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3 Most Common Legal Mistakes When Building a Startup

3 Most Common Legal Mistakes When Building a Startup

Launching a Startup

Launching a startup can be a very exciting yet hectic venture. While enthralled in building your company and generating ideas for a product, it’s easy to forget one of the most challenging components of the entire process: the legal side. This is often the trickiest part for entrepreneurs because navigating the multitude of complex laws and corresponding paperwork involved in starting and building your company can be quite difficult and time-consuming. As a result, it’s very easy for entrepreneurs to get caught in the middle of a heated lawsuit over a simple mistake, the consequences for which are often very severe. Here are three of the most common legal mistakes entrepreneurs make when building a startup.

1) Picking an Unoriginal or Semi-Original Name for Your Company

Who’s Here

When creating a startup, it’s important to carefully choose the name of your company and consider its potential legal ramifications. Every entrepreneur knows that your company’s name needs to capture the purpose or function of your product so that potential consumers will know what your company is about. It’s also well known among entrepreneurs that what kind of entity you choose for your business must be factored into your company’s name. This matters because it affects how much personal responsibility you bear for your company and its financial obligations, such as unpaid debt and taxes. But there’s another component to naming your business: ensuring that your chosen name is entirely original. This part of the naming process is where many startups who find themselves in trouble regarding their chosen name go wrong. Entrepreneurs want the name of their company and product to be as catchy, clever, and intriguing as possible. However, if you do not do your research to confirm that your company and product’s names are completely original, larger incumbents may notice and drag you to court. Unfortunately for you as an entrepreneur, they are very likely to win simply because they are much larger and have better legal teams, even if they do not have a particularly strong case.

In 2010, Brian Hamachek developed an app called Who’s Near Me Live, which enables users to chat and call others based on their current location. However, Stephen Smith and his company, myRete, who developed Who’s Here back in 2008, did not like the name of Hamachek’s new app and made it known to him. In order to avoid a lawsuit, Hamachek decided to change the app’s name to WNM and make sure all references to his app called it WNM. This appeared to resolve things for about a year, until Smith filed a federal lawsuit against Hamachek for trademark infringement. He then gave Hamachek a choice: either shut down WNM or hand over all of your assets. Hamachek refused and litigation continued for several years while Hamachek continued to make offers to Smith in order to reach a settlement.

Although WNM was ultimately able to survive the lawsuit, Hamachek felt the heat of the entire ordeal. He lost out on tens of thousands of dollars in legal fees, which he otherwise could have put towards his product. Additionally, due to the length of the litigation surrounding trademark infringement, Hamachek had to spend hours on end every day for several months dealing with the lawsuit instead of spending it on further developing and improving the app. It is also worth noting that Hamachek consulted with Smith when developing Who’s Near Me Live to ensure that his app’s name was distinct and he still wound up in legal trouble. Therefore, when it comes to naming, complete originality is a must.

2) Not Being Fully Transparent with Investors and Shareholders

Closed financial records

When starting a business, entrepreneurs often will set goals in terms of sales (in units and/or dollars), revenues, profits, and annual growth. Some startups find that sales are slower than expected, they have a serious cash flow problem, or maybe they just want to keep more of the revenue they earned. Many entrepreneurs who engage in this behavior did so under the belief that they and their company would be able to benefit by hiding certain information from third parties, such as investors and shareholders. However, more often than not, their lack of transparency catches up to them later on in the process. As hard it can be to admit you have a money problem, it is crucial that you are upfront with investors and shareholders about where your company stands because the consequences of withholding pertinent information are much more severe than being transparent about your money problem.

In 2016, Domo, Inc., a fast-growing computer software startup based in Utah, found themselves in hot water when Jay Biederman, a company shareholder from Delaware, requested financial documents in order to determine how much his shares of the company were worth. Domo was able to remain a private company and thus avoid mandatory disclosures. It looked like a lost cause for Biederman, until he found out that Delaware state law required full financial disclosure if the plaintiff could prove that they owned shares of the company. Since Biederman had proof he owned 64,000 shares, Domo was forced to open its books. Financial records revealed that after a $200 million investment by a private equity firm, the company was valued at $2 billion and the shares Biederman bought earlier for 32 cents each were now valued at $8.43 per share. Afterwards, Domo had to cough up the amount they had cheated Biederman out of when they withheld financial documents.

As the Biederman vs. Domo, Inc. case demonstrates, attempting to hide financial records and mislead shareholders and investors, either intentionally or unintentionally, is something to avoid at all costs, particularly as you seek a new round of funding. Having a pending lawsuit under your company’s belt serves as a giant red flag for potential investors. This is particularly true if the case involves a lack of transparency, as this may permanently destroy investors’ ability to trust you. Losing the trust of investors may also mean losing your ability to receive additional outside funding, which could prove fatal for your startup.

3) Copyright, Patent, and Trademark Infringement

Trademark infringement

When starting a business, you need to take the necessary steps to protect yourself from unfair and/or predatory competition as well as infringement. To do this, your company will require legal protection, such as copyrights and patents for your products or trademarks for your brand (logos, slogans, etc.). Securing legal protection for your company and its products can take months or even years to obtain and is quite expensive, especially for patents, which can cost as much as $15,000. On the other hand, it is very easy to unintentionally infringe upon a name or product already legally protected. Therefore, you need to ensure that all your company’s products as well as slogans, logos, and content on your company’s products and website are entirely original in order to avoid copyright or trademark infringement. If anything of yours is too similar to copyrighted, trademarked, or patented content, even just a couple phrases on your company’s website, you may quickly find yourself in the middle of an infringement lawsuit.

Michael Glanz, founder of HireAHelper, Inc. knows this to be the case. In 2008, U-Haul sued Glanz and his company, alleging trademark infringement. U-Haul pointed to two phrases used on HireAHelper’s website, “moving help” and “moving helpers” and claimed they were too similar to two registered trademarks of U-Haul. Despite Glanz’s attempts to settle with U-Haul, they refused and brought him to court. After three years, U-Haul finally agreed to settle the case for an undisclosed amount, though Glanz claims the terms were almost identical to the ones he proposed at the start of the ordeal. While HireAHelper was able to survive and later continue to grow, significant financial damage was inflicted upon Glanz and his family as well as co-founder Pete Johnson.

When all was said and done, Glanz owed $250,000 in legal fees, Johnson had to sell his home and move in with Glanz and his family, and Glanz’s parents had to push their retirement back by an entire decade. As damaging as the consequences were for Glanz, they could’ve been far worse. Had U-Haul taken them to court and won, Glanz and his family could have had their personal earnings wiped out, which would have resulted in Glanz losing his home just after having a newborn and would have all but certainly been the nail in the coffin for HireAHelper. Due to U-Haul’s size compared to HireAHelper’s, the former would almost certainly have won the case had a settlement not been reached.

