January 12, 2023
In the venture capital industry, much is made of the massive winners (as well, of course, of those that raise a lot of money and subsequently bomb). The vast majority of founders, however, experience an outcome that falls somewhere in the middle of these two extremes. Learning how to maximize the exit value in these cases, when the company does not achieve product-market fit and does not break out, is, I would argue, a very useful exercise for both founders and investors.
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.
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
Patagonia recently made news by announcing that it would not make branded logo vests for companies that are not “mission-driven companies that prioritize the planet.” Continue reading
An Interesting Question
At Cue Ball’s most recent annual meeting of our limited partners, I introduced one of our most exciting new investments – Wahed. I was later approached with an interesting question about Wahed’s business, which is the subject of this post. Continue reading
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
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
Last week, the 156-year-old insurer John Hancock made waves by dramatically announcing that it was abandoning traditional life insurance in favor of a behavioral-based wellness program called interactive insurance. Continue reading
By: Ali Rahimtula and Matt Eckert
I am delighted to collaborate with Matt Eckert, partner at the law firm Foley Hoag, on this post. I have worked with him on many investments over the years and if you are looking for an excellent corporate lawyer to help you on your next deal, you can’t do much better than Matt.
A common question we get asked by entrepreneurs we work with is what are the key deal documents that are created in a venture funding round and what – from a commercial perspective – is important for a founder or CEO to pay attention to. Continue reading
By: Ali Rahimtula, Anthony Tjan, Dick Harrington
Few topics are of higher interest and concern amongst startup management teams than compensation. Surprisingly, however, there has been relatively little written on this subject.
In early stage startups and venture-backed companies, this issue has special significance because cash is scarce. Mistakes early on can doom a startup. As a company evolves, equity becomes more valuable and the design of a compensation scheme needs to become more scientific and thoughtfully planned. Continue reading