Bootstrapper.com - Confessions of Serial Entrepreneurs

Lately it seems that many people I know are looking for help in various aspects of their life. Whether it’s a business venture they’re starting, personal advice, or just looking to connect with the right people to get whatever they need done. I’m trying to do the best I can to help these people or at least get them in touch with the right people that CAN help. This has been a very rewarding process as it helps me strengthen existing relationships and foster new ones.

I got to thinking that as an entrepreneur, we really can move forward FASTER if we work together. If someone asks you for a favor, maybe you should do it without any thought of what you’ll get out of it. A stranger looking for some mentoring can turn into a friend that you go whitewater rafting with pretty quickly (that’s a personal shout out to a friend, by the way). Take a chance. Never close the door. If someone asks, you answer.

So let me ask you BootStrappers out there… is there anything that I can do for you?

It’s not embedding for some reason, but check out this hilarious video of HP’s “epic fail” attempt to include facial tracking software.

In terms of business lessons, it should be easy let you draw your own Aesop from this one…

Hat Tip to BusinessPundit

According to Danah Boyd, MySpace has become a digital ghetto, following the online equivalent of white flight to Facebook.  She doesn’t attribute this to any kind of active racism, but rather that offline racial and class divides are extending themselves onto the internet.  The “Stuff White People Like” blog has smartly parodied this phenomenon.

Although the internet was initially a color-blind and unwalled neighborhood, the hidden hand of racism had no problem moving into the digital age.  Kozmo.com, a casualty of the first internet bubble, ran a cool on-demand delivery service that redlined zip codes with a predominantly African-American population.  Google’s unsuccessful attempt at an online social network, Orkut, devolved into a haven for various hate groups in other countries.

The takeaway? Don’t invest in services that promise to make the world less divided.  It’s easiest to gain market share if you focus on dominating a tiny niche.  Competing services that try to be all things to all people will, if they survive, diverge and inheriting a different segment of the audience.

Bootstrap Your Business for Growth and Growth Will Happen, Take It from Me…

MedeFinance began as a vision to solve a common set of challenges facing healthcare financial professionals in 1994, and launched as a company in 2001 with the release of on-demand analytic software and services for improving financial performance in the healthcare industry. The six-year journey to launch and four-year processional that followed were paved with lessons that can serve as legitimate guidelines for building a successful venture the old fashioned way – bootstrapping through the early years.

We initially opted to take a modest sum of angel investment and instead relied primarily on real customer revenues. This was a novel concept in the late nineties, but one that my 20 years of industry experience assured me would offer the most opportunity, flexibility, and ultimately guarantee the founders could maintain the largest stake in the company.

While the journey took a bit longer as an “accountable” business that actually relied on customer revenues to pay the bills, we realized the success of our bootstrapped path in 2003 when MedeFinance revenues hit $5 million. At that point, we recognized that it was time to raise growth capital if we were going to efficiently scale our sales and marketing organizations – necessary steps if we were going to grow.

Within the 24 months following our first venture round, MedeFinance has grown into a $30+ million run-rate with all recurring revenue. A key to our success was raising “smart” capital from experienced investors to finance scaling the business. In addition, we recruited the necessary executive talent to steer the company in the right direction. By using our resources wisely and taking a patient approach to building the business, MedeFinance is now on a clear path to success for its shareholders. During our journey, we identified three important guidelines for successfully bootstrapping a company.

Guideline #1: Before starting a business and taking capital, validate your products with real customer pain

Through my own personal experience, I came to realize that the healthcare system was a large market riddled by dysfunction and a broken claims management system. I started the prototype of MedeFinance to streamline claims administration, however, as with most businesses, the plan evolved as the company began to work with customers to identify their true pain points. Thankfully, we had not raised any venture capital at the early stage of the company, so we had the flexibility to shift directions. My expenses were low enough that we could appoint adequate time to honing on real market needs.

We went through several iterations of the company over the next five years before hitting the winning formula. It was largely a game of trial, error and, eventually, success. Thankfully, because we were not tempted by too much early-stage capital in the beginning, I had maintained the largest equity stake in the company.

