
Warning To All Entrepreneurs About Bad Investor Behavior - davidedicillo
http://www.feld.com/wp/archives/2011/06/warning-to-all-entrepreneurs-about-bad-investor-behavior.html?utm_source=feedburner&utm_medium=twitter&utm_campaign=Feed%3A+FeldThoughts+%28Feld+Thoughts%29
======
brandnewlow
Is this a common thing? I've got some friends looking to raise a seed round
for a B2B small biz product with 50 paying customers, and the deals they're
getting offered make my stomach turn.

One party offered them < $300k for a 50% stake in the company.

~~~
lsc
and? they have 50 paying customers. I'm within 10% of two thousand customers,
and my business, realistically, is only worth about $300K in total. (Now, I'm
not going to sell it for less than about 3x that, but $300K would be it's fair
market value based on the industry standard revenue multiplier.)

I mean, yeah, if you aren't poor, $300K is not enough to give up your dream if
you have big plans for the company; I'm going to keep trying for better, and I
encourage others to do the same. But you need to realize that for most
companies without traction? $300K is a lot more than it's worth to someone not
emotionally invested in the thing.

In reality, it's often quite difficult to get more than a years worth of
revenue for a company. There is no reason to feel insulted at that kind of
offer, even if you do need to turn it down.

------
rdl
This seems like a case where naming a bad actor is worthwhile, although
probably not a safe choice for someone like Brad Feld.

------
Shenglong
The article mentions $25-$100k for 1-2% is sketchy. With a startup, what
percentage of ownership should the co-founders expect to give up at the seed
stage? At other stages? Any insight would be great.

~~~
StavrosK
That's the exact thing I wanted to ask. 2% for 100k is a 5M valuation, that's
pretty good for most early-stage startups. Why would this vest over time? It
sounds like a clear-cut "quid pro quo" to me...

~~~
adw
Not 1%-2% outright; 1%-2% extra over the equity bought.

~~~
StavrosK
Oh, now it makes sense, thank you.

------
eokuma
Thank you very much for posting this. Learning that good advice/mentorship >
bad money (VCs like the one in this article). Budding startups inevitably need
funding to survive but it is more important that young entrepreneurs reach out
for valuable advice/mentorship e.g. startup incubator programs like YC etc.

~~~
hkmurakami
First Time poster; Chiming in to also say thanks for posting this article. I'm
just starting to delve into this world and the memory of having read this
article should prove to be critical were I to run into a situation like this.
At the least I'll know to call a mentor to ask about the kosherness of such
terms. Again, Thanks!

------
bryanlarsen
read the comments too, many people have chimed in with other examples.

~~~
romland
I've been sitting on this complaint for a while now. It is really, really
starting to annoy me that comments on a webpage rely on JavaScript hosted by
some other website.

I use NoScript for a reason. I temporarily whitelist pages which I (after a
quick glance), deem trustworthy. I have been known to whitelist Disqus on
occasion, but I'd rather not. In this particular case there were a whole slew
of external domains that were blacklisted, there's just no way I am going to
enable them one by one to see which ones are needed for a few user comments to
load.

I know, it's my loss. But I suspect that website owners would have an interest
in showing off all the good comments their users post. I'm probably a
minority, but using NoScript instead of all the adblockers out there makes me
feel like I'm a "friendly user" to website owners. I will see their ad's as
long as they don't depend on external JavaScript. There might be a tiny niche
market here (ad-network with reliable stats hosted without external
dependencies), but I wonder if it'd be worth going after.

On a tangent: I'm just waiting for the day when GitHub will hit me with
something nasty, since I have them fully whitelisted.

Maybe I should have written a blog entry instead.

------
thisisfmu
Is the consensus that charging equity for introductions is okay when you call
yourself an incubator but abusive when an individual does it?

~~~
cwp
No. If an incubator wanted equity but wasn't offering capital, they wouldn't
get many applications.

~~~
teaspoon
If I told a YC-caliber startup that I'd give them $18k for 6% but wouldn't be
able to make any introductions, then they'd probably tell me to take a flying
leap. So, effectively, some part of a YC-like incubator's equity take is
compensation for introductions.

------
petegrif
great post - thanks Brad Feld = respect