Conclusion

Startup growth

When you’re creating a startup, the legal side will likely be the most challenging part to deal with. The three cases discussed in this post demonstrate just how perplexing business law can be, but also how easy it is to run afoul of it. In all three cases, the end results were heavily damaging for the entrepreneurs involved and a settlement of some sort was the only thing standing between the legal system and their entire business. Taking the time upfront to ensure that you know and understand all relevant business laws and that you and your company are in compliance with all of them is a necessity in order to avoid these expensive but preventable legal pitfalls. Avoiding these mistakes will allow you to focus your time and attention on the health of your business and will increase the likelihood of success and stability of your business in the long run. Are you a startup seeking funding during Seed or Series A? Check us out here!

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VenturX is a web platform that helps entrepreneurs through their journey from idea to launch and beyond. VenturX uses data-driven analytics to score and connect startups and investors at Seed and Series A financing.

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How To Adopt An Entrepreneur Mindset 

How To Adopt An Entrepreneur Mindset 

Entrepreneur Mindset is KEY

Mindset

“Entrepreneurs have a mindset that sees the possibilities rather than the problems created by change.” For the past few years, I’ve pursued the answer as to how are entrepreneurs different from the rest of us? It’s apparent that more and more young people are starting to build their own businesses. Tobi Lutke, who founded Shopify in 2006 used his experience as an entrepreneur and a software developer to launch Shopify and it is now a billion-dollar company.

According to FOUNDER INSTITUTE, employees don’t become successful entrepreneurs simply by starting a company; they must also embrace an entirely new way of thinking to adapt to and thrive in the unpredictable world of start-ups. Are you an employee who’s looking to make a transition to becoming an entrepreneur, keep in mind the following five key mindsets you’ll need to adopt before taking the leap.

What Are The Entrepreneur Mindsets?

Mindset

1. Reach Out To The Customer First

Though it may seem to many like product development should come first, master bootstrapper Greg Gianforte insists that is the wrong approach. When it comes to reaching customers, public relations can either be a company’s best friend or its worst enemy. Building the foundation for a strong customer/business relationship comes from mutual trust and respect.

Greg Gianforte focused on the tech sector where his experience was strongest. But instead of starting with a prototype for a product or service and then seeking funding, he started by getting on the phone with potential customers. That led to conversations about what kind of product they would buy. After a month of phone calls, Gianforte spent about 60 days coding the product his customers said they wanted. He claims his company, RightNow Technologies, was cash positive from the beginning. The business makes cloud-based software for large consumer businesses and was sold to Oracle in 2011.

2. Network To Build Business

Many entrepreneurs talk about the importance of networking, but few are as specific about how and why networking is important as Jason Nazar, co-founder, and CEO of Docstock.com. Today, studies have shown that up to 80% of jobs are never advertised — they are filled by word of mouth. So it’s who you know and who knows you that matters. You must develop relationships and connections within your network to have more opportunities to advance your career. Attending meetings and social events hosted by your professional association is a great way to connect with people in your field. Always have a goal in mind when networking. People always say that a plan without a goal is just a dream. Networking events should be part of your overall plan to ensure you get the most out of your valuable time. If there is no connection between your strategy and your actions, there is a problem. Want to explore various networking goals? We got you covered here.

Nazar says he owes his success — particularly the founding and growth of his current company — to his networking efforts. He says he used networking to raise $4 million in startup funds. He says he also used it to locate a co-founder and build the majority of his organization.

3. Keep Control Of Your Vision

It is important to have vision and purpose because it helps make our decisions that create our lifestyle. Discovering your vision isn’t that hard. I’m sure you are like me, wanting to achieve and accomplish certain things during our lifetime, and for most of us, the passion we feel deep down ignites us and brings our hopes and dreams to the surface. If you have trouble discovering your vision, ask yourself this — What are you deeply passionate about? What type of work do you find engaging and truly enjoy? At the end of your life, what will be the greatest accomplishment?

Jack Ma, also known as Ma Yun, is the founder and guiding hand behind Alibaba, a giant Chinese-based wholesale eCommerce site. Despite its popularity and financial success, Alibaba’s road to acceptance outside China has not been easy. Ma believes in his vision for his company to get the job done. Now Alibaba is one of the largest companies the world has ever since.

4. Take Ownership

When you begin to do the work and take ownership over your life, you start to realize the power of time management, control, and autonomy. You live life on your terms this way.

Oprah Winfrey had experienced plenty of success as a broadcaster and even in the entertainment industry before ever launching the Oprah Winfrey Show in 1986. But it wasn’t until after taking ownership of her syndicated talk show from ABC that Winfrey’s entrepreneurial skills began coming into focus. Her production company would eventually produce other TV and film projects.

Winfrey’s entrepreneur mindset eventually led her to launch a magazine and even her own TV network.

5. Focus On What’s Good For Your Business

You can’t grow a business until you have a focused vision of where you want it to go. The overall strategy is the big picture and the ultimate direction as well as the purpose of the business. To achieve focus on a daily level, consider the following: The Pareto Principle (80/20 Rule). It states that 20% of your actions and inputs will create 80% of your desired outcome. The key here is identifying and focusing on the 20% that is actually achieving the 80% of your desired outcome and not falling in the trap of working on the 80% that’s only achieving 20% of the desired outcome. The 20% you do choose to work on should mostly work towards improving the one metric you chose to focus on.

From bestselling albums to a nightclub, a clothing line, a sports franchise and more, rapper Jay Z is known not just for his music but also for his business acumen. His success is based in part on his focus. It includes a refusal to spend his time on anything that does not expand his entrepreneurial ventures.

Cultivating an Entrepreneur Mindset

Mindset

Do you see yourself having these mindsets? Channel these qualities into your business and be persistent. Or pick a trait to which you aspire and see how you can put that trait to work in your professional life.

Mindset is crucial. In the words of Oprah Winfrey, “The greatest discovery of all time is that a person can change by merely changing his attitude.”

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VenturX is a web platform that helps entrepreneurs through their journey from idea to launch and beyond. VenturX uses data-driven analytics to score and connect startups and investors at Seed and Series A financing.

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The Role of Due Diligence 

Why is Due Diligence Necessary?

Due Diligence

“Due diligence is both an art and a science.” According to Investopedia, Due diligence is an investigation or audit of a potential investment or product to confirm all facts, that might include the review of financial records. Due diligence refers to the research done before entering into an agreement or a financial transaction with another party.

Because of the due diligence, your investors may come to a different or more nuanced understanding of the opportunity and seek to renegotiate the initially agreed terms or even decide to decline the investment.

