Comments for Venture Best

Comment on Thinking About Dilution by Charles J Gervasi

Charles J Gervasi — Thu, 19 Jan 2012 21:14:42 +0000

In the $1/$2 example, you approach it from an owner’s wealth standpoint. How should the owner factor in the loss of control and/or liquidity associated with owning a smaller piece of a bigger pie?

Comment on It Takes More Than Grey Hair by Charles J Gervasi

Charles J Gervasi — Thu, 15 Dec 2011 22:30:06 +0000

I’m not sure whether that’s a universal slam against the CEO you hired or if some people in the big-company world think HR policies manuals are very important. I once interviewed for a project/job where they told me that had a policy that everyone entering the campus must extinguish their cigarettes before turning their vehicle into the parking lot. This had nothing to do with the company’s mission; they just had lots of policies. Maybe the CEO you hired went on to work there.

Comment on IRC 409A: Good Faith is Good, but not Good Enough by pajones1

pajones1 — Fri, 04 Nov 2011 12:54:46 +0000

For most emerging tech companies “cash is king” so equity is the preferred incentive compensation option. VCs and other investors in tech companies, particularly in the development stage but in many cases even well into the cash generation stage (Microsoft, for example, did not pay any dividends for more than a decade after it began generating cash from operations) are very willing to share some equity appreciation upside with employees (Microsoft famously created thousands of millionaires via its option plans) but loath to commit cash to employee incentives.

Cheerio.

Comment on IRC 409A: Good Faith is Good, but not Good Enough by Charles J Gervasi

Charles J Gervasi — Thu, 03 Nov 2011 20:53:46 +0000

It seems like it would be easier to offer cash bonuses based on individual performance, contingent on the business overall doing well enough to afford the bonuses. I know it’s a common practice, esp 10-12 years ago when I got options as a rank-and-file engineer, but it seems like it causes tax problems and it doesn’t really do what you want: reward individuals for things they personally do to build/grow the business.

Comment on Should employees joining a start-up make a “Section 83(b) election” on restricted stock awards? by Anguilla Rentals

Anguilla Rentals — Thu, 27 Oct 2011 11:37:12 +0000

Anguilla Rentals…

[...]Should employees joining a start-up make a “Section 83(b) election” on restricted stock awards? « Venture Best[...]…

Comment on Pondering the First Mover Advantage by Charles J Gervasi

Charles J Gervasi — Fri, 26 Aug 2011 21:03:08 +0000

I wonder to what extent victory is also a function of the quality of the “secret sauce” or “unfair advantage”. Timing and amt of resources are both important. Together to these two predominate over the quality of the core technology? It seems like there should be some formula that takes into account a) being first, b) resources, c) management team, d) unique elements to the business plan, and e) core technology.

Comment on Entrepreneur’s Guide to Litigation – Blog Series: Complaints and Answers by Charles J Gervasi

Charles J Gervasi — Sat, 09 Jul 2011 16:55:22 +0000

This is a reminder of why it’s important to go over an agreement when signing it. If things don’t go as planned, it’s nice to be able to sit down with the same person in the same room and say, “When we signed this, you said you would do this, and I would that. And we wrote that if X happens then I’ll do Y and you do Z.” That makes it more likely to come to an agreement without filing a Complaint with the court.

In Alan Greenspan’s book he says the economy would grind to a halt if more than 1-2% of contracts went to litigation. A lot of the economy is based on trust with the courts providing the distant backdrop to keep honest participants honest.

Comment on Valuation of the Company vs. Valuation of the Stock: A Venture Capital Paradox by Charles J Gervasi

Charles J Gervasi — Wed, 15 Jun 2011 01:12:43 +0000

You should teach a seminar on this topic.

It seems to me that you’re saying the there no liquid market for the common stock (obviously), so no one can say what it’s worth. The preferred stock has a clear value on the day the investor buys it = the the amt the investor paid. Since no one knows what the common stock is worth, there’s an incentive to say it’s lower for tax and accounting reasons when they give them and options on them to employees. The company has them on the books as being cheap but benefits from the people perceiving them to be worth more. The company doesn’t want to issue more common shares at the lower price, so it’s a bit of an accounting fiction, and accounting analog to going five over on the Beltline.

Comment on Valuation of the Company vs. Valuation of the Stock: A Venture Capital Paradox by pajones1

pajones1 — Fri, 10 Jun 2011 15:24:17 +0000

Good question. In general, no, there is no need for the common valutation to be put at a floor based on the pre-money valuation. As a practical matter (and having been a common holder in these circumstances on several occassion) the common holders will, like the preffered, figure their stock should be valued at the preferred price in terms of how they think about their ownership stake. Put differently, whatever the “formal/accounting” value of the common, holders of common will be thinking like holders of the preferred – to wit that the shares will only have “real” cash value if/when the company has a successful exit transaction – one in which all of the preffered converts to common. In my entrepreneurial experience, I always wanted the company to put the lowest value possible on my common options – so as to maximize my upside, relative to my investment, in a good exit.

Comment on Valuation of the Company vs. Valuation of the Stock: A Venture Capital Paradox by Rich Schifreen

Rich Schifreen — Fri, 10 Jun 2011 15:13:54 +0000

Great explanation of a complex transaction. Question. For the example cited, the post money valuation of $1.4 million is actually less than the pre-money valuation of $2.0 million. I can see where one can (must) accept that the post-money valuation is less than $3.0 million, but how do common stock holders accept that the day after the company accepts $1 million in new financing it’s value drops by $0.6 million? In reality, would the new common stock valuation be set to at least maintain the pre-money valuation?