Fundraising

If you step back to the 1990s, very few financing options existed for startups. The venture capital space was dominated by a few large firms. Founders had to turn to their personal bank account, loans, or family and friends to raise capital for their business. In the early 2000s the internet takes the world by storm. The capital required to build a business begins to decline and new investors step in to help more entrepreneurs start companies (like Y Combinator in 2005). A few years after YC and we see more venture capital firms and financing options pop up. Today the financing and investor options for founders continue to evolve. The rise of rolling funds, pre-seed funds, and seamless revenue financing has allowed more entrepreneurs to secure the right financing for their business. If you’re deciding what investors to raise from, check out the different types of investors below: Recommended Reading: The Understandable Guide to Startup Funding Stages 6 Types of Startup Investors Throughout the lifecycle of a startup, different financing options and investor types will become available. Depending on the market and stage of the business different investor types may make more sense. Banks Traditionally bank loans are the most common type of investor for a company. A bank loan usually requires operating history with revenue to ensure they will get paid back. According to the Small Business Administration, “For established businesses, owner investment and bank credit are the two most widely used kinds of financing.” Considerations As the team at Point Park put it, “Loan-seekers will usually be required to produce proof of collateral or a revenue stream before their loan application is approved. Because of this, banks are often a better option for more established businesses.” Requirements According to MyCorporation, “To get approved, you typically need to meet requirements like the following: You have been in business for 2 years or more The business has strong annual revenues (typically at least $100,000) Good credit (like a score of 640+)” Keep in mind that when applying for a loan through a bank, you will be required to share financial documents. Speed up the process by having your financials in order and ready for review by the bank. Friends & Family When a founder has a product or service they are ready to take to market but no operational history they may turn to equity investors to help with initial capital. Considerations When raising capital from friends and family, it is incredibly important to be transparent during the process. Early stage companies are generally a very risky investment and can lead to a loss of capital. Consider who has expendable income in your immediate network when reaching out. Keep in mind that if they are buying equity in your company, your business relationship will exist for the foreseeable future — remember to choose individuals that you can build a business relationship with. Requirements While there are no requirements when raising capital from your friends and family there are major risks involved. Make it clear why they should invest in you or your business. You will likely not need to formally pitch them as you would a venture capitalists but it is important they understand how they will generate returns on their investment. As we mentioned above, be transparent about the investment and make it clear that there is a chance they will lose their investment. Angel Investors Like venture capitalists, angel investors buy equity in startups. An angel investor is generally a wealthy individual who is looking to invest spare cash in an alternative investment. As we wrote in our post,How to Effectively Find + Secure Angel Investors for Your Startup, “This means that an angel investor may have alternative motives (personal interest in the problem, product, founders, etc.) whereas a venture capital firm is focusing on maximizing their returns.” Considerations A step above a “family & friend” investor, an angel has a better understanding of the risk at hand and more experience in the space. Oftentimes, angel investors are all around you and you may not realize it. As Elizabeth Yin puts it, “Angels may not know they are angels. It’s your job to plant the seed in their heads that you are open to an investment from them!” Requirements Like friends and family investors, there are no strict requirements when raising capital from angels. As most venture capitalists invest in software-enabled businesses, large markets, companies with huge valuation upside, etc. angel investors can fill the void for countless other businesses. Whereas a traditional investor is looking for returns, an angel investor might be intrigued and motivated by other things. As Elizabeth Yin goes on to write, “Angels are motivated by many different things; figure out how to tie your story to something that they want; getting an investment – much like sales – is about solving for their needs not yours.” With that said, the requirements of the pitch may be slightly different as you may want to hit on things outside of financials and the market. Related Resource: Top 6 Angel Investors in Miami Venture Capitalists Going a step deeper in the equity financing world are venture capitalists. Unlike angel investors, venture capital firms are professional investors dedicated to generating returns for their limited partners (LPs). As we explain in “Our Guide to How Venture Capital Works,” venture capital firms can generally be split into 3 main buckets (however, this can be broken down much more granularly). Related Resource: How to Create a Startup Funding Proposal: 8 Samples and Templates to Guide You Related Resource: What Is a Limited Partnership and How Does It Work? Early-stage/Pre-seed/Seed — Early stage firms are responsible for making one of the first investments in a company. They are generally investing in the team, product, or market in hopes of the company executing and generating returns. Oftentimes the riskiest investments with the most upside. Series A/B — Series A/B investors are generally in search of companies that have started generating serious revenue and have found product market fit. Expansion/Growth — Expansion and growth stage investors are looking for companies that are en route to an IPO or major acquisition (sometimes similar to a private equity firm). They write huge checks in huge companies. Considerations As venture capitalists cover just about every stage and every vertical, it is important to find the right investors for your business. The venture capital fundraising process can be extremely intimidating and generally requires a system, similar to a B2B sales process, to keep things organized and efficient. Consider how much capital you are raising and at what valuation. From there, start to target the right investors for your business. To learn more about finding the right investors for your business, check out this post. Related Reading: Everything a Startup Founder NEEDS to Know about Pro Rata Rights Related Reading: 23 Top VC Investors Actively Funding SaaS Startups Related Reading: How to Secure Financing With a Bulletproof Startup Fundraising Strategy Related Resource: How to Model Total Addressable Market (Template Included) Requirements Different venture capitalists will have different requirements. Obviously a pre-seed investor will have an entirely different set of requirements than a series B+ investor. There are countless tools and databases to help understand what VCs are right for your business — like our own database, Visible Connect. To learn more about requirements and benchmarks for different VC firms, check out our post, “The Understandable Guide to Startup Funding Stages.” Related Reading: Building A Startup Financial Model That Works Crowdfunding Over the last few years, crowdfunding has become a more popular way to raise equity financing. As the team at Republic defines it, ‘Crowdfunding is a way to raise money from a large number of people. Large groups of people pool together small individual investments to provide the capital needed to get a company or project off the ground. Individuals, charities or companies can create a campaign for specific causes and anyone can contribute.” Considerations Raising equity crowdfunding is a slightly different process than raising from angels and venture capitalists. Most solutions allow you to create a page/profile where investors will decide to invest (as opposed to one off pitches). A few popular equity crowdfunding solutions: Republic Fundable SeedInvest Wefunder Requirements Different platforms will likely have different requirements for companies looking to raise equity crowdfunding. Generally the companies are vetted by the platform before being posted for investment. Check out different platforms to understand their requirements. Related resource: Understanding The 4 Types of Crowdfunding Fundraising Disruptors There has continued to be innovation in the financing space over the last few years. The introduction of rolling funds has transformed how VCs can raise from LPs. There has also been an explosion in alternative financing options that can be beneficial to founders. Considerations There has been an explosion of alternative financing options over the past few years. More options means more opportunities for founders. A few of our favorites that have popped up in the market: Pipe Pipe turns MRR into ARR. It’s a trading platform for recurring revenue streams to get upfront capital. As we wrote in our post, Alternatives to Venture Capital, “For example, if you have a customer paying $1000/mo then the annual value would be $12,000. Let’s assume they are taking 10% (purely a guess, we are not sure what the actual terms are) that would result in $10,800 in cash ($12k*90%). This allows SaaS companies to get cash up front and hold in their bank account or use for customer acquisition. Presumably, their % take is less than what most SaaS companies offer for an annual discount as well.” Earnest Capital “Earnest Capital provides early-stage funding, resources and a network of experienced advisors to founders building sustainable profitable businesses.” Earnest Capital uses their own financing instrument called a Shared Earnings Agreement (SEAL). Essentially, SEALs are geared towards bootstrapped companies who are profitable or approaching profitability. Corl Rather than explaining it ourselves we’ll let the Corl website explain what they do. “Corl uses machine learning to analyze your business and expedite the funding process. No need to wait 3-9 months for approval. Corl can finance up to 5x your monthly revenue to a maximum of $1,000,000. Payments are equal to 1-10% of your monthly revenue, and stop if the business buys out the investment for 1-3x the investment amount.” To learn more about new and alternative financing options, check out this post. Requirements Each alternative financing option will have very different requirements. However, most of these options set clear expectations and requirements that will allow you to apply and/or qualify in a matter of minutes or days. Summary At the end of the day, every business is different. Each business has their own set of needs and expectations. Understand what type of investor will be most beneficial to your business and form a gameplan to raise capital. As more financing options become available, more founders and startups will have opportunities to succeed. No matter what type of capital you decide to raise — pick the investor that can help your business the most, not the investor that will look best in headlines. To learn more about raising capital, check out our blog here. If you are raising venture capital, check out Visible Connect, our investor database, to kickoff your round. We personally verify investor profiles to make sure their data is up-to-date. From there, add investors directly to our Fundraising CRM, to keep tabs on your raise.

Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days. With the continued surge to work-from-home, companies all over the world are becoming more dependent on cloud-based and collaborative services such as Slack, Zoom, Notion, and more. Where there is business, there is capital. Below, we list out security-focused VC firms to keep an eye out for. ForgePoint Capital ForgePoint Capital is founded by pioneers of cybersecurity. Led by Alberto Yepez, Donald Dixon, and Sean Cunningham, ForgePoint has been early-stage investing since 1998 and made over 50 investments in the space. They offer some thoughts and insight into their take on cybersecurity throughout their blog. Investment location: United States, Australia, Canada, Global Funding stages: Series A, Series B, Series C Notable investments: RapidFort, Instabug, TruEra Dreamit Ventures Dreamit Ventures looks to help startups with their Securetech program. Throughout this, their focus is on scaling, customers, and capital, not on building your product. Mel Shakir stands as the Managing Director of Dreamit’s Securetech sector. Investment location: United States, Global Funding stages: Accelerator, Seed, Series A, Series B, Growth Notable investments: Fohlio, CareAlign, SpecTrust Option 3 Ventures Option 3 Ventures finds and develops attractive investment opportunities at the frontiers of cybersecurity and immediately adjacent technologies. They have a robust venture capital team, led by Manish Thakur. Investment location: United States Funding stages: Series A, Series B Notable investments: Dellfer TenEleven Ventures TenEleven Ventures is solely focused on helping cybersecurity companies survive and thrive. They look to provide counsel, capital, and connections to security entrepreneurs. The Boston-based firm is led by Alex Doll and Max Hatfield. Investment location: Global Funding stages: Seed, Series A, Series B, Series C, Growth Notable investments: HiddenLayer, Immuta, Ordr Allegis Cyber Capital AllegisCyber Capital does one thing: cybersecurity. Cybersecurity takes industry knowledge and AllegisCyber has many years of investing experience, led by Bob Ackerman. Investment location: Global Funding stages: Seed, Series A, Series B Notable investments: Dragos, SkyHive, SafeGuard Cyber Paladin Capital Group Paladin Capital Group is comprised of active investors who leverage their deep industry experience and networks to maximize returns. They are a DC-based team led by Michael Steed, Mark Maloney, and more. Investment location: Global Funding stages: Series A, Series B Notable investments: GreyNoise, Nisos, Semperis Acrew Capital Acrew Capital is a venture capital firm that provides investable assets for diverse angel investors to fund tomorrow’s companies. Investment location: Global Funding stages: Seed, Series A, Series B, Growth Notable investments: Arthur, Carats & Cake, Pie Insurance Greylock Partners This venture capital firm invests in all stages, exclusively in consumer and enterprise software companies. It led the Series B round for both Facebook and Linkedin. Investment location: Global Funding stages: Pre-Seed, Seed, Series A, Series B, Growth Notable investments: Facebook, LinkedIn Kleiner Perkins Kleiner Perkins is a venture capital firm specializing in investing in early-stage, incubation, and growth companies. Investment location: Global Funding stages: Series A, Series B, Growth Notable investments: SpinLaunch, Lumafield, Open Raven Lightspeed Venture Partners Lightspeed Venture Partners is a venture capital firm that is engaged in the consumer, enterprise, technology, and cleantech markets. Investment location: United States, China, India, Israel Funding stages: Pre-Seed, Seed, Series A, Series B, Growth Notable investments: Remedial Health, Soda Health, Community Labs Related Resource: 9 Active Venture Capital Firms in Israel Bessemer Venture Partners Bessemer Venture Partners is the world’s most experienced early-stage venture capital firm. With a portfolio of more than 200 companies, Bessemer helps visionary entrepreneurs lay strong foundations to create companies that matter, and supports them through every stage of their growth. Investment location: United States, Bay Area Funding stages: Pre-Seed, Seed, Series A, Series B Notable investments: LinkedIn, Shopify, Yelp SixThirty SixThirty focuses on Fintech, Insurtech, and Cybertech. They are a fast-moving company that evaluates over 500 companies per year. SixThirty invests in companies that have a working product, market traction, and in most instances, recurring revenue. Investment location: Global Funding stages: Seed, Series A Notable investments: Global NightDragon NightDragon brings 25+ years of industry operating experience and market expertise to our portfolio companies. They work hand in hand with management to help scale their business and execute their strategic vision to drive successful outcomes. Investment location: Global Funding stages: Series B Notable investments: Immuta, Source Defense, Capella Space Security Leadership Capital Security Leadership Capital seeks to partner with a wide range of what would be considered “standalone” cybersecurity companies as well as other sectors that require a strong cybersecurity foundation to differentiate their offering, e.g. fintech, healthcare IT, blockchain, and cloud/datacenter infrastructure. Investment location: United States Funding stages: Seed Notable investments: DeepFactor Lytical Ventures Lytical Ventures is a New York City-based venture firm investing in Corporate Intelligence, comprising cybersecurity, data analytics, and artificial intelligence. Lytical’s professionals have decades of experience in direct investing generally and in Corporate Intelligence specifically. Investment location: United States Funding stages: Seed, Series A Notable investments: Careviso, Clausematch, Bold Metrics Get Connected to Cybersecurity VCs with Visible Finding the right investors for your business is only half the battle. Having a place to communicate with investors and track the progress of your raise allows you to spend more time on what matters most — building your business. Find the right investors with Visible Connect, track your conversations with our Fundraising CRM, share your pitch deck with investors, and update them along the way all from one platform. Give Visible a free try for 14 days here. Looking to learn more about fundraising? Check out some of our popular resources below: FinTech Venture Capital Investors to Know VCs Investing In Food & Bev Startups A Quick Overview on VC Fund Structure

On episode 11 of the Founders Forward Podcast we welcome Lolita Taub of Community Fund and Eric Bahn of Hustle Fund. Eric and Lolita recently launched The First Pitches Podcast “where famous founders share the first version of their pitch.” Combined with the fact that they are both investors in early stage startups it is fair to say they’ve seen their fair share of fundraising pitches. We could not think of a better one-two punch to help founders improve their storytelling and fundraising. About Lolita & Eric Lolita and Eric breakdown what they’ve learned from their podcast and investor roles to give founders actionable advice to kick start their next fundraise. Our CEO, Mike Preuss, had the opportunity to sit down and chat with Lolita & Eric. You can give the full episode a listen below (or in any of your favorite podcast apps). What You Can Expect to Learn from Lolita & Eric The importance of Twitter when it comes to networking and fundraising If a founder has to be an expert in a subject for them to be funded How to nail a first impression with investors How they view and analyze a deck in the pre-seed/seed stages What makes a great first pitch Why they care about what metrics a founder is measuring Related Resources First Pitches Podcast Lolita’s Twitter Eric’s Twitter Hustle Fund Community Fund The Founders Forward is Produced by Visible Our platforms helps thousands of founders update investors, track key metrics, and raise capital. Try Visible free for 14 days.

In 2020 we launched the Founders Forward Podcast. The goal of the podcast is to enable founders to learn from their peers and leaders that have been there before. Over the last 7 weeks our CEO, Mike Preuss, has interviewed a different founder or startup leader every week. Related Resource: 11 Venture Capital Podcasts You Need to Check Out Here are some of our favorite quotes and takeaways from the first 7 interviews: Lindsay Tjepkema, Founder of Casted Our first episode of the Founders Forward was with Lindsay Tjepkema. Considering she is a podcasting expert, we figured there could not be a better first guest. We chat all things podcasting and alternative media types. However one of the tidbits we found most interesting was Lindsay’s outlook on venture fundraising. Oftentimes fundraising can be a frustrating journey but Lindsay views the process as an opportunity to promote her business and tell her company’s story. Give the full episode a listen here. Amanda Goetz, Founder of House of Wise House of Wise is Amanda’s second go as a startup founder. However things are no less difficult than her first time around. Her first journey was spent worrying about legal aspects and the basics of getting her business running. That was easy with House of Wise but she has faced new challenges (and opportunities) during her second journey. Give the full episode a listen here. Jeff Kahn, Founder of Rise Science Jeff has 10 years of sleep science experience and research. Before starting Rise Science Jeff spent time publishing academic articles and supporting world-class athletes and teams with better sleep. Jeff Kahn is a true expert in all things sleep. During our interview with Jeff, we chatted about how sleep can improve a founder’s leadership skills and productivity. Give the full episode a listen here. Aishetu Dozie, Founder of Bossy Cosmetics Aishetu Dozie started her career in banking and eventually made the transition to starting a cosmetics company. Just like any founder, her first time journey has been full of highs and lows. Aishetu, like many founders and leaders, has struggled with imposter syndrome. We love her thoughts below on how she has tackled imposter syndrome. Give the full episode a listen here. Kyle Poyar, Partner at OpenView Ventures OpenView Ventures is credited with coining the term “Product-Led Growth.” As Kyle and the team at OpenView continue to help SaaS companies grow and become market leaders he has seen it all. From the early days of defining PLG and the impact of COVID-19 Kyle is full of first-hand stories and the data to back it up. Check out how Kyle defines and thinks about PLG below. Give the full episode a listen here. Yin Wu, Founder of Pulley Yin Wu has been through Y Combinator 3 times and has successfully exited 2 companies. Over the course of her founder journey it is safe to say that she has spent a good amount of time fundraising and chatting with investors. Yin likes to bucket investors into 3 categories to structure who she should be chatting with and raising from. Give the full episode a listen here. Cheryl Campos, Head of Venture Growth at Republic Over the past 3 years, the funding options for startups have continued to transform. Over her 3 years at Republic, Cheryl has watched as the market has changed and crowdfunding has become a more viable option. Check out Cheryl’s thoughts on the new funding options below. Give the full episode a listen here. We have plenty of new episodes recorded and ready to share in 2021.

