Posted at www.cdixon.org
Ideal first round funding terms
My last 2 posts were about things to avoid, so I thought it might be helpful to follow up with something more positive. Having been part of or observed about 50 early stage deals, I have come to believe there is a clearly dominant set of deal terms. Here they are:
- Investors get either common stock or 1x non-participating preferred stock. Anything more than that (participating preferred, multiple liquidation preferences) divide incentives of investors and the entrepreneurs. Also, this sort of crud tends to get amplified in follow on rounds.
- Pro rata rights for investors. Not super pro rata rights (explaining why this new trendy term is a bad idea requires a separate blog post). This means basically that investors have the right to put more money in follow on rounds. This should include all investors – including small angels when they are investing alongside big VCs. There are two reasons this term is important 1) it seems fair that investors have the option to reinvest in good companies – they took a risk at the early stage after all 2) in certain situations it lets investors “protect” their investments from possible valuation manipulation (this has never happened to me but more experienced investors tell me horror stories about stuff that went on in the last downturn – 2001-2004).
- Founder vesting w/ acceleration on change of control. I talk about this in detail here. If your lawyer tries to talk you out of founder vesting (as some seem to be doing lately), I suggest you get a new lawyer.
- This stuff is all so standard that there is no reason you should pay more than $10K for the financing (including both sides). I personally use Gunderson and think they are great. Whoever you choose, I strongly recommend you go with a “standard” startup lawfirm (Gunderson, Wilson Sonsini, Fenwick etc). I tried going with a non-standard one once and the results were disastrous. Also, when you go with a standard firm and get their standard docs it can expedite later rounds as VCs are familiar with them.
- A board consisting of 1 investor, 1 management and 1 mutually agreed upon independent director. (Or 2 VCs, 2 mgmt and 1 indy). As an entrepreneur, the way I think of this is if both my investors and an independent director who I approved want to fire me, I must be doing a pretty crappy job and deserve it.
- Founder salaries – these should be “subsistence” level and no more. If the founders are wealthy, the number should be zero. If they aren’t, it should be whatever lets them not worry about money but not save any. This is very, very important. Peter Thiel said it best here. (I would actually go further and say this should be true of all employees at all non-profitable startups – but that is a longer topic).
- If small angels are investing alongside big VCs, they should get all the same economic rights as the VCs but no control rights. Economics rights means share price, any warrants if there are any (hopefully there aren’t), and pro-rata rights. Control rights means things like the right to block later financings, selling the company etc. I once had to track down a tiny investor in the mountains of Italy to get a signature. It’s a real pain and unnecessary.
- Option pool – normally 10-20%. This comes out of the pre-money so founders should be aware that the number is very important in terms of their dilution. Ideally the % should be based on a hiring plan and not just a deal point. (Side note to entrepreneurs – whenever you want to debate something with a VC, frame it in operational terms since it’s hard for them to argue with that).
- All the other stuff (registration rights, dividends etc) should be standard NVCA terms.
- Valuation & amount- My preference is to keep all terms as above and only negotiate over 2 things – valuation and amount raised. The amount raised should be enough to hit whatever milestones you think will get the company further financing, plus some fudge factor of, say, 50% because things always take longer and cost more than you think. The valuation is obviously a matter of market conditions, how competitive the deal is etc. One thing I would say is if you expect to raise more money (and you should expect to), make sure your post-money valuation is one that you will be able to “beat” in your next round. There is nothing more dilutive and morale crushing than a down round.
There is no objective evidence that homeopathy has any effect on these infections 
While Amazon’s Associates program is not my largest income stream (I rank 
Let’s start with the most obvious point – one of the biggest factors in the upward swing in my Amazon earnings has been a corresponding upward swing traffic. 
One of the other major factors that has come into play with the increase in earnings that I’ve had has been the type of readership I’ve managed to gather on my blogs. While I do get a fair bit of search engine traffic I’ve found that in most cases (and there is an exception below) search visitors are not converting with affiliate programs on my blogs – instead it is loyal and repeat readers.
Another big factor in the equation of Amazon conversions is the intent that your readers have when they visit your blog. Why are they there and at what stage in the ‘buying cycle’ are they at?
This is another common sense tip that many of us (yes I failed on this one in my early days) mess up. The more relevant to your audience the products are that you promote the better chance you’ll have of converting.
5. Get People in the Door and Let Amazon Do What they’re Good At
6. Social Proof Marketing 1 – Best Seller Lists
I used to do all of the reviews of photography books on DPS. It was mainly because I couldn’t find anyone else to do them and probably partly a little because I’m a control freak. 
There are two main ways that I promote Amazon links. The first is in ‘Reviews’ for products (the second I’ll cover below in the next point). These links are where I or one of my writers will genuinely look over and test a product and give it the once over. 
The other type of link that I use to Amazon is when I’m mentioning a product in passing and/or a new product is announced that is relevant for my niche. For example when the 
One of the biggest reasons my initial attempts with Amazon fell flat on their face and simply didn’t convert was that I thought it’d be enough to slap an image based button on my sidebar that featured a product or that was simply a banner ad to Amazon. 
There’s hardly a product on Amazon that does not have a listed discount on it. Most books are as much as 30% off recommended retail prices and at different times during the year Amazon runs other special discounts and promotions on different single products or in different product categories.
Jeetu Mirchandani