The big win for MedeFinance came in 1998. Customers were lukewarm with regards to the claims management business. In fact, we began to see the market as one with declining margins and undergoing heavy consolidation. So we looked even closer and learned that customers did have a keen interest, but in a different area: analytics platform and business process improvement solutions. We quickly responded to market demand and revamped the entire company focus. In the last seven years, we’ve seen revenues increase by over 100 percent annually.

Guideline #2: Bootstrap for the right reasons, raise capital for the right reasons

MedeFinance raised “friends and family” money that kept the company floating through 1998. This patient capital enabled us to be a nimble company during our formative years. We raised another $500,000 in seed money following the change in direction to a company focused on analytics. During this same period we were able to obtain and retire early $1 million in debt from investors and trading partners. However, as we approached our 10th customer and revenues hovered at $5 million, we quickly realized that we could not scale without more resources and support.

Now, bear in mind that I didn’t really feel like we needed the money. We had $1 million in profits and $2 million in cash on the balance sheet. What we did need were smart resources. We needed a strong management team and board that could help grow the company into a $100 million business. I also wanted some liquidity. To scale the business the way we were going to grow it would require more risk, and I wanted to diversify some of my holdings. We also needed cash to grow aggressively, win major deals with partners, and potentially do some acquisitions. It was clear to me that it was time to raise some capital.

Guideline #3: When you decide to raise capital, find good partners to help grow your business

I knew that the right partners, especially our investor, were key if MedeFinance was going to get there with skin in the game. We worked with a consulting firm, Nucleus Partners, to help us present our story and the right information to potential investors. Sal De Trane, a partner at Nucleus, did a great job in making the right introductions. In fact, I liked him so much that today he is MedeFinance’s VP of Finance and Corporate Development and a key member of our team.

We looked at almost a dozen venture capital firms and received interest from several investors before narrowing the field down to just two. In the end, we went with the team that we felt would add the most value as board members, a firm that specializes in working closely with bootstrapped companies – Kennet Partners.

We selected Kennet because they knew how bootstrapped businesses operate, and they understood our motivations and desires for partnership and growth. We also trusted that they would spend time advising and helping us to scale the company, providing resources even beyond capital. These resources have been essential to our growth.

Post Investment

Hindsight is always 20/20, and in our case we are fortunate that our early vision has led to a great outcome. We have launched many new products and hired several key executives that would have been impossible had we not received outside capital. Moreover, bootstrapping enabled me to retain enough equity that even after the financing I was a major shareholder.

Since raising our Series A round, business has been on a steady growth curve. We have attracted some excellent board members and the executive team has tripled. Our new corporate leaders have made invaluable contributions toward the success of the company.

Perhaps the biggest post-investment change that I have witnessed has been the pace of change in the business. Given our growth objectives, we are in a perpetual state of hiring people to match demand. Perhaps the most rewarding change has been moving from the old model where I “led the charge” on most initiatives, to working with a great team who can independently manage themselves and collaboratively manage the company.

MedeFinance still faces challenges like any business. However, challenges aside, we are a profitable company with a large backlog and a future that predicts revenue growth continuing at the current rapid pace through next year and beyond. Take it from me, patience, hard work, and determination can pay off if you don’t lose your vision and you seize the opportunity to finance for growth when the time is right.

About James Quist

Jim Quist brings to MedeFinance over 30 years of successful entrepreneurship and business experience and 12 years dedicated to delivering value to the healthcare industry. Jim founded MedeFinance, Inc. in 2001 as a successor company to two Healthcare technology companies which Jim founded starting in 1994. Before that, Jim was Senior Vice President for Triton Container International, a premier lessor of maritime intermodal equipment with annual sales in excess of $200 million. During his tenure at Triton, Jim successfully developed operations and sales worldwide. Prior to Triton, Jim held a variety of executive level positions for ITEL Corp., a $1-billion lessor of transportation assets. Jim has also had operational responsibilities at Olympic Steamship Co. and Sea-Land Services. Jim attended the University of Washington and served in the U.S. Merchant Marine.

Have You Considered Bootstrapping Your Business For Success?
By Javier Rojas

What if I told you that some of the leading public companies got there without taking early venture capital funding?