In searching for your investor, every VC seems to have different stipulations and ranges for their check sizes. Many firms will initially write smaller checks to their first-time investments and larger checks to their recurring, portfolio investments. Finding a VC with a check size that fits your need can be difficult. We will segment some of our favorite VCs by typical minimum check size, sweet spot check size, and maximum check size. Related Reading: A Quick Overview on VC Fund Structure Angel Investors: Checks under $30,000 Jonathan Ozeran Jonathan Ozeran serves as an advisor for Great North Labs and is a hands-on investor that has seen many phases of growth. He focuses on several verticals, including AI, Mobile, Biotechnology, Digital Health, Health Care, Hardware, Insurance, and more. Check Size: Min. $10,000 — Sweet Spot $25,000 — Max. $25,000 Lolita Taub Lolita Taub is the Co-Founder and General Partner at The Community Fund where she invests in community-driven companies. She has over 40 investments as an angel and VC. Check Size: Min. $1,000 — Sweet Spot $20,000 — Max. $30,000 Pre-seed/Seed Investors: Checks under $300,000 DC Ventures DC Ventures assists startups in areas crucial to funding and growth. Their team is made of industry experts and savvy investors who help entrepreneurs reach their goals. They are based in Washington D.C., Dublin, and Buenos Aires. Check Size: Min. $10,000 — Max. $100,000 Hustle Fund Hustle Fund is a seed fund for hilariously early hustlers. They are led by Elizabeth Yin and Eric Bahn. Hustle Fund is comfortable setting terms and being the first check. Because of their small check size, they will not be putting in the bulk of money in your round. Check Size: Min. $25,000 — Max. $100,000 (Check out their Visible Connect profile HERE.) Supernode Ventures has an extensive network of contacts providing access to media, customers, and investors to help support. They are based out of NYC and look to add 10-12 companies to their portfolio each year. Check Size: Min. $50,000 — Max. $200,000 Beta Boom Beta Boom invests in underdog founders that don’t fit the typical Silicon Valley founder profile, and they particularly look for founders that have lived their problem and have shown tenacity, hustle, and focus. They don’t care if you went to Stanford or Harvard. Check Size: Min. $150,000 — Sweet Spot $150,000 — Max. $300,000 Checks under $10,000,000 Allos Capital Allos Capital invests in early-stage B2B software and business services companies in the heart of the Midwest. They are managed by Don Aquilano, John McIlwraith, and David Kerr. Allos generally invests within a 5-hour drive of our offices, which are located in Indianapolis and Cincinnati. Check Size: Min. $250,000 — Max. $3,000,000 Cowboy Ventures Cowboy Ventures invests in US-based, software-oriented companies. Their sweet spot is co-leading or leading seed rounds (usually a round of $1-5m). They seek to back exceptional founders who are building products that “re-imagine” work and personal life in large and growing markets. Check Size: Min. $500,000 — Sweet Spot $1-5M — Max. $7,500,000 Fuel Capital Fuel Capital is a California-based early-stage venture fund focused on consumer, SaaS, and cloud infrastructure companies. Their goal is to open doors for founders who have the potential to change the world, and provide them with more value than capital could buy. Check Size: Min. $500,000 — Max. $1,000,000 Second Century Ventures Second Century Ventures is focused on promoting innovation in the real estate industry. SCV prefers SaaS companies generally focused on big data applications, digital media, fintech and business services that can span multiple verticals and geographies. Check Size: Min. $1,000,000 — Max. $5,000,000 .406 Ventures .406 Ventures is an early-stage venture capital firm that invests in innovative IT and services companies founded by the finest entrepreneurs. They typically are the lead, first institutional investor in early-stage and de novo investments in market-changing IT Security and Infrastructure, Technology-Enabled Business Services, and Next-Generation Software companies. Check Size: Min. $2,000,000 — Max. $6,000,000 Freestyle Capital Freestyle Capital is a seed-stage investor and mentor for Internet software startups. They make just 10-12 investments each year, to support their founders and portfolio companies. Check Size: Min. $1,000,000 — Sweet Spot $1,500,000 — Max. $7,500,000 Checks over $10,000,000 Insight Partners Insight Partners is a leading global venture capital and private equity firm investing in high-growth technology and software ScaleUp companies that are driving transformative change in their industries. Check Size: Min. $10,00,000 — Max. $350,000,000+ Summit Partners Summit Partners invests just about everywhere in the world. They are led by 27 managing directors with an average of 14 years of experience. They ultimately are looking to accelerate growth in companies and achieve very dramatic results. Check Size: Min. $10,00,000 — Max. $500,000,000 Explore thousands of different VCs by their check sizes, geographies, verticals, and more at Visible Connect! Related Resource: How to Find Venture Capital to Fund Your Startup: 5 Methods

What is a restricted stock unit? Restricted Stock Units or RSUs are forms of compensation issued to employees by an employer founder. This compensation is issued in restricted company shares. Shares are restricted because their value is limited by a vesting plan. After a set amount of time laid out in a vesting plan occurs, a certain amount of shares becomes accessible and valuable. RSUs give employees interest in a company but will not be worth their full value until the full vesting period is complete. RSUs will always have value due to their underlying shares. What is a restricted stock award? Restricted Stock Awards or RSA’s are given to the employee on the day they are granted. They do not have to be earned via a vesting schedule like RSUs do. The employee “owns” the stock associated with the RSA on the grant date. However, they may still have to purchase them, depending on the nature of the offer. This purchase contingency is why RSAs are considered “restricted stock”. RSUs vs RSAs for startups Overall, restricted stock in the form of RSUs or RSAs can be a value-add for startups and a great way to incentivize talent employees to join the team. RSUs are not purchased at grant date but instead have a timed vesting period as well as other vesting conditions before they are owned outright. RSAs are purchased on the grant date but still typically have time-based vesting conditions. Unvested RSUs are given up when an employee is terminated and RSAs are available for repurchase when an employee is terminated. RSAs are typically granted to early employees before funding rounds with additional equity payouts and RSUs are typically granted to employees after funding is taken on. What the differences are important to understand RSUs and RSAs are two common terms to understand in the startup landscape. RSU stands for “Restricted Stock Unit” and RSA stands for “Restricted Stock Award”. Understanding the difference is key when building and operating a startup. While both RSUs and RSAs are forms of restricted stock, they are different and serve different purposes. In general, restricted stock is owned from the day it is issued and does not need to be purchased. However, because it is restricted, it needs to be earned. How do restricted stock units work? RSUs became popular in the early 2000s after a variety of executive fraud scandals occurred across the market. With it’s vesting limitations, RSUs have become a popular option for compensating leadership and early employees without the risk of providing full stock upfront. RSUs give an employee interest in company stock but they have no tangible value until vesting is complete and typically vesting plans are staggered so that only a certain percentage of shares vest at a time. For example, if an employee has a 4 year vesting period with a 1 year cliff, they would only walk away with 25% of their promised shares after a year of employment (or none if they leave or are terminated prior). RSUS are also structured with limits in case termination occurs that can override vesting or cliff rules. The restricted stock units are assigned a fair market value when they vest. When RSUs finally vest, they are considered income, and a portion of the shares is withheld to pay income taxes. When the employee receives the remaining shares and can sell them. If an employee is terminated, they keep any of their vested shares but the company can purchase back the unvested shares. Like any potential compensation option, RSUs have pros and cons to their structure and offering. Some Pros of offering RSUs include: Long Term Incentive – because of the standard vesting period of 4 years, generous RSU packages can be helpful in incentivizing top talent to stick around longer, put in more effort to grow the company, to ultimately claim their full offering of stock at the highest possible value. Low-Impact: The admin work and back-end management of RSUs is minimal compared to other, more complicated stock incentive plans. RSUs also allow a company to defer issuing shares until the vesting schedule is complete. This helps delay the dilution of its shares. Related Resource: Everything You Should Know About Diluting Shares Some Cons of offering RSUs include: No Dividends: Because actual shares are not allocated, RSUs don’t provide dividends to the stock holders. However this means that the employer issuing the RSUs needs to pay dividends in an escrow account that can help offset withholding taxes or be reinvested. This is something to keep in mind as a potential founder offering RSUs. Income Restrictions: RSUs aren’t taxable until they vest. So employees can’t pay taxes before vesting as the IRS doesn’t consider unvested RSUs to be tangible property. Shareholder Voting Rights: RSUs don’t grant the shareholder voting rights or input into the company until they are fully vested. How do restricted stock awards work? Restricted Stock Award shares are given to the employee on the day they are granted. While RSUs are more commonly awarded to general employees, RSAs are more common with early employees at a startup before the first round of equity financing. Instead of a timed out vesting period that portions out the stock like in an RSU, an RSA is the lump sum awarded on one date (although that may still be time-based). Vesting still applies in a different way to RSAs. Vesting only impacts a receivers RSAs if they are terminated or leave the company allowing the company to potentially purchase back the shares. The vesting is less about the employee owning the stock as the RSA is owned but about the ability to retain what is owned. However, there are usually time-based rules associated with RSAs so that the shares may expire if certain requirements, specifically financial requirements, aren’t reached. Most companies have vesting schedules in place to prevent individuals from joining a company, receiving their RSA award, and leaving immediately. Most RSA pros and cons are fairly similar to RSUs as RSAs are simply another form of restricted stock. How are restricted stock units taxed? With restricted stock, it’s important to consider two types of taxes: regular income tax and capital gains tax. Taxing on restricted stock is complex but the basic underlying factor of income still applies – anything that a company pays an employee is taxable. For RSUs, regular income taxes are paid when the recipient shares vest. How are restricted stock awards taxed? For RSAs, the receiver has to pay for them outright so when the vest date rolls around there are no additional taxes to pay on the shares themselves unless they change value. The RSA receiver will only need to pay taxes on the gains in value of the shares. The tax on gains between grant date and vesting will be income tax. The tax on gains between vesting and sale of those shares will be capital gains tax. An election called the 83(b) election can be selected on a tax form which means the recipient can pay all their ordinary income tax upfront. The 83(b) election is eligible for RSAs not RSUs.