Types of Due Diligence

Due Diligence

There are various types of due diligence given that every circumstance is different and there’s no formula for it. Mainly, there are four basic types of due diligence which include commercial, financial, tax and legal due diligence.

Commercial Due Diligence reports analyses company performance, the likelihood that the business will meet its targets, and highlights potential problems that may occur as a result of an acquisition. This report provides the potential buyer with in-depth knowledge of the target company and the market in which it is positioned. It is designed to enable the prospective buyer to make an informed decision, and highlight any potential risks associated with the target business.

Financial Due Diligence typically, the scope would include an analysis of the historical quality of earnings, quality of net assets, working capital requirements, capital expenditure requirements, financial debt and liabilities, and forecasted financial results. In short, it focuses solely on the financial health of the company.

Tax Due Diligence is a comprehensive examination of the different types of taxes that may be imposed upon a particular business, as well as the various taxing jurisdictions. To put it simply, it could be viewed as an extension of the financial due diligence, where the focus is on identifying potential additional tax liabilities arising from non-compliance or errors.

Legal Due Diligence covers a wide scope of legal matters, including proper incorporation and ownership, contractual obligations, ownership of assets, compliance, and litigation. It aims to confirm the validity of the rights being acquired by your investors and the absence of legal risks which could undermine the value of the investment.

How Long Does Due Diligence Take?

Duration

According to David Braun, CEO of a Capstone (they specialize in M&A) generally, on average due diligence should take between 30 and 60 days to complete. It is the optimal time to complete a thorough evaluation of the business without letting the process drag on. Why is this such a long process? Read on!

Due Diligence Process

Process

Before the Due Diligence, gather your internal and external team of lawyers, accountants, advisors, and investors. The internal and external team will come together to discuss an opportunity, and terms of investment. Key terms discussed are usually laid out in a non-binding document such as a Term Sheet or a Cap Table. These usually are discussed through a virtual data room whereby information is typically secured hence ensuring only approved viewers get to access the confidential documents. Virtual data rooms can be created virtually and many firms provide them. Datarooms.com, Drooms, etc. are just some of the few that provide safe due diligence with information like this. Need help in generating a Cap Table? Or don’t know what to include in your Term Sheet? We got you covered!

During the Due Diligence, there is a lot, when I say a lot, I meant a lot of information requesting and receiving. So be prepared for that! That aside, there will be on-site visits at the target business by the due diligence team. During the onsite visit, the due diligence team gets to interview with various management team members from various functions; they will discuss the findings as well as draft out a report on the findings. The report is then sent to your investors and further negotiation on changes to the term could take place. Overall, since it is not a one-man show; it involves various stakeholders and hence there is no doubt due diligence process is such a long process.

Conclusion

Process

To ensure a smooth due diligence process, I would advise every business to do a lot of research and do your own due diligence first, so you can answer all the questions raised by your internal and external team. Usually, a framework or checklist would come in handy when you want to do your own due diligence and they can be found here. It goes beyond the basic checks you would normally make and it’s safe to say that if you find it to be relatively straightforward, you probably didn’t do it right. On top of the checklist, follow this article on Due Diligence in 10 Easy Steps. Check out our article on What to include in an Investment Package, it will come in very handy when you do your own due diligence.

According to our experiences, some potential red flags that you should look out for when doing your own due diligence are and not limited to the following — Make sure your business’ contracts are fully disclosed, your business is not in the middle of any litigation case, and check the local laws to make sure there aren’t any violations. You should always try to overcome the red flags or the difficulties faced before the actual due diligence.

No matter what, always remember that due diligence is your best opportunity for investors to understand the risks involved in your business before signing a long term relationship hence, be prepared to do everything to minimize the risk. Are you a startup seeking funding during Seed or Series A? Check us out here!

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VenturX is a web platform that helps entrepreneurs through their journey from idea to launch and beyond. VenturX uses data-driven analytics to score and connect startups and investors at Seed and Series A financing.

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Top 10 Questions from Investors 

Top 10 Questions from Investors 

questions from investors

questions from investors

If you’re raising money for your company and wanting to pitch to angel investors and venture capitalists, then it is essential for you to know and expect what questions will be asked and how you should approach these questions. More often than not, they will ask you the same questions over and over again which will help determine why they should choose you. Make sure you are taking notes on the questions from investors so that you can score during future meetings.

For the past 2 years, VenturX has been actively participating in pitching to investors and of course, we have compiled the top 10 questions your investor will ask you and how you should approach these questions.

Top 10 Questions and How to Approach Them

Q&A

1) Where do you see the sales trend over the next 1–2 years?

This is an open-ended question. To approach this question, you must give a broad response and even touch on a variety of issues that could prove valuable to the investor’s decision-making process. The time frame will give the investor a good gauge of the opportunities as well as the risks involved over a short term. You need to provide as much proof that your answer is not full of just speculations (ie. we have 5 signed letters of intent for the next 4 months, we already have $100,000 in purchase orders that we just need to fulfill, etc.)

2) Who are the competitors in the industry?

The investors want to know who the potential competitors in the market and they expect you to know them in detail. They would also want to be alerted with any new products or services that may appear in the market which could impact your company. You should already have a concrete plan on how to deal with these competitors and focus on what makes you so special over them before your pitch.

“If an entrepreneur tells me that they don’t have ANY competitors, that is a red flag! They didn’t do their homework!” — Marvin Liao, Partner at 500 Startups, San Francisco. 

3) What obstacles are you currently facing?

No doubt every business is prone to failures and weaknesses, they are part of the equation of growth and they are often where all of the great learnings come from. The investors want to know what are the vulnerabilities in your company. However, keep in mind that identifying the problem is only answering part of the question. It is more vital to convince them how are you going to overcome these problems in both short and long term and convince the investors you have what it takes to overcome any potential obstacles.

4) How is your business performing?

Your investors are interested in how your business is performing. You should give them an introduction to Key Performance Indicators (KPIs) and other non-financial metrics that are going to affect the company’s growth. For software companies like us, KPIs include the lifetime value of a customer, customer acquisition cost, and monthly recurring revenue. Whatever your key metric is, it’s usually unique to your specific business. For more info, check out one of my favourite books “Lean Analytics” — by Alistair Croll and Benjamin Yoskovitz

5) How do you track trends in your market?

Due to the nature of start-ups, especially tech-based start-ups, things change very quickly. Investors would like to know if you are aware of your industry, as well as how you find data to stay on top of industry trends. Before pitching, be prepared to share how you find data about your customers and industry, as well as how you can leverage this information to improve your business to stay on top of the game.

6) Can you tell me a story about a customer using your product?