Microsoft, Dell, CISCO, Oracle, and eBay all “bootstrapped.” It’s a well kept secret, and for good reason. These founders took a different path to profitability and ultimately IPO, and because of that also made a lot more money than they might have otherwise. Not only are they THE leaders in their respective fields, but they attained that leadership by bootstrapping until they were between $4 and $60 million in revenues. Many other industry leaders have followed suit, including Siebel Systems, Checkpoint Software, and Broadcom. In fact, dozens of companies have bootstrapped through the early years – forgoing paychecks for a higher stake in the company, focusing on customers and real revenues rather than market sizing and early valuations. For an early-stage business seeking venture capital, there are compelling reasons to also consider bootstrapping. It’s a smart way to build a great business.

How It Works

Bootstrapping happens when a company develops with little or no outside funding. The company opts to fund its primary development and growth through internal cash flow using real customer revenues. The founders and a restricted set of early employees often forgo paychecks for equity in the company. Eventually these companies operate at a breakeven or profitable performance level by necessity. Some companies formed from breakeven or cash-positive corporate divestitures share these same qualities.

Bootstrapped companies find ways to generate revenue and sustain growth through consulting engagements, non-recurring engineering (NRE) engagements, value-added reseller (VAR) agreements, customer retainer fees, divestitures or protected supplier contracts with a parent company for a defined period of time, the classic “moonlighting,” and even waived compensation. They learn to generate revenue that funds growth and expansion until reaching a level of growth where it no longer makes sense to go it alone.

Building Great Companies

While not conventional for every business, bootstrapping does build great companies. There are numerous justifications for bootstrapping, namely establishing a solid foundation for future growth, product development, expansion, and market leadership. When a company becomes self-sufficient, early customer focus becomes baked into the company’s DNA. Bootstrapped companies must listen to their customers and react to what they are saying. They must develop products the marketplace will purchase, so often market-test their products and involve their customers. Executives who aren’t fundraising and appealing to investors are able to focus more time on customers, managing growth and building the company at a time when customer acquisition is necessary for sustainability.

A second salient point is that capital allocation is more rational and less speculative among bootstrapped companies. Investments are more gradual, burn rates are more sustainable, time as a resource can be spread more evenly across the company and not impeded by external forces.

Finally, because there are fewer distractions, managers tend to be more focused and goals more closely aligned when a company bootstraps. Typically teams are smaller and have fewer projects in the hopper. And because bootstrapped companies cannot afford to simply throw money at a problem, they must focus on solving the real issue – from internal matters with employees, to external customer issues, to developmental product concerns.

Angel Capital Is Patient

Angel capital can play an important role in a company’s future, and companies often bootstrap with a little help from their “friends and family.” Typically this early capital represents a more patient investment in individuals who the investors know and trust rather than venture capital, which is third-party investment and carries a different level of accountability. Angel capital offers bootstrapped companies a financial resource without having to seek venture capital too early.

How Much Bootstrapping Is Enough

Raising money at the right time can transform a company’s growth rate, so it is important to know when to raise capital. Companies should watch for signals that they’ve outgrown bootstrapping:

Market growth rate is accelerating. If the market is growing faster than internal funding, you risk losing market share (and equity) by not sustaining growth.

Customers are buying products and sales are predictable. You can scale your sales team and/or channel effectively with the money you raise. As a rule of thumb, you should feel confident that you can predictably generate at least $2 in gross profit for every $1 in incurred sales and marketing expense. We recommend a $3:$1 ratio as an even safer barometer.

Complementary products or businesses become available. Is it time to expand your offerings through acquisition? Can you economically acquire new customers through a merger? If you are considering M&A activity and need money to finance your growth, it’s time to raise capital.

The current economic cycle favors growth. The current economic cycle appears favorable to increased technology investment and you see new growth areas on the horizon.

Your balance sheets need strengthening or you want to diversify risk. Co-mingled balance sheets can be a major challenge for bootstrapped businesses. A prudent decision for the company may be imprudent for the founder (for example, scaling sales at the expense of cash-flow). Selling some shares offers founders a way to diversify their own risk.