San Francisco and NYC hold the largest amount and value of venture investing across the US. However, with a plethora of urban areas, Texas is continuing to offer venture funding at a rapid pace. We will evaluate various VCs who are involved throughout Austin, Dallas, Houston, and San Antonio. To keep an eye on Texas-based investments we wanted to share which venture capitalists are geologically active.Visible Connect is our investor database. Connect allows founders to find active investors using the fields we have found most valuable, including: Check size — minimum, max, and sweet spot Investment Geography — where a firm generally invests Board Seat — Determines the chances that an investment firm will take a board of directors seat in your startup/company. Traction Metrics — Show what metrics the Investing firm looks for when deciding whether or not to invest in the given startup/company. Verified — Shows whether or not the Investment Firm information was entered first-handed by a member of the firm or confirmed the data. And more! Using Visible Connect, we’ve identified the following investors, segmented by Austin, Dallas, Houston, and San Antonio. Search through these investors and 11,000+ more on Visible’s Connect platform. S3 Ventures With over 14 years of investing experience, S3 targets startups with a focus on Business Technology, Consumer Digital Experiences, and Healthcare Technology. S3 has branded themselves as “The Largest Venture Capital Firm Focused on Texas.” Led by Brian Smith, S3 invests between $250k – $10M. To learn more about S3 Ventures, check out their Visible Connect profile. Santé Ventures Santé invests at the intersection of health care and technology. Douglas French, Joe Cunningham, and Kevin Lalande are the three founding, managing directors of the Austin-based firm. Santé often leads entry-level rounds and is on the mission to improve people’s lives with every investment. To learn more about Santé Ventures check out their Visible Connect profile. ATX Venture Partners ATX looks to invest in post-revenue companies with initial investments ranging from $300k – $3M. With a focus on the central-south US, ATX has always had a people-centric view and looks to drive performance through each of their investments. Brad Bentz, Danielle Weiss Allen and Chris Shonk lead the firm as Co-Founders and Partners. To learn more about ATX Venture Partners check out their Visible Connect profile. LiveOak Venture Partners LiveOak is a premier seed and series A investor that looks to invest into teams. They focus primarily on tech-enabled businesses based in the Texas area. With over 15 years of VC experience, LiveOak has invested over $200M into Texan companies. Initial heck sizes range between $500k and $5M. To learn more about LiveOak Venture Partners check out their Visible Connect profile. Next Coast Ventures Next Coast is a forward-thinking VC with over 30 investments. They follow investment themes relating to software, future of retail, communities, future of work, marketplaces, and self-care. They also run a blog with resources for founders and insight into their VC’s direction. To learn more about Next Coast Ventures check out their Visible Connect profile. NEXT VENTŪRES NEXT VENTŪRES invests in the sports, fitness, nutrition, and wellness markets. Managed by Lance Armstrong, Lionel Conacher, and Melanie Strong, NEXT has a focus on passion and energy. NEXT is open to investments all over the world and offers check sizes between $500k and $3M. To learn more about NEXT VENTŪRES check out their Visible Connect profile. RevTech Ventures RevTech is all about investing in the future of retail. RevTech looks to lead or follow onto deals at the pre-seed and seed level. Initial checks are around $100k and follow on capital ranges anywhere from $200k to $4M. David Matthews is the Managing Director. To learn more about RevTech Ventures check out their Visible Connect profile. Goldcrest Capital Led by Adam Ross and Daniel Friedland, Goldcrest invests into private tech companies. They have logged over 20 investments and typically write checks between $1M and $10M. To learn more about Goldcrest Capital check out their Visible Connect profile. Perot Jain Perot Jain has a focus on US-based companies that are tech-enabled. They offer up to $500k in initial checks to B2B businesses throughout seed and early-stage investments. The investment firm is led by Ross Perot Jr and Anurag Jain. Perot Jain ultimately partners with bold and innovative entrepreneurs. To learn more about Perot Jain check out their Visible Connect profile. Work America Capital Work America Capital invests in Houstonians and Houston-based businesses by partnering with high-potential, talented leaders with a passion for building a business. Work America invests more than just capital. They look to offer coaching and mentoring to new business leaders. They are managed by Mark Toon and Jeffrey Smith. To learn more about Work America Capital check out their Visible Connect profile. Vesalius Ventures Vesalius Ventures focuses on the intersection of medicine and emerging technology. As they focus on both early and mid-stage companies, Vesalius looks to offer both capital and management help to various health tech companies surrounding Texas. To learn more about Vesalius Ventures check out their Visible Connect profile. Active Capital Active Capital has been investing in B2B SaaS companies for over 20 years. Active looks to participate in pre-seed and seed rounds, as they invest anywhere between $100k to $1M. They have an extensive and successful list of portfolio companies outside of Silicon Valley. To learn more about Active Capital check out their Visible Connect profile. Texas Next Capital Texas Next has long created profitable companies throughout the industries of oil & gas, ranching, agriculture and real estate — which have stood as staples of the state. Their strategy is to invest directly into Texas, partner with Texas leaders/investors, and focus on small businesses. To learn more about Texas Next Capital check out their Visible Connect profile. To view Texas-based VCs and over 11,000 other global VCs, visit Visible Connect! Connect With Investors in Texas Using Visible At Visible, we often times compare a fundraise to a B2B sales and marketing funnel. At the top of your funnel, you are finding new investors. In the middle, you are nurturing and pitching potential investors. At the bottom of the funnel, you are working through diligence and ideally closing new investors. With the introduction of data rooms, you can now manage every aspect of your fundraising funnel with Visible. Find investors at the top of your funnel with our free investor database, Visible Connect and find a filtered list of Texas' investors here. Track your conversations and move them through your funnel with our Fundraising CRM Share your pitch deck and monthly updates with potential investors Organize and share your most vital fundraising documents with data rooms Manage your fundraise from start to finish with Visible. Give it a free try for 14 days here.

On episode 7 of the Founders Forward Podcast we welcome Cheryl Campos, Head of Venture Growth and Partnerships at Republic. Republic is a crowdfunding platform for startups. It allows founders to access a wide range of angel investors and small check investors. Cheryl has been there for 3+ years and has watched the market transform and become a popular funding option for startups. About Cheryl Cheryl started at Harvard and went into banking but eventually landed at Republic. Over the course of her 3 years at Republic (even in just the last 90 days) the crowdfunding market has radically changed as more individuals are able to invest. Our CEO, Mike Preuss, had the opportunity to sit down and chat with Cheryl. You can give the full episode a listen below (or in any of your favorite podcast apps). What You Can Expect to Learn from Cheryl How she went from banking to working for a startup How recent regulation changes have impacted crowdfunding What kind of companies generally succeed on Republic How the rates are structured at Republic How founders can leverage their crowd investors The importance of network effects How “community” is reshaping go-to-market and marketing Related Resources Chery’s Twitter Cheryl’s LinkedIn Republic Community Fund The Founders Forward is Produced by Visible Our platforms helps thousands of founders update investors, track key metrics, and raise capital. Try Visible free for 14 days. Related resource: Understanding The 4 Types of Crowdfunding

On episode 6 of the Founders Forward Podcast we welcome Yin Wu, CEO and Founder of Pulley. Pulley is a cap table platform for hyper-growth startups. Pulley is the third company that Yin has started so it is safe to say she knows the ins and outs of building a startup. About Yin With her first 2 startups successfully exiting Yin has her eye’s set on a new market and issue that all founder face — cap tables and valuations. During her first bouts as a founder Yin had the realization that “no one starts a company because they want to pair this spreadsheet. You start a company cause there’s this vision, this idea that you want to bring it to this world.” In addition to sharing her learnings from building 3 companies, Yin also shares how founders should think about fundraising, cap table management, and distributing equity. Our CEO, Mike Preuss, had the opportunity to sit down and chat with Yin. You can give the full episode a listen below (or in any of your favorite podcast apps). What You Can Expect to Learn from Yin Why Pulley wants to lower the bar to make it easier for founders to start a company Why founders should own 20% of their company by the time they raise a Series A Why they believe founder led companies are more successful in the long run How they are approaching hiring, mostly past founders, at Pulley How they are building their culture at Pulley How they approached their $10M funding round at Pulley What she learned from going through Y Combinator 3 times Related Resources Yin’s Twitter Yin’s LinkedIn Pulley The Founders Forward is Produced by Visible Our platforms helps thousands of founders update investors, track key metrics, and raise capital. Try Visible free for 14 days.