This should not be a surprise as it should already be included in your pitch. According to our experiences, the best pitch usually is the ones that open with a story about how your products and services are helping customers. We would advise using real names to be as specific as possible to describe how your services have transformed your customers and get rid of their “pain.” Hence, be sure to craft an excellent story on your customer and let that tell a story for you!

7) How can I connect with some of your customers who have used your product or service?

If your investors ask this question, you are on the right track! They find your pitch interesting and begin what’s called the due diligence process. During due diligence, they want to know a lot more about your target market/customers. Some insights you should provide to your investors are: who they are, how you know who they are, how did you find them, what do they think about your product or service, how often are they using it, on what scale, how you interact with them, etc. This would be a good place to use metrics that we guide our startups with such as Conversion and Engagement.

8) How would you predict your market will be like in five years as a result of using your product and service?

This is a great opportunity to tell a story on the growth of your company. Predict or picture how your customers’ future as a result of using your product or service in five years’ time. Prove to your investors that you are able to envision and think critically about your product and how your customer will evolve over the next 5 years.

9) What if five years down the road we think you’re not the right person to continue running this company-how will you address that?

Don’t be surprised when they ask you this question. Yes, it is rude and odd but often times, particularly with high growth start-ups, funding CEO does not remain the CEO who scales the company beyond the start-ups’ phase. This is the part where you convince the investors what kind of entrepreneur you are. The reason they asked this question is that more often than not, many founders’ ego get into the way of a company’s growth and they refuse to step down for the good of the company. It is important to address this issue and prove to the investors you do not have such “quality.”

10) How much equity are you offering?

This question usually comes at the end and if it does, it should tell you that you are on the right track and your investors are interested in the deal. The investors would like to know how their shares will be allocated and how it will be diluted assuming there are future rounds of funding such as Series rounds or even IPO when your company has matured enough. A good way to answer this would be to provide data such as generating a Capitalization Table and show them how much shares and how will that change down the road. If you need help generating a Simple Capitalization Table for your pitch, fear not, check out our article on Cap Table 101.

Pitch

That should be the top 10 questions you should expect your investors to ask during your pitch. It should have covered all grounds, if not I’d love to hear from you any types of questions that aren’t covered in this article — please post them in the comments down below and don’t forget to give us a clap if you enjoy reading this article. Interested in knowing how will VC invest in 2019? Our article got you covered! Are you a startup seeking funding during Seed or Series A? Check us out here!

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About VenturX

VenturX is a web platform that helps entrepreneurs through their journey from idea to launch and beyond. VenturX uses data-driven analytics to score and connect startups and investors at Seed and Series A financing.

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How to Understand Your Term Sheet

How to Understand Your Term Sheet

What is a Term Sheet?

Term Sheet

A Term Sheet just to be specific is an agreement between you as an entrepreneur and an investor — a series of terms you think that matter. Some key values of the term sheets include what the valuation of the business is, how much investment the company is getting and for what percentage. Early Term Sheets are for entrepreneurs who are raising seed and angel capital, which is what we will focus on this article. Personally, I like to keep them simple, not a lot of bells and whistles, not a lot of rules.

However, Term Sheets can vary depending on what type of funding round you are in, and how much is at stake, as well as who is involved. If you decided to go for Series A & B rounds, your Term Sheet is going to get more complicated which includes who’s going to be on the board and how many board seats are there, what happens when the board voted for you as a CEO to step down. Yes, I know right, if it’s not for the movie I recently watched, I always thought the CEO represents the top of the ladder and they exercise full control over the company.

There is a great set of templates available online put together by Fenwick & West (National Law Firm) and Andreessen-Horowitz (Silicon Valley VC Firm).

Breaking Down the Term Sheet

Term Sheet

Pre-Money Valuation

According to Investopedia, Pre-Money Valuation refers to the value of a company not including external funding or the latest round of funding. Pre-money is best described as how much a startup might be worth before it begins to receive any investments into the company. This valuation doesn’t just give investors an idea of the current value of the business, but it also provides the value of each issued share.

To calculate the value of your shares for the current round using Pre-Money Valuation, it’s not rocket science. Let me walk you through this, assuming the Pre-Money Valuation is at $3,000,000, we will divide that by the existing number of shares (10,000,000 for example)=price of shares at which new investors will buy. Hence, $3,000,000/10,000,000=$0.30. Each share would cost $0.30.

Post-Money Valuation

On the other hand, post-money refers to how much the company is worth after it receives the money and investments into it. Post-money valuation includes outside financing or the latest capital injection. It is important to know which is being referred to, as they are critical concepts in the valuation of any company.

To put it simply, Post-Money valuation is Pre-Money valuation + Amount Raised. Let me walk you through the calculations, given the same amount of Pre-Money valuation as the previous example, at this round your company raised $1,000,000 and hence your Post-Money valuation would be $3,000,000+$1,000,000=$4,000,000.

However, if the calculations get more complicated as the company grows, this is a great online Post-Money valuation and Pre-Money valuation calculator to generate the numbers for you.

Preferred vs Common Shares

When a business wants to raise money by attracting investors, it can do so by issuing stock: common stock or preferred stock. There are many differences between preferred and common stock. The main difference is that preferred stock usually does not give shareholders voting rights, while common stock does, usually at one vote per share owned.

Common stock allows its holders to make a profit through rising share prices and dividend payments. Holders of common stock also get to vote on corporate issues, such as electing new directors to the corporation’s board. For example, Detour Gold Corp. interim CEO Michael Kenyon resigned 3 months ago following a vote by shareholders and hence the company took an entirely new direction because of common stock shareholders.

However, should the company end up in bankruptcy, holders of common stock are last on the list to get their money back. Putting it simply and plain, if you hold common stock and the company goes bust, you are unlikely to get any of your capital back. For more in, see The Motley Fool.

Preferred stock also represents owning a share of the company, but it works a bit differently than common stock. Preferred stock pays a predetermined dividend, whereas the dividends paid to common shareholders tend to vary according to the company’s fortunes. Dividends on preferred stock are often larger than those on either common stock or the company’s bonds. Holders of preferred stock do not get a vote on company matters. And if a company’s assets are liquidated, the preferred stockholders get to redeem their shares before common stockholders do, giving them a better chance of getting at least some of their money back.

For most investors, common stock is a better deal. It’s slightly riskier than preferred stock but will usually show a slightly higher return as well. If you want to enjoy the potentially high returns of a stock investment but want to minimize your investment’s volatility or your exposure to company-specific risk, the preferred stock might be a better choice. Preferred stock may also be better if you’re looking for a source of income you can depend on, as the dividends paid on such stock are fixed. But whichever class of stock you choose, be sure that it’s an investment you’ll feel comfortable holding over the long haul.

