What I Learned from a Renowned Product Pricing Specialist

Introduction

Over the years, we at Cue Ball have come to appreciate the importance of thoughtful product pricing by our portfolio companies. Entrepreneurs spend so much effort in developing and refining their products, and often pricing is an afterthought where we are content to do “price discovery” after product launch. But a proper pricing plan has numerous benefits, including better capturing product value as well as activating dormant customers, and in so doing, increasing profitability and growth.

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The Technology Company Masquerade

Note: This post was written in August 2019. WeWork (referenced in the last paragraph) subsequently pulled its IPO in late September 2019, largely because investors came to view it as a property management firm rather than a technology company. I believe what played out with WeWork largely corroborates the thesis of this post.

In my work as a venture capital investor, I often meet companies that position themselves as technology firms but whose core product or business is similar to traditional incumbents. In many cases, they may use technology to deliver their product more efficiently, but they are not selling technology, and often they are not fundamentally innovating the product they are selling. Continue reading

QSBS Tax Factors for Startup Founders, Employees, and Venture Capital Investors

Introduction

Hank Reiling, one of my favorite professors at HBS, taught his students in his excellent class “Tax Factors in Business Decisions,” that is it best to approach tax law not as simply rules-driven, but to understand the purpose behind the rules. In this case, the goal is clear and noble – to stimulate new investment in startups, and particularly technology startups.

The Qualified Small Business Stock (QSBS) tax rules (IRC Section 1202 and related Section 1045) have significant economic benefits for founders, employees, and venture capital investors. We are encouraging all of our portfolio company founders and CEOs to pay special attention to these rules to make sure they understand them so that they can benefit when eligible and avoid disqualifying foot faults. Continue reading

How a Series A Investor Thinks About Your Convertible Notes

Institutional venture capital investors generally prefer to do priced rounds as opposed to investing in convertible notes. Nevertheless, these securities (be they SAFEs or convertible notes) are and will likely continue to be common among early-stage companies. Having been an investor in some of these notes and more often an investor in the first priced round in a company with existing notes, I thought it would be useful to write about how these notes can be treated in your Series A. It is a subject that entrepreneurs sometimes have difficulty with because of a lack of familiarity. The topic is important because the note treatment can change the effective Series A price and have a real impact on founder dilution. Continue reading