What is Private Equity? Making the decision to take on external funding should not be taken lightly. A decision to bring on additional capital and more importantly, where that capital comes from, can make or break a business if not fully understood. Two types of investment that a new business or startup might consider are private equity and venture capital. Private equity and venture capital play critical roles in a company’s growth. At their core, private equity and venture capital may seem similar, however, the types of companies each type of funding typically invests in and how much they invest differ quite a bit.The firms involved in each type of funding are very different as well. It’s important to know the differences between them if you are a founder looking to take on new funding. At the simplest level, private equity is capital that is invested in a company or other type of private entity that is not publicly listed or traded. More detailed, private equity is a compilation of funds sourced from firms as well as high net-worth individuals. The purpose of these firms is to invest in private companies by buying large amounts of shares. Additionally, private equity can also mean buying the majority of a public company with the intention of taking it private and delisting it from the public stock exchange. The majority of the private equity world is dominated by large institutional investors. These large institutional investors typically include large private equity firms and pension funds. A pension fund is any plan, fund, or scheme which provides retirement income. These funds are typically larger and well equipped to be invested into private companies. How Does Private Equity Work? Private equity firms hold roughly $4 trillion assets annually. The breakdown of private equity investments comes from two major types of investors. The two types of private equity investors are: Institutional investors, primarily pension funds or major banks Large private equity firms The typical goal of private equity investments is to gain control of a company through a full buy-out or a majority investment in said company. With total control being the main focus and purpose of private equity investments, lots of capital is needed. Therefore, typically the funds involved in private equity need to be large and stable. Large private equity funds and institutional investors are made up of accredited investors. Most private equity funds have a minimum requirement. These minimum requirements set the minimum amount of money that an accredited investor must commit to the fund in order to be a part of the fund. These minimums are significant. A standard one might be $250,000 – $500,000. Private equity firms focus on two main functions. These functions are deal origination and management, and portfolio oversight. refers to managing overall deal flow. This is done by relationship management and deal management – creating, maintaining, and developing relationships with M&A (Merger and Acquisitions) intermediaries, investment banks, other transaction professionals in the space. This focus allows private equity firms to build a strong network for referrals and new opportunities to invest and purchase companies. In the robust M&A landscape, it is also common for private equity firms and institutional investors to employe folks specifically focused on prospecting companies where a future opportunity to buy or invest could occur. Portfolio oversight is the overall management of all active investments in the private equity firm’s workflow at any given time. Any active investments make up a portfolio. Managing that day in and day out consists of advising and directing revenue strategies, monitoring profitability, making hiring and executive decisions, and overall monitoring if the portfolio is balanced and profitable. The level of work in each investment will vary depending on how large and what stake of ownership the firm has. Financial management will be the main focus but IT procurement and operational tasks are typically part of that as well. Outside of traditional large cash, equity or debt investments, a common strategy for private equity firms is the leveraged buyout strategy or LBOs. An LBO is a complete buy-out where a company is bought out by a private-equity firm, and the purchase is financed through debt. The collateral for that debt is the company’s operations and assets. Examples of Private Equity Firms Holding trillions of dollars in capital, there are plenty of private equity firms out there. The top 10 globally are: The Blackstone Group Neuberger Berman Group LLC Apollo Global Management Inc. The Carlyle Group Inc. KKR & Co. Inc. Bain Capital LP CVC Capital Partners Warburg Pincus LLC Vista Equity Partners and EQT AB. Most of the largest firms have global offices spanning New York to San Francisco to Hong Kong to Paris and many other major hubs in between as well as across all populated continents. On the institutional investor side, JP Morgan Chase, Goldman Sachs, and Citigroup are all prominent players within the private equity space as well. Private Equity Backed Companies Private Equity firms can invest in a variety of different types of companies. A few examples of well-known companies that are backed by private equity firms include: Hostess Brands – the sweets company ADT Inc. – a leading provider of monitored security Qdoba – the fast food brand Infoblox – software security Marketo – sales and marketing software Powerschool – education technology LogicMonitor – SaaS performance monitoring What is Venture Capital? Venture capital is also a form of private funding. More specifically, venture capital is funding given to startups or other young and new businesses that have the potential to break out of their category and grow rapidly, finding success. Venture capital funding typically comes from wealthy individual investors, banks, or other financial institutions. Notably, a venture capital investment is typically financial but could also be an offer of technical or managerial experience. Venture capital is all about the risk and reward balance. Venture capital investors invest in companies that have not proven success yet but show major potential and the opportunity to make back higher than typical returns if the company delivers at the high potential the venture capitalists believe that it will. Related Resource: 12 Venture Capital Investors to Know Related Resource: Miami’s Venture Capital Scene: The 10 Best Firms Related Resource: 8 Most Active Venture Capital Firms in Europe Related Resource: Breaking Ground: Exploring the World of Venture Capital in France Related Resource: 7 Best Venture Capital Firms in Latin America Related Resource: Exploring the Growing Venture Capital Scene in Japan How Does Venture Capital Work? Venture capital in a nutshell is private equity but specifically for small startups and new companies with high-growth potential in the technology, biotechnology, and clean technology spaces. Venture capital is technically a form of private equity, however, it is a type of investing that is normally all equity and smaller investments than other private equity investments. The main differentiator is that venture capital is focused on high-risk, high-reward scenarios. There are three main types of venture capital financing: Early-stage – this is typically a small amount of funding, potentially in a seed round, that allows a startup to finish building a product or service offering, qualify for a loan, or in some cases kick-off early stage operations. Expansion – this type of venture funding is typically a higher capital amount that will allow a startup to scale rapidly. The type of funding might be seen at a Series A or larger. Acquisition – this type of funding may be purposed specifically for financing the buyout of another company or competitor in that startups space. It might also be used to develop a new type of product or launch a new line of business within their company. Just like private equity firms, venture capital firms offer capital for equity. Investors from venture capital firms often take board seats as part of their ownership / equity stake in a company. Venture capital firms typically raise set funds with teh intention of investing those funds over the course of a set period of time. The funds are typically made up of individual investments from limited partners, or wealthy individuals, banks, or other institutional investors. LPs invest their money in venture capital firm’s funds because they are looking for high-growth returns and trust the venture capital firms to make those investment decisions for them. Venture capital firms typically employ a staff dedicated to researching the potential investments that could be made. Because of the high-risk high-reward industries that VCs work with, due-diligence and detailed research is crucial to eliminate as much risk as possible before investing firm dollars in a startup. Examples of Venture Capital Firms With tech startups historically being founded in the Bay Area and other major metro hubs like New York City, a large portion of VCs are based on the coasts. A few well-known venture capital firms include: Bessemer Venture Partners Sequoia Capital Andreesen Horowitz GGV Capital Index Ventures Founders Fund and IVP Related resource: Understanding the Role of a Venture Partner in Startups Examples of VC backed companies Most high-growth, successful tech companies, especially SaaS companies, are venture backed. Well known venture-backed companies include: Pinterest – the visual bookmarking tool LinkedIn – world’s largest professional network Yelp – online directory for local restaurants, services, retail, reservations and recommendations Docusign – digital documents Hubspot – marketing and sales software Instagram – photo sharing social platform Private equity vs venture capital for startups The main difference between private equity and venture capital comes down to size and risk. What Private Equity Firms are Looking For (in startups) Private Equity firms typically are looking for large companies with a proven track record to buy. They are looking for mature businesses where the model is proven out. These large or more mature companies may be failing for one reason or another. Even if a company is not necessarily failing but instead has plateaued their growth, a private equity firm would look to buy the company and streamline operations to make it more capital efficient, cash positive, and profitable. Private equity firms mostly buy 100% ownership of the companies in which they invest. Typically then the companies are in total control of the firm after the private equity buyout. Private equity investments are also typically a minimum of $100M for one single company. There are no limits for the type of companies private equity companies can invest in. In addition to equity, private equity firms may structure investments with debt and cash. Related resource: Dry Powder: What is it, Types of Dry Powder, Impact it has in Trading What VC Firms are Looking For (in startups) Venture capital is typically invested in a new company with high potential. This could be a small startup or a larger scaling startup that has yet to reach profitability but is showing major upside and potential. Unlike private equity, venture capital firms typically invest less than 50% in any one company or investment. Due to the high-risk nature of the companies they are investing in, they typically like to spread the money in their funds across many different investments to increase their chance of success and high return. The investments from venture capital firms are typically less than $10M per investment. Venture capital firms are limited to startups in technology, biotechnology, and clean technology. Additionally, venture capital firms typically only invest with equity. For startups early on in their journey, venture capital is typically where they might seek investment. This is due to the early risk of their companies as well as the desire to maintain majority control in their companies management and direction as they build. Down the line, a startup may end up in the position where their only option is to give away the majority stake in their company to inject capital into the business to keep it afloat. Related Resource: Understanding the 9 Types of Private Equity Funds Related Resource: Accredited Investor vs Qualified Purchaser Critical differences between venture capital firms and private equity firms The difference between private equity and venture capital matters because the type of investor a company brings into their business can completely shape the outcome and ultimate goal of the company. Understanding your desire to IPO, get acquired, or stay private are critical to consider before seeking different types of funding. Ownership and advisory can make or break a successful company as well as change the type of value and long-term financial success of the founders or initial employees. Related Resource: How to Choose the Right Law Firm for Your Startup When to seek out Private Equity vs Venture Capital As a startup, it’s important to understand when to seek out private equity or venture capital backing throughout your company’s journey. Taking on the right type of investors (or not) at the right time is critical for long-term success. Startups in the tech space will most commonly seek out venture capital funding first. If a startup is in the tech space and is aiming to grow quickly and make it big or believes it has the potential in a large market to take a large market share, venture financing makes sense as it allows that company to scale quickly without giving up too much equity or majority stake. Companies in a position where they heed a large injection of cash, are not in the startup technology space, or are not high-risk, might make more sense to seek funding from a private equity firm. This type of investment may lead to a larger stake of control being put forward but with more stable and long-term financing options. Visible can help your startup report out important updates to your investors (private equity or venture capital!). Learn more here. Related Resource: Exploring the Top 10 Venture Capital Firms in New York City Related Resource: Chicago’s Best Venture Capital Firms: A List of the Top 10 Firm