Participating or Non-Participating Preferred

Non-participating preferred typically receives an amount equal to the initial investment plus accrued and unpaid dividends upon a liquidation event. See more at STARTUP COMPANY LAWER. Holders of common stock then receive the remaining assets. If holders of common stock would receive more per share than holders of preferred stock upon a sale or liquidation (typically where the company is being sold at a high valuation), then holders of preferred stock should convert their shares into common stock and give up their preference in exchange for the right to share pro rata in the total liquidation proceeds. Non-participating preferred stock is favoured by holders of common stock (i.e. founders, management and employees) because the liquidation preference will become meaningless after a certain transaction value.

“Participating Preferred” also typically receives an amount equal to the initial investment plus accrued and unpaid dividends upon a liquidation event. However, participating preferred then participates on an “as converted to common stock” basis with the common stock in the distribution of the remaining assets.

Participating Preferred stock is favoured by investors because they will receive a preferential return over both low and high exit transaction values.

A perfect example by founders workbench to illustrate what is going on is the following. Assuming company A has one series of non-participating preferred stock with a liquidation preference of $6 million representing 50% of the capital stock of Company A. If Company A were to be sold for $10 million, the investors would receive $6 million (as the $6 million investment amount is greater than the preferred’s 50% share of the $10 million sale proceeds) and the remaining $4 million of proceeds would be distributed to management. Company B also has one series of preferred stock with a liquidation preference of $6 million representing 50% of the capital stock of Company B, but its preferred stock is participating. Upon the same $10 million sale event, the investors would receive $8 million (the $6 million liquidation preference plus 50% of residual $4 million of sale proceeds) and the remaining $2 million of the proceeds would be distributed management. Thus, in the same $10 million sales, the difference between participating vs. non-participating preferred resulted in a $2 million shift in economics away from management to the investors, which represents one-half of the return that management would have received had the preferred stock been structured as non-participating.

Potential Red Flags in a Term Sheet

Red Flag

After breaking down various important key terms in a Term Sheet, let’s dive into what red flags to look out for in a Term Sheet.

1) Review Period

Some Term Sheet will include a Review Period that allows them to pull the Term Sheet after it’s been signed. Including this is like saying your investors assume there’s a high chance that the deal will fall through, which is ironic since it’s counter to investor norms. That being said, reputable investors would not issue a Term Sheet with a review period if their business diligence is done and they are confident towards the deal.

2) Change in Management

As discussed earlier, your board of directors could replace the CEO if they deemed the CEO to be not a fit. However, these can be done without specifically including it to the terms. If this term appears in your Term Sheet, remove it. Investors would rarely willing to invest in a company where they immediately hope to remove to CEO, and of course, frankly speaking, this is quite rude as well.

3) Guaranteed Exit (within 5 years)

Last but not least, guaranteed exit. This basically means the founder legally commit that they would find a buyer for investors’ shares within 5 years. Startups have unproven economic business models. More likely than not most startups are still experimenting or pivot in the initial years. It is unknown how long this could take because it differs from case to case. 5 years is perhaps when they figured it out what worked and what does not. Lots of opportunities for capital to be returned will arise organically over the life of your company and hence if the investor wants an exit within 5 years, no doubt this is a huge red flag to look out for.

Conclusion

Image result for term sheet for startup
Investor Meeting

As you can see, the Term Sheet can be really quite scary and exciting for new startup founders. If you are pursuing Seed or Angel round funding, Term Sheet is usually less complex and provided by the investors whereas if your company is more mature in the future and decided to go for Series A & B funding, the Term Sheet is usually created by the company. Are you a startup seeking funding during Seed or Series A? We are here to help!

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About VenturX

VenturX is a web platform that helps entrepreneurs through their journey from idea to launch and beyond. VenturX uses data-driven analytics to score and connect startups and investors at Seed and Series A financing.

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How to Work on Your Startup Without a Product

Partnership

I met a great entrepreneur from Australia who was still in the midst of working on the product who taught a great lesson that I think more startups need to embrace. It was a lesson about vision, inspiration, and collaboration. This is a story about Partnerships.

Because at VenturX, we work so many technology-based startups, we often get hit with the question “How can I build more of the business when the product is not ready?” The key to any founding team is divide & conquer. When this startup came to us and was very early, they were not looking for investment or referrals or anything. Instead, they heard about us from our content via Medium, Twitter, and Facebook and wanted to form a partnership.

Here are 3 great tips:

1. The business founder should be building partnerships when the product is still undergoing development. It is never too early for those relationships.

2. When you don’t have your product ready yet, offer to help your partner first. Eg. Our new partner, intribe, offered great support via social media awareness. This was a great lesson about giving before asking. Because it is increasingly common for startups to be asking from everyone (please follow me, download this e-book, do you want me to get you more followers, etc..) It is refreshing and rare to meet those new partners who are giving before they ask. It makes them stand out. Another important aspect of this is to be realistic about how startups can give/help one another when they are small and starting out. We were given realistic expectations of what support we will be receiving via social media because it is what they could offer at the time. It yields an honest and authentic relationship right from the beginning

3. Keeping partners in the loop on your progress. Because we work with 300+ startup clients to get their financing, we do understand the pain of delays and various obstacles. When our partner schedule update calls every few months to give realistic updates and have a clear “call to action” for their partners, it is really appreciative. It shows that both sides do want to help each other and that each of their time is valuable.

Partnerships are a great way to open up your audience channels, penetrate the market quickly and co-brand. In our case, not only did this example broaden our marketing field but it also gave us an inspiring lesson to share as more startups come onto the field every day. These tips are great steps to building out those lasting relationships that can sustain through the life of your company.

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Networking in Silicon Valley

Networking in Silicon Valley

Silicon Valley

Silicon Valley

There is a stigma that people in Silicon Valley are not like anyone else. From my time living there and then going back a few years later, I learned these tips about the how to formulate a simple networking goal, what questions to ask and how to get ahead of the game! I decided to write this article because I was scratching my own itch. It was something I wished I could find more info.

Questions to ask when you meet an investor:

1) Their favourite question of mine seemed to be: “If you only one day left in San Francisco, what would you recommend?” If you feel pride and joy about your city, it is something that would bring your thought back to happy memories that you would recommend to newcomers.

2) General questions about their work: What is your investment focus, what is your average investment size, etc..

3) What are you hoping to get out of this event?

4) How is your current firm different from the last VC firm you were at? (This is a great question for those who changed firms, which does happen a lot.)

5) Offer them something instead of ask for something.

Tim Ferriss made this great video about how to ask questions. Why would this be a good source? He is from San Francisco himself and he is an elite podcaster. Podcasters are trained in their craft to do one thing — ask good questions. His key insights are:

a. Ask questions that are easy to answer. Instead of “what do you like to read?” change it to “what is the one book you give as a gift most often?”

b. Asking the right questions produces an interesting conversation. (he has a different way of saying it.)