Where Do You Go From Here

If you’ve bootstrapped long enough for any of these events to occur, you’ve done a pretty good job steering your ship on a steady path, have maintained an equitable stake in your company, and can begin to look for the right partners to help you grow. The question you now may ask is, “What do I look for in an investor?”

Don’t simply look for an investor – look for a partner with vested equity interest to help you grow. If you have ambitions of rapid growth, what are the steps to getting there? The right partner will have experience walking the same path as you, and can help to secure your success. The reality is that many parts of your business and how you manage it will need to change internally and externally. The right partner should help you achieve this by offering substantive contributions – not just capital. Bottom line after coming this far is to find a partner – not just an investor.

Take Note: Bootstrapping Is Not For Everyone

Some startup businesses don’t have the luxury of bootstrapping. Their market may be immediate and, therefore, they don’t have three or four years to patiently grow the business. As well, their business may be capital-intensive, requiring funding from inception. In some cases, the founders simply can’t invest “sweat equity” in their business by forgoing pay for months and even years. Nevertheless, while bootstrapping doesn’t work for everyone, for the entrepreneur who has the time and wherewithal to grow their business through diligence and hard work, it can lead to a great business and even greater financial rewards. Bootstrapping for many is a sure path to success.

Author:

Javier Rojas is a managing director at Kennet Partners and leads its U.S. investment activities. He is currently on the board of Daptiv, IntelePeer, Go Internet Media, and Kapow Technologies. Prior to joining Kennet, he was a managing director of Broadview International and led their West Coast Software and Services practice. Javier specialized in advising high growth, early-stage companies on how to capitalize on emerging technology markets and partnering opportunities. He invested and/or advised on a number of successful companies and high value exits including Etek, Webex, Looksmart, Blue Mountain Arts, When.com and Rightworks. Previously, Javier was with Morgan Stanley. Earlier, he founded a software firm that developed products for capital markets interest rate and currency swap traders. He holds an MBA degree from The Harvard Business School and a BAS degree from Georgetown University.

My thought for the day is a charge! The next time you have a question or problem ask someone outside your normal sphere for their thoughts on how to solve it. It’s amazing how much information there is beyond our fingertips and immediate network and by asking people outside your normal audience you can tap into generation of knowledge that you can apply back to what you’re doing – information that have never even focus if you don’t look outside for it.

I recently saw the movie “Pay It Forward” for a second time. Pay it Forward is about a boy who creates a program for social studies where you have to do 1 thing for 3 different people that they can’t do for themselves and then in turn they have to do the same. Paying it forward is about helping people without being paid back and spread the good karma. The movie made me cry both times I saw it as it is a sad sweet movie, well made and well acted. The point is sometimes you should be selfless and help others and try to make the world a better place. Unfortunately in this case, the boy gets stabbed and killed while trying to help a kid in the middle of it all so while he helped others, trying to do a good deed led to his own demise. Stil, if you have the opportunity to help someone, do it, don’t worry about the payback. Sometimes it comes back, sometime It doesn’t and sometimes you just make a difference.

Cross Roads
Deciding when the time is right to sell your business
By Javier Rojas

Should I sell my business? A question every business owner ponders, but how do you know the right answer?

Three major factors are typically involved in the decision to sell: market, financial and personal. By carefully evaluating each of these areas, you’ll find your answer.

Step One: Review the Market
The market for your company’s products or services should be the primary consideration for timing the sale of your shares. In some markets, like technology, it may be difficult to predict when the market will take off or hit saturation – use your best judgment. A number of independent indicators may signal when it is time to sell: accelerating sales, sudden and sustainable increases in the sales pipeline, new competition entering the market, and easier close rates on large customer sales.

Considerations:
• At what stage of market development is your company? You may decide to hold onto your shares if your company is early stage and there is confidence in near-future growth.
• Are you positioned as the market leader? A market leader may be more inclined to hold onto shares unless there is an offer on the table you just can’t refuse. If you are not well positioned to be one of the top two players, an early exit may be more compelling.
• Has Microsoft or IBM entered your market – and how defensible is your position? If the big guys are entering the market, is their entry relevant to you? The stronger position you own, the more security you have in maintaining market lead.