What is a 409a valuation? Most founders aspire to take their companies public. Until that dream is achieved (or another is realized), it can be a bit tricky to understand the value of a startup along the way. Public companies value are set by the market. Private companies, however, depend on independent appraisals and private valuation.That is where a 409a valuation comes in. A 409a valuation is a critical term and concept founders need to know. A 409a valuation is the fair market value (FMV) of a private company’s common stock. This FMV is determined by an independent appraisal. Common stock is the stock that has been reserved for founders and employees. A 409a valuation determines the cost to purchase a share. Related resource: 8 Startup Valuation Techniques and Factors to ConsiderWhat Does the DCF Formula Tell You? What are the benefits of a 409a valuation? A 409a valuation is critical if you want to offer equity to your employees. While startups are getting up and running, matching benefits of large, established public companies can be difficult. A great option to offer new employees (and attract top talent) is to offer equity in the business. Offering stock options that will vest (or become accessible or earned) after a period of time promises high earning potential and promotes loyalty and employee investment in the vision and growth of the company. A 409a valuation is needed in order to accurately offer this benefit to your team. In addition to providing attractive stock options for your employees and attracting top talent to your business, another benefit of a 409a valuation is that understanding and keeping this valuation up to date can help attract new investors and help a founder intelligently grow their business. We will cover when you should get this valuation done (and how often) but the insight provided by the valuation can be another metric to showcase success to investors and board members, especially if a startup is not cash-flow positive or growing revenue yet. Having a clear understanding of how much your business is worth by continuing to seek out an updated 409a valuation is critical for founders as they grow their business and get to the critical point of taking the company public or selling it for a profit. When is a 409a valuation required? To start, it’s important to highlight how long a 409a valuation stays valid. A 409a valuation is only valid for up to 12 months after its issuing date. The only exception to this timeline is if a material event occurs prior to the 12 month timeline. Material Events Material events are pivotal situations or changes to the business that would dramatically shift the valuation. Some examples of “material events” include: Financing such as convertible debt, sale of common shares, or preferred equity. Qualified financing is probably the most common material event startups will encounter. Acquisitions – if your startup chooses to buy another company this would qualify as a material event and significantly alter the 409a valuation. Divestment – selling off part of the business or any of the major assets of the business would shift the valuation. A secondary sale of common stock would, though less common, would also be a material event same as an initial sale of common shares. Any major exceeding or missing of financial projections for the business (annually or quarterly) can be significant enough to be considered a material event and trigger the need for a new valuation. Major business model shifts are also sometimes considered a material event. If, as a founder, you are ever unclear on what constitutes a material event, always consult a 409a valuation firm to be sure. Technically speaking, a 409a valuation is required every 12 months or whenever a material event occurs. Beyond these requirements, there are critical times in the startup lifecycle where 409a is very much needed in order to continue growing and building your business in a smart, successful way. Related Resource: A User-Friendly Guide on Convertible Debt In order to receive a 409a valuation, you should be prepared to provide the following information to your independent assessor: Company overview including executives names and an overview of your startup’s industry A certificate of incorporation / corporate charter The most recent cap table A board presentation and recent pitch deck especially if you just completed a round of funding Historicals and 3-year profit and loss, cash balance, and any debt projections – essentially a complete financial picture Estimate of your hiring plan and options estimate you expect to issue over the next 12 months, the typical period that the 409a valuations are valid for. A list of publicly traded companies that are comparable to yours. Any info about expected timelines relating to IPOs, acquisitions, or mergers Any other significant events that have happened since you last had a 409a valuation created. When do I need a 409a valuation for my startup? Beyond the technical requirements of every 12 months and when a material event occurs, there are other circumstances where it is highly recommended that you get a new 309a valuation. Though not necessarily “required” these instances are critical to your success as a startup and as a founder because this new valuation will equip you with the most up-to-date information on the worth of your startup and provide another data point for growth. Other instances where you need a 409a valuation outside of material events and the 12-month mark are: Before issuing common stock for the first time As stated, stock for your co-founders and employees can be a huge perk to offer in order to attract top talent and retain hard-working employees who will stay loyal and push the company forward. When common stock is available, all employees have a stake in the success of the business and want to push the company growth forward because they want to vest their stock when the company is on the verge of going public or getting acquired in order to walk away profitable from that common stock. That being said, you need an initial 409a valuation to even have the opportunity to offer this stock to employees at all. After raising a new round of venture financing Raising a round of venture funding is extremely monumental for your business. Weather your startup is raising an initial seed round of just a few million or a 40M + round 3-4 years in, that type of capital injected into the business is extremely significant. While a pre-money and post-money valuation will also be in play, it’s important to reassess your 409a valuation after this type of significant funding, too. After raising a new round of venture financing it is necessary to get a new 409a valuation because the new cash injection in the business will significantly change the speed at which you are able to scale. You will most likely be hiring more and offering more common stock so an updated valuation is crucial to do this accurately and intelligently. If you are taking on a lot of new venture financing over a short amount of time, it is still recommended that you get a new 409a valuation after every round, even if that is close to your 12 year expiration of an existing 409a valuation or another material event. This is because venture funding is typically such a high-value injection for your company and there will be a new breakdown of ownership with the new investors at the table. As you approach the “end” of your startup with an IPO, Merger, or Acquisition If your company is on track to go public, or have an initial public offering (IPO) on the stock exchange, it is critical to get a final 409a valuation. A 409a valuation is only in existence when you have common stock and are a private company. So as you approach the time where your company is going to IPO and be publicly available for trade, those common stocks worth will convert at the public valuation. With that in mind, as your company approaches IPO, a new 409a valuation is necessary one final time. This final 409a valuation is going to be a factor in what the startup IPO’s at. That initial public offering will be influenced by your 409a valuation (among many other things). Its best to ensure your public offering is influenced by as many factors as you can control before the market takes hold of it. Having an accurate 409a valuation leading up to IPO sets up all your common stockholders for success by having the most realistic and up-to-date picture laid out. The same goes for approaching a merger with another company in your company’s space or selling the company to be acquired by a larger company. Both instances can lead to a big payout for your common stockholders. However, in both cases, good due diligence on the part of the acquiring company leadership or leadership at the merging company should be to ask for a recent 409a valuation. It is necessary to invest in a new 409a valuation leading up to this major “end” event for your startup. An acquisition or merger will most likely change the primary owner of the business and shake up the valuation of the common stock. In some cases, if your private startup is acquired by a public company, your common stock will be absorbed by the public stock of the buying company. That being said, an updated 409a valuation is important to influence the market value of the stock that your employee’s common stock will be converting to. Let’s note, however, that this is dependent of course on the way the merger or acquisition deal is structured and if stock is at play for the existing startup employees. How do 409a valuations work? We’ve laid out when a founder should seek a 409a valuation for their startup, but now let’s dive deep into how a 409a valuation actually works. A 409a valuation is calculated by an independent appraiser with no affiliation to the startup at hand. This is done to ensure the valuation is fair and based on a defensible methodology. An independent appraiser will approach a 409a valuation with one of three main methodologies. The three methodologies that might be used include: Market Approach A market approach is a methodology where the independent appraiser will look at comparable companies in the public market in order to reach the private 409a valuation. The market approach uses something typically known as an OPM backsolve. An OPM Backsolve is a methodology where the appraiser assumes the new investors or recent investors paid fair market value for their stock options and equity. Investors typically receive preferred stock, however, so the OPM backsolve is a special application for an option-based valuation method that takes into account the market value payment to calculate the preferred options into common stock options. Asset Approach The Asset Approach is typically the best approach for new startups that are pre-revenue and also have not raised any outside money. It is a very simple approach that consists of simply calculating a company’s net asset value and that number determines the proper valuation. These valuations are typically straightforward because it’s too early and there aren’t enough defining financial changes (positive or negative) to affect the valuation. Income Approach An income approach is a bit more straightforward than the Market Approach and basically the easy option for a company at the opposite end of the startup spectrum that would be using the asset approach. This is an approach that is typically used by independent appraisers when the startup receiving a new 409a valuation has a high amount of revenue and a positive cash flow. Using the income approach, a fair market value is determined by looking at a companies total earnings, or assets, and subtracting any outstanding liabilities or debts. Again, this approach is typically going to be the most effective and beneficial to a startup when they are in a positive earning position with high revenue. Typically if these 409a appraisal methodologies are done within a 12-month valuation and done within these methodologies in the correct way as deemed by the IRS, they may be eligible for safe harbors to ensure extra security for that valuation. These are just extra protection for your business as long as the valuation isn’t extremely unreasonable. To review, an asset approach is typically used at a startup’s inception and pre-revenue / pre-funding. An income approach is used to find a valuation when a company has high revenue and cash-positive. A market approach is used at every step in between asset and income stages or when there are more factors at play with investors or recent finding where an income approach is too simple. Independent appraisers may use any of these methodologies to find a 409a valuation so let’s dive into how much a 409a valuation costs. How much does a 409a valuation cost? Typically the cost of a 409a valuation can vary depending on the different aspects of a startups business and how complicated the valuation is going to be. The cost of a 409a valuation will also depend on how it is offered by your provider. Some providers offer it as a standalone service while others bundle it with other financial offerings which can alter the price. The average cost of a typical 409a valuation will range from $1,000 to $10,000. The effects on cost include size of the startup and complexity of the company. Complexities could include significant material events, fundraising, cash position, investors involved, and timeline of the startups path to IPO. An independent firm offering a valuation may offer a valuation with a flat rate of $1,000 but increase by $500+ as the state of the business becomes more complex / for each additional 409a valuation requested. Now that we’ve talked through what is needed to created a 409a valuation and the typical cost range of a 409a, lets outline who can help with a 409a valuation. Who can help with my 409a valuation? 409a valuations can be provided by a variety of financial sources. They can be provided by independent financial firms and banks. Tax firms are also a key resource and provider that can give you a 409a valuation. If you believe your 409a valuation will be especially complicated, a tax firm may be your best bet to ensure all IRS requirements are fulfilled and any safe harbors that can be are taken. 409a valuations can also be calculated by software companies specializing in the practice (in addition to other financial services). Pulley is a great choice for startups to calculate their initial 409A valuation because you can also issue option grants using the 409A price directly on the platform. FAQ If you missed these pertinent pieces of info in the post or simply want a refresh, here are some frequently asked questions. Is a 409a Valuation public? No, a 409a valuation is not public as it is only available to privately held companies. In order to get a fair market value appraisal, a startup must look to publicly traded companies in their space for a comparison. Is a 409a Valuation required? Technically a 409a valuation is only required if you want to offer common stock to founders and employees. Investors technically take preferred stock, however, that relies on common stock valuation too. Typically the case to NOT have a 409a valuation will be the exception not the rule. 409a valuations are strongly encouraged if not typically required based on the nature of how you will most likely be financing your startup. When does a 409 Valuation expire? A 409a valuation expiries after 12 months or when a significant material event occurs before the expiration date.

What is a pre-money valuation? In the world of startups, valuation of your startup is discussed constantly. Understanding that valuation, however, can be a bit confusing depending on where you are in your funding and startup journey. The valuation of your startup will shift significantly (as will the risks) as soon as you decide it’s the right time to take on funding. Now whether a founder or founding team decides to take on angel investors, venture capital backing, or bootstrap your business, if funding is involved a startup will have a pre-money valuation and a post-money valuation. Understanding this difference is essential startup knowledge. The definition of this type of valuation is fairly straight-forward. Pre-money valuation is what a startup is worth without external funding or prior to a round the startup is actively raising. This is the valuation given to a potential investor before a funding round to showcase what the company is currently worth. The pre-money valuation of a company will shift overtime. It will be different before initial funding vs. before a Series A for example. What is a post money valuation? On the flip-side of a pre-money valuation, a post-money valuation is what the startup is worth after that next round of intended funding takes place. This will have some significant change because the new investors receive a percent value of the company. Post-money valuations are a more set amount based on true money worth of the company. There are no potential factors within a post-money valuation. Pre-money vs post-money valuation for startups While the difference might seem clear between pre-money and post-money valuation for startups, there are a few things to keep in mind when understanding valuation in general and why these numbers really are so significantly different. Valuation, in general, is fluid. It is speculative and flexible. Valuation is completely driven by the market and opinions of various players in the game. Entrepreneurs and existing investors will want a high valuation. They believe in the idea already and want to make sure their shares aren’t diluted when new funding is taken on. New investors, however, will want to assess all risk and ensure they aren’t overpaying or overvaluing and risking their financials. They way that an investor positions their pre-money valuation can affect the post-money valuation and ultimately the founders, investors, and all current shareholders valuation. Related resource: Navigating Pro Rata Rights: Essential Insights for Startup Entrepreneurs Timing is Everything As stated, pre-money valuation is set prior to the investment round while post-money valuation is a fixed valuation after the round is complete. Because of timing, post-money valuation is a lot simpler. That number will always be fixed. Although post-money valuations are simpler, pre-money is more commonly used. Pre-money valuations can flex so much because of the timing and number of factors in place that could affect the valuation in any given scenario. Pre-money valuations are affected by employee share open plan expansion, debt-to equity conversions, pro-rata participation rights, and of course the value and market opportunity seen by current stakeholders and founders. To break down some of these terms: ESOP (employee share open plan) are the plans given to employees of the company to vest as shareholders. Debt-to-equity conversion is any potential situation where debt taken on by the startup is promised to be paid back by a value amount of stock. Pro-rata participation rights are the rights (typically not contracted) to previous investors to invest in future rounds at a set level to maintain ownership rights. Timing is everything for pre-money valuation because it will affect the post-money valuation. If a startup is growing rapidly, doing really well in the market, and the potential is obvious because of demand in the market or interest from other investors, a founder may be able to get a really great pre-money valuation. If the founder is looking for funding to bail out the company or because growth is only possible with more capital, then that could affect the desirability of the startup and therefore lead to a lower pre-money valuation. Price per share or PPS is the focus. The market price per share of stock, or the “share price,” is the most recent price that a stock has traded for. It’s a function of market forces, occurring when the price a buyer is willing to pay for a stock meets the price a seller is willing to accept for a stock. A solid PPS is the goal for any company taking on funding to set themselves up for a successful IPO or acquisition at some point. This is ultimately an understanding of what an investor will pay per share for a startup. The PPS is the pre-money valuation divided by the fully diluted capitalization. The PPS and pre-money valuation are directly proportional (one goes up, the other goes up). So, the greater the pre-money valuation, the more an investor will pay for each share, but the investor will receive less shares for the same investment amount. Every startup founding team wants to make sure they are setting themselves up for a successful end game so timing their funding to line up with excellent pre-money and post-money valuations is critical. Why the differences matter The differences of pre-money and post-money valuations matter. Outside of timing, the main difference between pre-money and post-money valuation is the insight they provide to investors. A pre-money valuation provides value into the potential shares issues while post-money valuation provides a hard, clear, and fixed numeric value equating to the current value of the difference. A hypothetical, potential value pre-money leading to a set value post-money. The difference is critical for founders to understand. Why are pre-money and post-money valuations Important? Ultimately, pre-money valuation and post-money valuation matter because these valuations also have the biggest impact on determining the percentage of a company an investor is going to acquire for a given investment, as well as the percentage of the company the existing stockholders will retain. Having a deep understanding of pre-money and post-money valuations will certainly help during negotiations as well. On top of being an integral part in the dynamics of a deal it is also an easy way to portray to potential investors that you understand the mechanics of a startup and cap table. A pre-money valuation can make or break your post-money valuation. Understanding what factors go into a pre-money valuation can help a founder make an informed decision when choosing to take on new investors or not and ultimately retain a solid post-money valuation they can stay excited about. How to calculate pre-money and post-money valuations? Now that the differences and importance of pre-money valuation and post-money valuation is clear, breaking down how to actually calculate these values is the next step in building out essential startup knowledge. Calculating Pre-Money Valuations Pre-Money valuation is pre-funding so it’s important to keep that in mind when calculating this valuation out. The catch to this is to factor in the post-money valuation you want to get your company to – that is critical into calculating the pre-money valuation you are going to pitch to investors. The formula to use for this is: Pre-money valuation = Post-money valuation – investment amount Understanding what factors you have in play that will be attractive to investors and then incorporating that into your projected goal post-money valuation will lead you to understanding what investment amount to seek and how to ultimately present a pre-money valuation to investors. Calculating Post Money Valuations Getting to your post-money valuation is much simpler than calculating your pre-money valuation. The main thing to keep in mind for calculating the post-money valuation is understanding what percentage of your company the new investor will receive and ultimately understanding how that takes away the value overall. A good way to think about calculating post-money valuation is by using this formula: Post-money valuation = Investment dollar amount ÷ percent investor receives The post-money valuation will be a fixed dollar amount and does not flux in the way a pre-money valuation can be adjusted. Ultimately, it’s important to understand pre-money valuations and post-money valuations if you are ever going to be involved in a startup at any level. Employees should understand this when considering their stock options and how their company presents those to them. Founders need to understand this to intelligently grow their business and of course investors need to understand these valuations to make smart investments and walk away with high-potential earnings. Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days.