See the full video here:

Formulate Your Networking Goal

Form my last article, “Do networking events contribute to your business goals?” I talked a bit about the importance of investing any time or money towards a networking even only if it helps you reach your business goals.

For any goal to be obtained, it had to be: measurable, timed, and accountable.

When I attended the TechCrunch event in February 2019, I had a goal of meeting X number of startups in investors in my industry. I only had 3 hours at the event. I was accountable to my friend who I will report to the following Sunday.

Even before I went to the TechCrunch event, two friends invited me to the Facebook campus for lunch earlier that day, so I was already in the mindset of achieving my goals. So, if there was any space for extra networking, I would make a new “Facebook” friend. Unfortunately, I did not have enough time at Facebook to make new friends.

How to get ahead of the game

· Add people to your LinkedIn beforehand with the note “Looking forward to meeting you the TechCrunch event tonight — Sydney, Founder of VenturX.” It is simple and short enough to fit in that introduction box LinkedIn gives. The reason for that is to get a small idea of who is attending and what their business is about (and if it relates to yours). Note: you can only do if you have newsletters or an email from the event organizer telling you who is going to be there. I received this list 2 days beforehand. (Estimated Time: 5–7 mins for 20–25 new contacts)

· Add attendees beforehand on twitter. If you are in a B2B business like VenturX, I recommend following their company twitter and check on crunchbase for the founder’s names too. (Estimated Time: 10 mins for 20–25 new contacts)

· When you get a strange request from someone you don’t know, I recommend saying hi and asking how you can bets work together. If I don’t know you and you send me a request, I will ask you that. (You can try and reference this article.)

· Thank new contacts afterwards for any tips or resources new contacts gave you. People always like to hear that their advice was helpful

· If you taking photos for company social media account as well, get there early and take photos. This is especially if your phone is slow. It takes 15+ minutes to find the wifi password, connect to wifi with my slow phone, think of hashtags, find the event hashtag, and think of my own hashtags/text, and take pictures. If you want to tag any sponsors/ people, it would take even longer.

In conclusion, networking events are great for face to face interactions so the person you are dealing with isn’t just another email to type.

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Top 3 Venture Capital Investment Trends 2019

How will VC change in 2019? I’m sure many of our readers are familiar with VC. To keep things simple, Venture capital (VC) is raising money by pitching to them your idea/project to convince them to invest in your company in exchange for your company’s equity. With an increasing number of companies going public, the VC industry continues to evolve. If you are interested in getting funded by VC and curious about how the investment trend will be like for 2019, this article is for you!

US 2018 funding

Before moving forward to 2019’s trend, let’s look backward at last year’s trend. According to a new report gathered by PwC and CB Insights, total annual funding in US 2018 increased by 30% as $99.5 billion was raised across 5536 deals.

There is no doubt VC investment shows no signs of slowing down. 2018 alone, Unicorns companies (privately held tech start-up valued at over 1 billion US dollar) were responsible for a quarter of the funding in 2018. These include new players such as Lyft, Stripe, and Slack. The trend seems quite optimistic and the following are the top 3 prominent sectors VCs are likely to invest their money in.

1. Blockchain

The global blockchain technology market is projected to be worth $20 billion by the end of 2024, according to Transparency Market Research. Many have wondered is blockchain technology the new internet? It was developed by Satoshi Nakamoto in 2008 to serve as the public transaction ledger of the cryptocurrency Bitcoin. But since then, it has evolved into something much greater. As the name indicates, blockchain is a chain of blocks contains information. The blockchain is a distributed ledger that is opened to anyone. They have an interesting property, once a data is being recorded in the blockchain, it becomes very difficult to change it.

So how does that work? The main reason why blockchain is so secure is that the way it’s developed. Each block contains a datahash and the hash of the previous block. You can compare a hash with a fingerprint, it identifies a block and its data. A hash is unique just like a fingerprint. Changing something within the block, such as data, will cause the hash to change. If the hash changes, it no longer is the same block. Given the third property of a block, hash of the previous block, if you tamper with the data of the previous block, the hash changes and in turn, this will make the subsequent blocks invalid. Hence, changing a block’s hash will consequently result in the whole blockchain being invalid.

The blockchain is also being distributed which makes it so secure. Instead of using a central entity to manage the chain, it uses P2P network, so everyone can join. Each computer, or node, has a complete copy of the ledger, so one or two nodes going down will not result in any data loss. It effectively cuts out the middle man — there is no need to engage a third-party such as banks to process a transaction. You don’t have to place your trust in a vendor or service provider when you can rely on a decentralized, immutable ledger.

2018 Blockchain Investment

In its latest report, blockchain research group Diar reports that blockchain and cryptocurrency-focused start-ups have raised nearly $7.9 billion in 2018 which approximate to nearly 8% of the total funding in 2018. Various VCs have expressed interest to fund companies that use blockchain to build their infrastructure, especially the ones that store health records and track trademarked and copyrighted licensing rights and content.

There are many exciting upcoming projects blockchain has to offer in 2019 such as Aelf, who currently raised $40 million ever since they developed an “operating system for blockchain,” which the project compares to what Linux did for computing. Using an Aelf side chain, any developer can create a customized blockchain designed for a specific purpose. In this way, the project aims to overcome the performance issues faced by other blockchains at the same time as creating a fully interoperable ecosystem. Another very promising project is by BEAMwho currently raised $25 million. BEAM is a next-generation confidential cryptocurrency based on an elegant and innovative Mimblewimble protocol. BEAM users have complete control over privacy — a user decides which information will be available and to which parties, having complete control over his personal data in accordance with his will and applicable laws. Given blockchain is decentralized, many developers are continuously finding new ways to secure privacy. Their project is intending to release enhanced functionality including atomic swaps with Bitcoin, hardware wallet integration as well as mobile wallets on iOS and Android. Privacy enthusiasts have much to get excited about.

As you can see, blockchain technology itself is likely to receive more attentionfrom the VCs this year with all these upcoming promising projects. In 2019, we will see privacy and personal data protection trends continuing to grow in importance. This is something we can expect with blockchain, given that a large part of this technology is designed to verify the identity and protect the privacy of people and assets across traditional borders.

2. Artificial Intelligence and Machine Learning

When it comes to AI and ML, I’m sure many of you are thinking about robots, especially on Terminators and iRobot in the movies. ML is a subset of AI, it is an application of AI that provides system the ability to automatically learn and improve from experience. The main difference between AI and ML are AI works like a computer program that does smart work, while ML is a simple concept machine takes data and learn from them.