Step Two: Understand the Financials
Compare of the economics of a share sale today with a share sale in three to five years. If your business is in the rapid growth phase, and you see no other benefit in selling shares, this analysis will likely lead you to retaining shares. After all, your business may be growing so rapidly that it would be difficult to achieve full compensation today for your perception of its future value.

Considerations:
• What is the expected revenue growth over the next three to five years based on the market review?
• What is the future exit value for your shares after considering dilution from any anticipated financings?
• What is the discounted value back to today’s dollars? Use a low discount rate if you are not confident, a higher one to equalize for increased risk factors. For a technology venture, a discount rate of 20 to 30 percent is usually appropriate to adjust for comparable risk.
• What are the factors that could prevent your company from realizing its growth objectives on the timetable outlined? For example, is management team experienced in leading a company through these growth cycles and running a large company?

Step Three: Consider the Personal Aspects
Never overlook your personal lifestyle considerations. A founder-entrepreneur late in their career with relatively few assets will approach liquidity with a different risk profile than someone early in their career.

Considerations:
• Risk Profile – Is the equity in your company your primary asset? Does it represent a majority of your holdings? What is your risk tolerance?
• Real Money – Is real money a financial goal worth securing at the expense of other potentially lucrative opportunities? Does your risk tolerance to achieve additional financial goals drop significantly behind this goal? Will selling all or some of your shares enable you to attain a level of financial security and achieve a more ambitious goal for the balance of your holdings?
• Personal Growth –What are your aspirations? Realizing a vision? Playing a key role in the success of your business? Or is it relinquishing control to a more suitable candidate who can see your business to its full potential?
• Changing Roles – Can you work with your existing boards and key executives or are roles and responsibilities changing? During the transition from founder-led business you may decide to take on a leadership role and allow key executives to manage the business. What changes do you foresee now and in the future?
.

Conclusion
Score each category with a plus or a minus. Alignment across all three indicates a sale is prudent – sell, sell, sell! If the factors are not in agreement (for example, the market says sell and for personal reasons you are resisting), focus on the tradeoffs, set a timetable for when you believe alignment will occur, and look for a mixed solution – such as a partial sale. By evaluating the market, financial and personal aspects of your business, you are on your way to making a sound business decision.

About the Author
Javier Rojas is a managing director at Kennet Partners and leads its U.S. investment activities. He is currently on the board of Daptiv, IntelePeer, Go Internet Media, and Kapow Technologies. Prior to joining Kennet, he was a managing director of Broadview International and led their West Coast Software and Services practice. Javier specialized in advising high growth, early-stage companies on how to capitalize on emerging technology markets and partnering opportunities. He invested and/or advised on a number of successful companies and high value exits including Etek, Webex, Looksmart, Blue Mountain Arts, When.com and Rightworks. Previously, Javier was with Morgan Stanley. Earlier, he founded a software firm that developed products for capital markets interest rate and currency swap traders. He holds an MBA degree from The Harvard Business School and a BAS degree from Georgetown University.

Lesson for the day: Value is determined by the one in position to determine value. No other opinion matters.

If you think you did X and deserve Y whoever determines what you get determines what value X is worth. Not you.

Extrapolated further, there are big companies trading at less than cash value, which means if they liquidated shareholders would get back more cash then the company is worth right now. What is value?

So I’m in the middle of a negotiation over a deal that got set up and keeps being renegotiated, my role in it was admittedly minor but the lead on the deal continually tried to optimize the deal for himself and continually didn’t do a good job for himself and kept coming back to me to cram me down, despite the fact he asked me to do very little, even when I initially offered and said ‘take this and be happy’ then comes back and says ‘your not doing anything, take less because I did a lot more and aren’t getting enough’. Now from a functional perspective, he is right. He deserves more. However, he tried to structure the deal and optimize for himself and it backfired and he gave too much away to other people. The challenge is we had a handshake agreement and he already crammed me down 50% and wants to cram me down more. From a functional perspective, he deserves it but at some point he should have to sleep in his own bed that he made. The lesson I learned is don’t do a deal without contracts, at least then the counter party has to plead rather than try to continually dictate and re-optimize because there is nothing holding him to the deal.

I try to operate on a handshake and I rarely make commitments I can’t keep, I try very hard not to do that and its frustrating when others don’t live up to their own word and basically blame you for not getting it in writing. Lesson learned. Paperwork first.