Last week our CEO, Mike Preuss, joined the Product Market Misfits podcast to discuss Mike’s lessons from building Visible and how startups can think about fundraising. We’ve shared our favorite quotes and takeaways from the podcast below. If you’d like to give the full episode a listen, you can do so here. Fundraising is like B2B Sales We think that the fundraising experience for a founder is the same as what a B2B enterprise SaaS selling motion is. So you have your prospecting and awareness of your brand at the top of the funnel. And then all the way at the bottom of the funnel, you have current investors and investor updates which I would call customer success, right? And then in the middle you have things you are putting a pipeline together and having meetings and those meetings are progressing. And, hopefully I get a couple, a term sheet or more at the end of that whole process. We often compare the traditional VC fundraising process similar to that of a B2B enterprise SaaS sales funnel. Dan asked Mike about how investor updates can be a secret weapon for a startup (as mentioned in a previous podcast episode). Mike goes on to explain how investor updates can fuel your “fundraising funnel.” Learn more about running a fundraising funnel here. Connecting the Dots for Potential Investors If I’m sending an investor update out every month and sharing a light version with potential investors, I’m staying top of mind to them. I’m showing progress along the way. You’re probably building a relationship with them through that, that mechanism. Because remember a big part of this whole kind of song and dance of fundraising is building a relationship with new investors. Speaking more tactically on the idea of using investor updates during a fundraise Mike mentions how the value of investor updates can be two sided. One one hand, you can use a light version of an investor update to “nurture” your potential investors to speed up the conversation and negotiations when the time is right to raise. Using Investor Updates During Due Diligence A lot of times in diligence, depending on the stage, investors will ask for you to send them your last 12 months of investor updates. If you don’t have it that’s a really bad sign. But done correctly that will help weave a narrative and will let the investor see think, “hey, this is how I can expect for them to engage with me after I write a check.” On the other hand, investors updates are a vital part of the due diligence process. One of the first places your new potential investors will ask about how you operate is your current investors. If you do not regularly communicate with your current investors and they are not willing to be an evangelist with new potential investors, that is generally a red flag. As Mike mentioned, new investors may simply just want a first hand look at your last 12 updates as well. To learn more about investor updates and how you can leverage them for fundraising, check out our investor updates guide here. On the Importance of Harmony in the Workplace Harmony is our secret weapon. What I’ve realized is that just because you’re working more hours or your butts in a chair doesn’t mean you’re actually more productive and we have a lot of bit data to back that up. When asked, “what is your secret weapon for team culture?” Mike dug into the importance of harmony at Visible. Mike goes on to explain how he does not prescribe to the idea of work/life balance. Rather work is a component of life and there needs to be harmony between your life and the things that are a part of it, like work. Mike and Dan go into deep detail to cover more tactical fundraising advice, company building, and “secret weapons” that Mike has used during his time as a founder. If you’d like to give the full episode a listen, you can do so here.

The world is becoming aware of the potential in blockchain technology. The rise of Bitcoin, Ethereum, and other blockchain protocols have created a new class of startup working to innovate on a new frontier. From alternative cryptocurrencies to companies who support the crypto ecosystem, we are witnessing the infrastructure-building phase of a new wave of technology. At Visible, we talk to founders every day who are looking for investors. Our new Connect platform allows you to search our database of nearly 11,000 investors to do your own research, but in this post, we will be highlighting some of those investors in the blockchain space. 2020 Ventures Stage: All Stages Investment Geography: United States, Southeast Asia Key person: David Williams Blockchain investments: Bitpay, Polysign, Kava Networks, Ripple Labs, tokens like BTC, ETH, LINK, & more. Thesis: 2020 Ventures doesn’t only invest in blockchain & crypto, but when they do invest in the space they make bets on both coins and companies in the space. They spend time primarily on payments & stores of Value, but also invest in DeFi, exchanges, and other projects. Notation Stage: Pre Seed Investment Geography: New York, Agnostic Key Person: Alex Lines and Nicholas Chirls Blockchain Investments: Filecoin, Zepplin, Livepeer Thesis: Notation capital explicitly says on their site that they are not thesis driven. Instead, they focus on writing the earliest checks into big ideas that are of interest to them. With deeply technical backgrounds, Notation is placing bets across many different sectors – blockchain being one of them. They’ve invested directly in protocols like Filecoin and in crypto-focused companies such as Bison Trails and Livepeer. You can read their operating principles on Github here. Blockchain Valley Ventures Stage: All stages Investment Geography: Global Blockchain Investments: Algotrader, Coinfirm, Keyless Key People: Heinrich Zetlmayer Thesis: Another hybrid advisory/investment firm, Blockchain Valley Ventures brings expertise to the blockchain space by helping projects of all kinds come to fruition. From corporate blockchain projects to startup ventures in the space, BVV is there to help with both capital and expertise. Pillar VC Stage: All stages Investment Geography: United States, Northeast Key People: Jamie Goldstein, Russ Wilcox, Sarah Hodges Blockchain Investments: Algorand, Circle, LBRY Thesis: Pillar is a highly founder focused VC fund that differentiates itself by investing in good founding teams. They invest across many categories, but found themselves as one of the first investors in new blockchain Algorand and several other crypto companies. Boost VC Stage: Accelerator/Seed Investment Geography: Global Key People: Adam Draper, Brayton Williams, Maddie Callander Blockchain investments: Abra, Aragon, Filecoin, Ethereum, and many more Thesis: Boost.vc invests in what they call ‘Sci-Fi Founders’ primarily via their accelerator. They have dozens of investments across many different frontier industries, primarily focusing on VR/AR, Crypto, and what they call ‘sci-fi’ investments. Castle Island Ventures Stage: All stages Investment Geography: Global Key People: Matthew Walsh, Nic Carter Blockchain Investments: BlockFi, Zabo, Talos, and more Thesis: Castle Island Ventures invests almost exclusively in public blockchain projects. They have conviction that public, permissionless blockchains will form a new economic infrastructure, and deploy capital using their past financial and crypto expertise in projects that support public blockchains. Blockchers Stage: Accelerator, Seed, Grants Investment Geography: Europe Blockchain Investments: Volvero, Blocksquare, and more Thesis: Blockchers provides grants and occasional investments through their accelerator in the European Union. They are smaller than some of the other players on this list, but they’re a great option to explore if you’re building a blockchain based startup in Europe. Kenetic Trading Stage: Series A/Series B Investment Geography: Global, but focusing on Asia Key People: Jehan Chu, Daniel Weinberg Blockchain Investments: BlockFi, Handshake, Alchemy, and many others Thesis: Kenetic Capital is involved in a few different areas of crypto and blockchain markets. They invest in Series A and later blockchain companies like BlockFi and Handshake, and also are involved in cryptocurrency trading. They offer many sophisticated trading products and executes on advanced trading strategies with a team of experience software engineers and quantitative traders. Jehan Chu, the fund’s CEO, has played a major role in the building the blockchain community in Hong Kong and hosts meetups throughout Asia. ConsenSys Ventures Stage: Accelerator, All Stages Investment Geography: Global Key People: Min Teo, Joseph Lubin Blockchain Investments: Compound, Gitcoin, Juno, and many others Thesis: ConsenSys is a highly successful Ethereum software development company. They’ve built multiple hit products such as MetaMask, Codefi and Quorum. They’ve used their expertise to spin out an investment arm that has made investments to projects like Compound, Gitcoin, and many other protocols and infrastructure builders in the space. Just starting out? You can consider their hackathon or accelerator programs. Placeholder VC Stage: All Stages Investment Geography: Global Key People: Joel Monegro, Chris Burniske Blockchain Investments: Magic, Nexus Mutual, 0x, Aragon, and many others Thesis: Placeholder invests in new projects in the space that seek to build around cryptonetworks. Their thesis is that the advent of blockchains and their open-sourced nature will lead to a slow decline of the current tech monopolies of the day. The key reason: blockchains undermine the key advantage of tech giants: data monopolization. ‘crypto collapses the cost of building and scaling information networks by replacing centralized coordination with universal financial incentives.’ You can read their full investment thesis here. Use Visible Connect to browser our investor database of hand curated investors. Find investors and add them directly to your Fundraising Pipeline in Visible. Give it a try here.

Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days. Relatively speaking, venture capital is a fairly new asset class. Innovations have been consistent since Y Combinator came to market in the early 2000s. Since then there have been countless innovations that are creating more funding options for startup founders. The most recent innovation has been rolling funds. Learn more about rolling funds and what they means for startup founders below: What are Rolling Funds? Pioneered by Angelist, a rolling fund is a new VC fund structure that allows funds to raise money on a continuous basis – creating a new fund structure as quickly as every quarter. These funds can also be publicly marketed under Rule 506(c). While rolling funds are still relatively new, there have been early benefits and signs of more innovation to come. To learn more about rolling funds and their impact on startup founders and investors, read more below: What are the benefits of Rolling Funds Rolling funds have the opportunity to transform the venture capital space. As we begin to scratch the surface on rolling funds and how they fit into the space, there have been some clear benefits so far. 1. Attract New Types of Investors These funds also lower the barrier of entry into VC for aspiring investors by allowing them to get started with less up front capital. Angelist can manage most of the legal and administrative aspects of rolling funds too, further lowering the overall amount of knowledge and capital needed to get started. Because of this, rolling funds may create many new types of investors. 2. Provides More Funding Options for Founders More investors means more funding options for startup founders. As we mentioned above, rolling funds will lower the barrier to entry for emerging VCs, in turn creating more funding options for startups. As more competition pops up in the space, the more competitive it will become to get on a startup’s cap table. Because of this, funds will have to create more resources and terms for startups. Related Resource: The Understandable Guide to Startup Funding Stages 3. Continual Limited Partner Fundraising Rolling funds allow VC’s to continue to raise money from limited partners on a regular basis, essentially turning the process of LP investing into a quarterly subscription-based model. If an LP decides that they don’t want to continue backing an investor, they can stop allocating resources to them immediately. On the other hand, if they see that a given investor is making good bets, they can invest more money in them very quickly. This is especially useful for VC’s who would like to fundraise opportunistically in the case of portfolio markups. 4. Shortened Feedback Loops This new structure will shorten feedback loops for venture capitalists. Startups take a long time to reach full maturity, but they still have clear milestones throughout their journey. If an investor has several companies in their portfolio that succeed in securing future funding or obtaining product market fit, they can be rewarded instantly by raising more money during the next quarter. This is good for LP’s too, as they can make small, periodic investments in rolling funds based on the real time performance of the investor. This is quite different from having to write very large checks every 10 years. It opens up LP investing to smaller funds and individuals – rather than just institutions. How are Rolling Funds Structured? As we mentioned, rolling funds will allow more people to become VC’s. Because companies like Angelist will allow these small investors to outsource many fund management responsibilities, more people with A+ networks and good judgment can get into the game. For example, a star employee at Stripe or AirBnB might have access to many startup deals and the judgment needed to allocate capital effectively. Traditionally, if they wanted to get into VC, they would have needed to slowly work their way into an established fund or quit their job to start their own. If they didn’t want to do this, then they could angel invest, but then may not have hit the threshold needed to be an accredited investor (and even then they were confined to only investing their own money). Rolling funds allow them to start investing part time, and without needing to hit accredited investor requirements (although LP’s do need to be accredited). These new operator investors will be able to attract LP investment from many different sources, such as their managers, successful friends, and others who are impressed by their network and experience. Maybe you, a current founder, have always thought that you’d be a good VC and wish you could allocate capital into your other founder friends’ deals. With rolling funds, you can start a fund as a side hustle. This enables you to capitalize on your access and judgement by investing in other founders. 506(c) Funds Rolling funds are structured as a 506(c) offering. According to the SEC: “Rule 506(c) permits issuers to broadly solicit and generally advertise an offering, provided that: all purchasers in the offering are accredited investors the issuer takes reasonable steps to verify purchasers’ accredited investor status and certain other conditions in Regulation D are satisfied” Put simply, a 506(c) requires that all LPs are accredited investors. As Investopedia puts it, “An accredited investor is an individual or a business entity that is allowed to trade securities that may not be registered with financial authorities. They are entitled to this privileged access by satisfying at least one requirement regarding their income, net worth, asset size, governance status, or professional experience.” LP Subscriptions Accredited LPs, limited partners, are the investors behind a rolling fund. As the name implies, rolling funds are raised on a rolling basis. Quarterly Funds As the team at Rolling Fund News puts it, ‘A rolling fund is structured as a series of limited partnerships: at the end of each quarterly investment period, a new fund is offered on substantially the same terms, for as long as the rolling fund continues to operate. With this fund structure, rolling funds are publicly marketable and remain open to new investors.” Contributions The fund managers are responsible for deciding what the contribution minimum or maximums are for LPs. Currently on the AngelList rolling fund marketplace the quarterly minimums range anywhere from $2,500 to $50,000. Fee Structure Like any venture capital fund, there are fees associated with a rolling fund. Admin Fee For all rolling funds on AngelList there is a 0.15% admin fee. The fee is similar to more traditional funds and syndicates offered through AngelList. Management Fees There are also management fees associated with rolling funds. Most management fees are 2% but can generally range anywhere from 0% to 3%. As defined by AngelList, “Each fund will pay the fund manager a customary management fee. Management fees generally accrue over the first ten years of each fund’s life and are typically payable in advance over four years. Like a traditional fund, GPs can waive fees on an LP-by-LP basis.” Check out an example from AngelList below: How to Get Involved with Rolling Funds? The rolling fund structure opens up VC investing to many people who would have otherwise had a difficult time getting started. For example, imagine a fund built entirely around an independent media creator with a strong brand. High quality tech bloggers or university professors with a deep understanding of startups and a large audience can raise funding quickly on top of their brand and expertise. It could create an additional income stream for these individuals and allow them to build wealth through venture investing. Networking A common thread is that rolling funds will open up the opportunity to create a VC fund to anyone with a great network, access to deals, and good judgement around startups. Whether it’s an elite tech blogger, current founder looking to invest on the side, or startup executives who wants to benefit from their understanding and access to early stage companies – there will be new players in the VC game that might be different than the typical venture investor. Exploring Since launching rolling funds, AngelList has launched a marketplace where anyone can peruse and check out different funds that are currently raising. You’ll be able to check out the different funds (and their managers) to get an idea of who is in the space. Check it out here. Invest With lower investment minimums and more availability, rolling funds are becoming a feasible investment for non-traditional investors. Founders particularly are beginning to invest in rolling funds to invest in other founders. Of course this is an incredibly risky investment and should seek advice before investing. How Rolling Funds Could Impact Fundraising As we previously discussed, rolling funds have created more funding options for startups. Because of this it has the opportunity to impact the current VC fundraising process. Related Resource: All Encompassing Startup Fundraising Guide Increase in Total Number of VCs Rolling funds will lead to an increase in the total number of VC’s. More entrants into the VC business will lead to pressure on the traditional players in the ecosystem and more competition for deals. This competition will lead to better prices for founders raising capital. Would you rather take money from your long time friend’s rolling fund or a Sand Hill Road VC during your Seed round? These options may be real in the next 5-10 years. Rise in Early Stage Investing At first, rolling funds will primarily impact early stage investing. Most of these new funds have raised relatively modest amounts of money compared to large VC’s. Due to the large amounts of capital needed to play at later stage investing, rolling funds might not have an impact there just yet. However, due to the nature of compounding, some rolling funds might grow much larger than expected. VC is dominated by power laws, and the most successful rolling funds might find themselves with LP’s begging to get into future rounds. A rolling fund with a few smash hit successes can instantly raise additional LP capital. Traditional VC’s would have to wait longer to do so. One can even expect large VC’s to adopt the rolling fund model in the future. Easing Exit Pressure A final way that rolling funds will help founders is by easing exit pressure. All VC investors (including those who run rolling funds), will want your company to swing for the fences and seek to be a massive outlier. Traditional VC funds, however, need to show returns to LP’s on a roughly 10 year time horizon so that they have the momentum necessary to raise additional funding. This sometimes gives VC’s an incentive to push your company to exit or IPO within a specific time frame. LP’s want to see returns on set schedules. If your company’s exit would help show better returns, your VC’s might pressure you into selling your company prematurely. With rolling funds, this is not as much of an issue, as they can raise funding from LP’s on a continuous basis, vs having to raise a giant new fund every 10 years. Rolling Fund FAQs Because rolling funds are fairly new to most founders and investors – check out a few common questions below: Can You Market a Rolling Fund? One of the unique factors of a rolling fund are that the general partners behind them are allowed to market them to the general public. As AngelList writes, “Unlike most traditional venture funds, managers of Rolling Funds (known as general partners or “GPs”) can publicly advertise their offerings to grow their investor network and raise money.” Because of this, GPs of a rolling fund can attract LPs from different walks of life. More individuals are beginning to invest in rolling funds which means that startup founders will have a more diverse network of investors with more resources and connections available. What is the Difference Between a Syndicate and a Fund? As put by the team at AbstractOps, “A startup syndicate – or an investment syndicate – is a special purpose vehicle (SPV) created for the sole purpose of making one investment. Although syndicate investors are typically high-risk (high-reward) investors, through syndicates, they can invest in more deals with small amounts of capital, as little as $1,000 per syndicate. ” This means that a syndicate is only investing in a single company. On the flip side, a fund is dedicated to making investments across many companies. Related Resource: Accredited Investor vs Qualified Purchaser Is There a Minimum Investment for a Rolling Fund? The minimum investment for a rolling fund varies from fund to fund. The list of Rolling Funds currently raising on AngelList varies anywhere from a minimum of $2.5K a quarter to $167K a quarter. Checkout Visible’s Investor Database To Find the Perfect Investor Early signs show that rolling funds are here to stay and can be transformational for both venture capitalists and startup founders. If you’re a founder looking to raise capital, check out Visible Connect, our investor database, here. We maintain the database with firsthand data and will continue to add new funds and data as it becomes available.