During the past few years, a couple of factors have led to AI and ML becoming the next “big” thing: First, huge data is being created every minute. In fact, 90% of the world’s data has been generated in the past 2 years. And now thanks to advances in processing speeds, the computer can make sense of all this information quickly. Because of this, tech giants such as Google, Amazon, Apple, and VC have bought into AI and ML by infusing the market with cash and new applications. I’m sure you are aware, or more than likely already on AI tech. No? Think again. Apple Siri, Amazon Alexa, and Google Home. I’m sure these products will ring a bell. That’s right AI is so prominent that it has already infused into our daily lives.

2018 AI investment

According to a new report gathered by PwC and CB Insights, venture capital funding of AI companies soared 72% last year, hitting a record $9.3 billion, which approximate to nearly 9.3% of the total funding in 2018. Big tech giants like Google, Facebook, IBM, Amazon, Apple, Microsoft, and others have put aside their doubts on AI technology and are actively embracing this new technology. As a result, entrepreneurs smell opportunities to introduce products and services based on AI in the market. In contrast to previous technology waves where Silicon Valley was the undisputed champion of start-up fund-raising, for AI-focused companies, no one location can be claimed as the nexus for investment or start-up creation.

There are many exciting projects on AI in 2019. While self-driving cars developed by Tesla is not new to most people, self-driving finance is. Based on the projects that are currently underway with banks, we can expect an increase in the number of customers that will rely on AI to drive their finances. Wells Fargo’s new predictive banking feature, powered by artificial intelligence, is one of several innovations the company is introducing to help customers seamlessly manage their financial lives and improve financial health by analyzing our banking transactions and provide tailored guidance and insights for decision making. To find out more about the top 100 AI start-ups in 2019, click here.

3. Healthcare

In recent years demand appears to be on the rise for health care products and services. What I mean by healthcare is broadly defined as everything from biotech, medical tech, healthcare, and IT services. The sector is fairly large and thus pretty attractive to both angel and venture investors.

2018 healthcare investment

According to a new report gathered by PwC and CB Insights, venture capital funding of digital health companies increased by 21.1 percent last year, hitting a record $8.6 billion, which approximate to nearly 8.6% of the total funding in 2018.

More and more VC is looking into funding biotech start-ups, especially those that leveraged on big data and biotech. According to Forbes, A common misconception of biotech investing is that early-stage companies are riskier to invest in than companies that have products in later stage clinical development. Yet many VCs actively invest in early-stage biotech because it allows them to de-risk the investment process by releasing money in smaller trances, allowing them to avoid investing larger pools of money in later stage biotech which may go toward more expensive risk areas such as regulatory, commercialization, and reimbursement. In the biotech sector, it typically takes millions of dollars to transform an innovative idea into a commercially viable product. Hence, venture capital funding is often a necessity and is critical to the success of a biotech company. The biotech industry is therefore closely linked to the venture capital industry that supports it.

Also, recent years more VCs are looking out for start-ups who incorporate AI and cognitive technologies to transform healthcare services. The true value of AI will be found in it working alongside humans to ease the pressure across the healthcare system instead of replacing current healthcare personnel due to process automation. This way, healthcare organizations can offer healthcare services more productively and effectively.

What’s Next?

From this research, we see that Blockchain, AI, and Healthcare are areas where VC will definitely lay their interest. Whatever the future may hold, emerging AI and Blockchain Technology is making indelible marks in financial markets to health care. It should be no surprise that entrepreneurial startups will be transformed by this technological tsunami and VC love transformation. If you are thinking of starting a tech startup, be ready to embrace the technological tsunami as 2019 is going to be an exciting year for you! Already a tech startup and seeking funding from VC? Check us out here!

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About VenturX

VenturX is a web platform that helps entrepreneurs through their journey from idea to launch and beyond. VenturX uses data-driven analytics to score and connect startups and investors at Seed and Series A financing.

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ICO 101 and Why Should You Consider It?

What is ICO?

ICO

ICO, ICO, ICO. There’s no doubt everyone is familiar with or at least heard of cryptocurrency. If not, you are really living under a rock! Even my taxi driver is familiar with the most popular form of cryptocurrency, Bitcoin!

If you are like me, interested in investing in cryptocurrency simply because everyone is talking about it, I’m sure you’ve come across terms such as ICO (aka. Initial Coin Offering)

ICO is a way to crowdfund by issuing cryptocurrency tokens for blockchain projects. And no, these cryptocurrency tokens are not Bitcoin if you are wondering. Instead, they are tokens made by the company which explains why there are thousands of cryptocurrencies circulating in the market right now. ICOs have proved to be valuable fundraising tools for investors since the concept was brought into the limelight in 2013. So far this year, investors have used ICOs to raise over $1.8 billion.

During an ICO, there are two kinds of token you can purchase. First being the utility token, it’s meant to be used on goods and services developed by the cryptocurrency company and nowhere else. The second type of token is the security token, it works very much like stocks where you buy part of the company during IPO. However, unlike IPO, you will not get the equity that comes with regular stocks.

Let’s say now that you have decided to invest in a security token, how can you trade it? You must register yourself on an exchange to trade tokens. However, please do extensive research on various exchanges as not all exchanges will accept the token you own unless you’re holding to the popular ones such as BTC, LTC or ETH. Popular exchanges include and not limited to Coinbase, Coinmama, Luno, Bitpanda, and Kraken.

ICO has achieved its goals if the soft cap is reached. The soft cap is a minimal amount for the project to move forward. And of course, there’s a hard cap, the maximum acceptable amount. However, if the soft cap is not reached, most ICO will return its funds to investors.

ICO is considered a high-risk investment. One of the recent tragic cases on ICO happened in 2016. DAO launched its ICO in 2016 and raised over $150 million through the ICO campaign. However, the smart contract behind the DAO had a small bug that was later exploited by a hacker who eventually made off with $50 million. Both the fundraisers of the ICO and the investors were devastated by the news.

If you decided to test the market or are very interested in investing in ICO, practice doing extensive research around the project by researching about the whitepaper, understanding how the projects apply real-world value and knowing who the key stakeholders of the company are.

The main difference between ICO and Venture Capital

Crowdfunding

Venture capital is raising money from a group of venture capitalists by pitching to them your idea/project to convince them to invest in your company in exchange for your company’s equity. Interested in pitching to venture capitalists? Get your Capitalization Table in check!

How to choose between VC and ICO?

VC vs ICO

VC over ICO

Addition to funding, if you are seeking to expand your reach, consulting services, and business guidelines, this option is for you. VC investors are more reliable since they are experienced businessmen. If you are looking for long-term support on your project, you can rely on VC investors as they have part of the company’s ownership and hence in the long term, without question, they would want the company’s equity value to rise. In addition, VC has a stronger advantage when it comes to public perception. Raising money from VC gives you a stronger trust credit since they are business professionals and they will carefully vet through your project before investing hence if they decided to invest in your project, it proves to the public that your idea is brilliant.