So should I acquiesce and say ‘you’re right you should have more, you did more work’ or should I say ‘you’ve already optimized once, nothing has changed except you didn’t optimize well for yourself, sleep in the bed you made’ ?

From a Software License to Subscription: Achieving Success with SaaS

Javier Rojas, managing director, U.S.
Maximilian Bleyleben, managing director, Europe
Kennet Partners Ltd.

The market for on-demand software pricing and delivery (also known as Software-as-a-Service, or SaaS) is heating up. As corporations become increasingly open to buying software in this manner, application vendor’s revenues are growing rapidly. In fact, aggregate turnover for stand-alone public SaaS companies has reached nearly $750 million annually.

Entrepreneurs are discovering a significant financial incentive to shift to a SaaS model. Public equity markets are placing a high premium on SaaS vendors, with market values averaging 5x forward revenues. A company with expected revenues of $50 million in 2007 and a median growth rate could command an IPO or trade sale valuation of $250 million or better.

As a result of this dramatic shift, private investors are focusing more on promising SaaS vendors. In both the private and public markets, SaaS companies are being valued at a premium because of the visibility afforded by the recurring revenue model, the low marginal cost afforded by multi-tenancy delivery of software and the reduced cost of selling on-demand solutions.

So, how can a software company successfully make the transition to SaaS vendor?

The operational challenges of making this shift are significant, impacting every part of the company. And, the transition can have a dramatic impact on cash collection which, if not managed appropriately, can sink the business.

Software vendors that have made the transition to SaaS offer useful lessons to ensure success. These lessons include:

• Phased migration via a subscription model: Vendors can achieve a lot of the benefits of revenue recurrence and forward visibility by moving to a subscription model even if the product is not delivered on-demand or hosted on a multi-tenancy basis. Properly designed, a dedicated-instance hosted model can also make possible an on-demand “try-before-you-buy” sales model, which can accelerate new client acquisition. Though it does not provide the additional economic benefit of multi-tenancy, it can be introduced subsequently when the appropriate technology platform has been developed.
• Transition with a New Release: Because the change to a subscription model can be difficult for customers accustomed to buying on a license basis, it is more readily accepted when introduced in conjunction with a major new product release. This approach also helps the vendor to take advantage of the new product launch to coordinate pricing messaging.
• Differential Pricing Drives Subscriptions Sales: Though it is important to offer customers a choice, vendors must price a perpetual onsite license at a significant premium to the subscription pricing. This motivates user to transition to the SaaS offering. The on-demand pricing model also minimizes the loss of cash flow from the transition to subscriptions. The negative cash impact can be reduced by collecting first-year subscriptions upfront or by charging a reasonable set-up fee to offset the delayed revenues from subscriptions.
• Be Comprehensive: When transitioning to a recurring revenue model, it is vital to get most customers to switch. To benefit from the valuation premium given to SaaS businesses, recurring revenues need to account for a majority of revenues. Only then can a vendor gain the forward revenue visibility and value of cost-effectively scaling operations.

Though this shift in business model is daunting, success is achievable for most software companies if their leadership minimizes obstacles and streamlines the transition. Though it may seem like migrating the majority of customers to a recurring revenue model within six months is difficult, we have seen it implemented successfully. By taking this approach, it is not uncommon for a software company to achieve a doubling or tripling in valuation.

About the Authors
Javier Rojas is a managing director at Kennet Partners and leads its U.S. investment activities. He is currently on the board of Daptiv, IntelePeer, Go Internet Media, and Kapow Technologies. Prior to joining Kennet, he was a managing director of Broadview International and led their West Coast Software and Services practice. Javier specialized in advising high growth, early-stage companies on how to capitalize on emerging technology markets and partnering opportunities. He invested and/or advised on a number of successful companies and high value exits including Etek, Webex, Looksmart, Blue Mountain Arts, When.com and Rightworks. Previously, Javier was with Morgan Stanley. Earlier, he founded a software firm that developed products for capital markets interest rate and currency swap traders. He holds an MBA degree from The Harvard Business School and a BAS degree from Georgetown University.

