Feedback Form
Home Features Mastermind Forums About Advertise Blog Network Contact Be An Author
Entrepreneur Advice:
Brad Feld
www.feld.com
About Brad Feld

Brad Feld is currently a Managing Director at Mobius Venture Capital and has been with the firm since 1996. Prior to Mobius, Brad founded Feld Technologies, which was sold to AmeriData Technologies in 1993, where he became Chief Technology Officer. Brad currently serves on the boards of a number of private companies, including Atreus, Comergent, ePartners, FeedBurner, Gold Systems, Judy's Book, Klocwork, NewsGator, Quova, Rally Software, and StillSecure. In addition, he is on the board of The National Center for Women & Information Technology, The Community Foundation Serving Boulder County, and The Colorado Conservation Trust. Brad has previously been a member of the board of directors of the Young Entrepreneurs Organization and founded the Boston and Colorado chapters. He holds Bachelor of Science and Master of Science degrees in Management Science from the Massachusetts Institute of Technology.



Recent Article:

Giving Up Salary for Equity After VC Funding
- For more on Brad Feld visit www.feld.com

I got a great question the other day which highlights the tension that can emerge in an early stage company between VCs and entrepreneurs.

Company X - which is VC backed – has six months of cash in the bank. Almost every employee could go without a paycheck. The team is on full pay now – it’s a small team of under 10. Not taking salaries buys the company another six months. There is a major launch in about four months.

An option the team is discussing is that if the current investors won’t throw in another million now so they have room to raise money after the results of the launch, they will "self finance" the company by everyone cutting pay if the investors issue a significant additional chunk in common to the employees

What are the issues for the team in doing something like this have you seen it, when not in a "difficult" situation?

While there is no tension yet, here’s a negative view of how this could play out. The entrepreneurs ask the VCs to put up money – presumably at a certain price – in exchange for buying another six months of runway. The VCs don’t like the price the entrepreneurs suggestion (presumably it’s too high) and offer to do a bridge loan with warrant coverage or an equity round at a lower price. The entrepreneurs don’t like this, so they tell the VCs they’d rather go without salary for six months and get stock equivalent to what the VCs would have gotten (at the lower price of course) for their investment. The VCs don’t like this because (a) they aren’t getting money to work, (b) they are ending up with less, not more of the company, and (c) they potentially lose some of the control over the financing dynamics. After much handwringing (and wasted time), everyone comes to an agreement on the amount of stock the entrepreneurs and staff get for going without salary for the next six months.

Wind the clock forward. The entrepreneurs have an “ok” launch, but the valuation for the new round is lower than they expected or there is no outside lead and the VCs start talking about an inside round. The VCs have no incentive to get the valuation up in this case - they are focused on buying up more ownership, so they’d rather have a lower valuation anyway. The entrepreneurs are pissed because they just gave up salaries for six months but didn’t end up in the “better” position they wanted. The VCs aren’t appropriately sympathetic (at least in the entrepreneurs mind) to the situation – the entrepreneurs just made an investment they aren’t getting credit for.

Tension mounts. No one is happy.

While it’s a logical trade, it’s an uncertain one for the entrepreneur because there is no way to predict whether or not the launch will be successful, so fundamentally the entrepreneur is buying more runway, but not necessarily for the exchange of more ownership. Of course, in the positive situation (where the launch goes great and new investors show up willing to invest at meaningfully higher prices) this could work out nicely.

Read this article on Brad's blog.





Giving Up Salary for Equity After VC Funding - To learn more about this author, visit Brad Feld's Website.

Like this article? Share it with your friends

Article Feedback
 Article Feedback No article feedback found.
  Leave Your Feedback
article feedback

Article Feedback

To learn more about the Evan Elite Author Program please contact us.


More Brad Feld

Blog - Brad Feld



Evan Elite Authors
John Power  
Stephanie Robey  
Staging Diva  
Evan Elite Authors

Become An Author
Have you written articles that would be of value to entrepreneurs? Become an expert on our site by publishing them! Expose yourself to a wide audience, drive more traffic to your website and get more sales! Click Here for details.
Become An Author

Evan's Latest Video
Modeling the Masters: Learn the true secrets behind Walt Disney's business success factors & grow your company! Video produced by Phanta Media
Evan's Latest Video

Business Opportunities
"Learn straight from Evan how you can Make a Full Time Income (And More) from a Website"

How to Start An Online Business

Click Here To Learn More
Business Opportunities



Evan's Newsletter
Get advice & tips from famous business owners, new articles by entrepreneur experts, my latest website updates, & special sneak peaks at what's to come!
Name:
Email:
Evan`s Newsletter

Free Downloads
Pulse Check Assessment Icon Pulse Check Assessment
SEO Made Simple Sample Chapter Icon SEO Made Simple Sample Chapter
Attract Desired Careers Icon Attract Desired Careers
Managing the Unimaginable Icon Managing the Unimaginable
Branding The Product Icon Branding The Product
Free Downloads - Complete List

Entrepreneur Tools and Guides
Top 50 Geek Business Blogs
Top 50 Geek Business Blogs
Top 50 Geek Business Blogs
 
Top 50 Business Plan Blog Posts for 2008
Top 50 Business Plans
Top Business Plan Blogs
 
Entrepreneur Tools and Guides

SEO For Africa
SEO For Africa
Agnes Londo Agoe, Togo,
Agnes Londo
Agoe, Togo
SEO For Africa

If I Were A Startup...
Travis Hartley, 426% Growth in 2 Years
Travis Hartley
426% Growth in 2 Years
Julie Mitchell, $470k to $1.1 Mil in 2 years
Julie Mitchell
$470k to $1.1 Mil in 2 years
If I Were A Startup... - Complete List

Famous Entrepreneurs
William Wrigley Jr., Wrigley
Craig Newmark, Craigslist
Craig Newmark
Craigslist
Famous Entrepreneurs - Complete List

Entrepreneur Advice
T. Harv Eker, Millionaire Mind
T. Harv Eker
Millionaire Mind
Jay Conrad Levinson, Guerilla Marketing
Jay Conrad Levinson
Guerilla Marketing
Entrepreneur Advice - Complete List

Popular Articles
(Premium Authors)

     How Are You Dealing With the Recession in Your Business?
By Erin Blaskie
     The Secrets to Small Business Success
By Erin Blaskie
     Business Concepts: Determining the What, the How and the When For Your Business
By Erin Blaskie

Have A Suggestion?
Toronto Salsa Classes / Toronto Salsa Lessons Email us your ideas on how to make our website more valuable! Thank you Sharon from Toronto Salsa Lessons / Classes for your suggestions to make the newsletter look like the website and profile younger entrepreneurs like Jennifer Lopez and Sean Combs!
Have A Suggestion?

More Evan Carmichael
More Information