To summarize, benefits of VC includes building valuable connections, investors’ support, and PR credit.

ICO over VC

If you are only looking for a quick way to raise money by reaching out to the mass, this option is for you. Everyone, including a taxi driver, can be an ICO investor. You can raise enough money from everyone. It is an easy way to raise money if your idea can convince the mass. Also, your investors do not have any ownership right, hence you get the freedom to decide over things instead of gathering all the company’s stakeholders before moving forward with your decision.

To summarize, benefits of ICO includes easy reach in fundraising and freedom, no equity required.

Which is better for me?

While ICO and VC are similar processes, they can be very different and each at the opposite end of the spectrum. Which method is better really depends on your objectives and the nature of the company. However, both are promising and a necessary way of raising funds in order for your company to strive.

I hope that you’ll arm yourself with the right knowledge regarding which funding method is best for your company. Please leave any comments if you have burning questions and I’ll be ecstatic to acknowledge them.

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About VenturX

VenturX is a web platform that helps entrepreneurs through their journey from idea to launch and beyond. VenturX uses data-driven analytics to score and connect startups and investors at Seed and Series A financing. 

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Entrepreneurship: Be the Boss You Wish You Had

As we go through our entrepreneurship journey, we are so focused on our day to day tasks, that next funding round, and the next milestone. When reflecting on the big picture about making a difference, we often forget how much we as people factor into each other’s lives. On average, people spend 35–40% of their entire lives at work; that is 90,000 hours. When we go back to reflect on the people we have worked for and how it influenced us in a positive and negative way, it does show up when we dive into entrepreneurship and become leaders and bosses ourselves. Because we have the ability to make great impact on those partners, employees, and colleagues we spend so much time with, we should be strongly considering being the boss we always wish we had.

Everyone’s revelations about this topic would be different. For me, I had a series of great corporate supervisors who were supportive and knowledgeable. However, it was my experience at a small consulting firm that impacted what kind of leader I wanted to be or not. Here is what I learned from my former bosses.

Bosses VS Leaders

1. Do Not Oversell a Solution to Clients And Make Your Team to Under Perform

As a new CEO who is starting out, there is a lot of pressure to sell in order to pay the bills. However, if you sell 20 hours worth of work for only 11 hours because you are a terrible negotiator, then read this article about not giving into discounts: https://medium.com/@VenturX_team/why-startups-should-never-give-discounts-8c291ad93167 and find better clients. If your team works on a billable time basis, and you train your team to work the 20 hours, then 20 hours will still be billed and get mixed up in the finance department. The clients would file complaints against the employee or the company. The other scenario that happened is that you force some of your employees to be assigned to the bad clients and your employees are overworked and force to under-bill the clients. Your startup company would then be making less money and your employees would be constantly frustrated because they will never reach their target. They say that entrepreneurs have to learn at warp speed to succeed in business. This is a prime example as to the notable effects of an entrepreneur’s lack of negotiation and prospecting skills.

Oversell and Under Deliver

2. After the Job Offer, Do Not Propose a Lowered Salary

After accepting the job, a got a call from my future employer who suggested to go on a lower salary with an unlikely bonus system. As an employee it was my first time seeing red flags of mistrust from any employer. He did that after I turned down my other job offers in order to take this job. Entrepreneurs should never do that because it breaks trust and you get off on the wrong foot.

I have come to learn how important trust is in your team and when you get off on the wrong foot, you already tainted your own reputation.

Trust

3. Signing an Awkward Contract

When I was young and working for this firm, I did not know I could question contracts. To this day, I am not sure it was 100% legal in Quebec to make someone go on a 50% salary cut for a probation period and force them to disclose all their personal activities such as volunteering, health and wellness problems, religious activities, etc.. This was stated in our contract that I was afraid to question when signing.

What I do now, is allow all levels of employees to ask questions and even follow up if I have not heard from them. My goal is to train someone for the duration of their contract and ensure they are fulfilled and happy. I respect their personal life and I do not make them disclose details because I do not want to make them feel as uncomfortable as I felt with this previous employment. I did have one intern who requested for us to know each other more so we made it happen; Otherwise, I respect their privacy rights. I cannot guess what will make them happy, I just have to ask. I learned another great lesson that I shared on Jeremy Ryan Slate’s podcast which covers “Grown ups don’t know everything.” You can listen to it here: https://www.jeremyryanslate.com/450-growth-secrets-networking-secrets-intentional-founder-sydney-wong/

Contract

4. Do Not Change the Work Expense Policy After the Trip

On my first trip to Boston, it was clearly written that the meals for the day was $75 CAD daily. After I came back from the trip and spent a little under $75, the CFO co-founder pulled me aside to say that the change was that the meals would be now broken down to $25 per meal for a total of $75. I did not misread because that was not written in the policy they gave before the trip. Overall, this employee lost money in order to go to a mandatory work trip (to generate billable hours for this company).

What I would have done is to absorb that one time expense since the employee followed policy meticulously. Changing an important policy like that would have been announced publicly instead of being pulled aside to be shaken-down by a cofounder of the starting company.

Employer

5. Changing the Year End Bonus Structure

When the bonus structure changes as employees are getting close to the achievement mark, it is very demotivating. The original one was based on billable hours and the new one was imposed near the year end, making all my past achievements obsolete and disregarded. There was no point in starting from scratch. It seemed that the new one was put in place in order to not pay out any bonuses that year.

Today, new entrepreneurs are taught to underpromise and over deliver. When it comes to employees, it should remain the same. This rule of thumb is another element that makes or breaks trust between the parties.

6. Don’t Point Out How You Wish You Didn’t Pay Salaries to Your Employees

At the end of the year, the CFO presented our overall revenue and expenses. The awkward thing that happened was he point out the revenue was higher than he expected so “it makes [him] happy.” He also pointed out the expenses (mostly salaries) were also higher than he expected so “it makes [him] less happy and this should be lowered.” If it sounds like this cofounder is implying people should get fired, then you are right…

One good part of that presentation was that they did show the revenue for the year which makes employees feel that they were contributing to a bigger picture. It was a good graphical way to show it. Overall, I cannot see how a founder can put a chart on the big screen and tell a room of people who were overworked that he feels he has overpaid would be motivating.

Revenues and Expenses

Overall, there is a difference between bosses and leaders. Everyone makes mistakes. We can learn from the mistakes of our former bosses and try to impact others in a more positive way. As entrepreneurs, we are our own brand and we have to learn the optimal ways of conducting our businesses, ourselves, and our team as fast as possible.

Warren Buffet
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