Maximilian Bleyleben is managing director in the London office of Kennet Partners, where he is responsible for software, IT services and digital media investments across Europe. He is currently a director of FRS Global, Telemedicine Clinic and TradingPartners, a board observer at Adviva Media, and has been a director at Aspective (acquired by Vodafone UK). Prior to joining Kennet, he was vice president at Broadview International, advising enterprise software, IT services and Internet companies on M&A transactions and private placements. Earlier, Max was a project manager in emerging markets for an international media company. He holds an MBA from INSEAD and a BA degree from Bard College, New York.

So the last post was on law so here’s a follow up and some suggestions - I recommend reading Venture Hacks Nivi & co do a great job for more in depth ideas…

Some suggestions (if you can get them):

Change in control: If you are no longer CEO or a board member, you fully vest.

Write your own employment contract and non compete and sign it before someone else tries to give you one.

Options: If there are options that are authorized and not granted, they should go back to the founder not the company treasury or investors.

One interesting thing that I recently saw is a firm that raised angel capital and then whenever the founders invested more dollars they issued themselves more stock. Usually you see people shoveling money into their own companies and getting no new stock (usually in angel stages). This way you get stock for $ you put in instead of nothing as is normally the case.

If you invest your own capital, do it in the form of convertible debt to the company (you may end up being forced to give it up but its worth a shot)

There are also great articles out there on liquidity preference and participating preferred stock - read Venture Hacks for better information on those terms.

So today’s post is about a topic near and to everyone in our community, The “inlaws”. By that i mean the inherent conflict of interest that tends to occur within the legal community in relation to the venture community. I’ve gotten to know a number of lawyers in the community quite well over the last few years and have a lot of respect for them and are friends with a number of lawyers, however it is a small community and an interesting thing that occurs is that the same law firm can and often does represent both sides in a transaction (either directly or indirectly). What do i mean? Well, a law firm can represent a fund in one deal and the entrepreneur in another and both be going on simultaneously. It creates a confusing situation.

Outside of the venture sphere, the situation could be seen as a conflict of interest but given our world, it is standard practice. Often times the lawyer may be the one that introduced the company to the investor which is great for both parties but further complicates the question of representation.

My buddy Adeo, the amazing founding member of The Funded always likes to say that the lawyers work for the fund not for you and that the second $ is closed, it is no longer your counsel.

Given that the fund represents (generally) infinitely more business than a single entrepreneur, there is a point in there. On a technical level corporate counsel represent the controlling shareholder or bloc of shareholders but on a practical level it’s something to think about.

Overall, it’s usually good to have a venture law firm for your company because they do tend to know how to raise money and the process, however it may make sense to have a personal counsel review everything for how it looks from your perspective as the entrepreneur because you want someone looking at your docs that is representing you personally, not your company.

To conclude: Cover Your Ass no matter what you do - I’ve been screwed out of vesting and know many entrepreneurs who have as well. Protect yourself and make sure you have protections in place.

So I was telling a friend from Texas about my new place (awesome loft in the East Village) and he was asking about pricing and here’s what I told him: “In NYC, there are two types of apartments, Expensive or Ultra Expensive, nothing else. So you can get a piece of crap apartment for the same price as a gorgeous apartment as long as you look in the right places.”

Seriously folks, Real Estate in NYC even with the economy hurting is still very expensive and is still more expensive then it was just 4-5 years ago. A 1 bedroom can be $3k or $6k, in between is relative.

Btw, I used to work in Real Estate, running both Technology & Acquisitions for HarlingtonLLC a property owner controlling 50 buildings in the NYC area.

“What do you do?” is a question I am often asked. In the past I relished the fact that i could answer something like ‘everything and nothing’ or something vague like ‘I build digital media companies’. But then I started learning more about positioning people and perception. I know I talk alot about perception but sometimes it takes a reset to really realize how it applies to yourself.

So what did I do? I asked myself that question and what’s my answer now? I am the Chairman of an advertising company (Apparition Ads) and I produce conferences. Simple. If anyone digs further i can talk about how I love advising entrepreneurs and get great pleasure out of helping people enhance their business (or life) and all sorts of other things but start simple and develop from there.