people.
• All founders should be
on a four year vesting schedule. One year cliff, 25% vested up front, monthly vesting after cliff.• Set aside 15% for an employee option pool. Your investors will make you anyways.• File your 83(b) election.
dilution (n): 1. The action
of making a liquidmore dilute. 2. The act of stock beingtransferred from the people creating thecompany to the investors with the money, thusreducing the percentage of the company thepeople creating the company own.
preferred stock (n): 1. Stock
that entitlesthe holder to a ﬁxed dividend, whose paymenttakes priority over that of common-stockdividends. 2. The act of giving up all control overyour company.
convertible note (n): 1. A
loan whosevalue may be converted into common orpreferred stock. 2. Easiest, most founder friendlyform of capital on the market.
discount (n): 1. An investment
discountconvertible note holders receive in subsequentrounds. 2. If the Series A share price is $10.00/share, and the convertible note holder has a20% discount, they may buy at $8.00/share.
price cap (n): 1. A
share price ceiling thatnote holders enjoy in subsequent rounds ofﬁnancing. 2. If the convertible note’s price cap is$5M, and a round is raised at $10M, the noteholder gets twice as much value.
priced round (n): 1. Financing
the companyby selling a certain percentage for a mutuallyagreed upon price at a mutually agreed uponvalue of the company. 2. The most expensive,investor friendly form of capital on the market.3. Moment when your notes convert intopreferred stock according to their terms.
A few gotchas• Be wary
of aggressive pro rate rights that allow investors to “buy up” in subsequent rounds.• Be wary of board composition early on.• Be wary of any one investor owning a majority of preferred stock.
Company Structure• Preferred stockholders have
all voting rights to change company charter.• Common stockholders have no voting rights.• Founders are at-will employees of the board.• All transactions (fundraising & exits) must be approved by board and majority of preferred stockholders.
1. Invest $2m at a
$4m pre-money valuation for 33% of the company.2. Sell company for $12m in less than 12 months.3. PROFIT! $2m in proﬁts from the sale.4. On a $400m fund you’ve netted a 0.5% return for your fund’s LPs.
1. Look for investors who
have founded and ran a startup before.2. Look for investors with some of their own money in play.3. Look for investors who understand the problem and are excited about your solution.
Key Questions• Does your application
have abnormal performance characteristics or density requirements?• How much time, money, effort, and management will go into building & maintaining multiple colocation facilities?• What is the opportunity cost to your product if you are fully stafﬁng a network operations center?
Approaching Product1. Focus on a
single use case that addresses the problem.2. Start with a minimal core set of features.3. Release and listen to your users.4. Question your initial assumptions based on feedback.5. Rinse and repeat.