VCs typically consider the potential market size of a product or business to be the most essential factor.
Don’t ask for an NDA. They talk to so many people, they cannot guarantee an NDA. Also, ideas are usually not as unique as we think.
Consider how you can make the partner look good to their team and investors. For example, how their investment in your company will yield an exceptional return.
You need to talk about yourself and the team. As an early-stage company, they do not have much else to base their decision on.
The stage of their fund and other investments they have made will impact the outcome. If they have multiple funds, ask which fund will they be investing from.
There is a dating period. The fundraising process is often romanticized and overly simplified, but it is actually quite long. It is best to start talking to investors well before you need to start raising funds.
Keep in mind that the promises you make regarding progress should be realistic. Overpromising and not delivering will have negative consequences, just like in any other area of life.
Many of them may be interested, but if they want to take the lead on the deal, it's best to ask early. Some will lead and participate, some will never lead, and some will make a decision on a deal-by-deal basis.
Ask if they will be able to fund the next round and inquire about follow-on investments. Not investing in the next round can have a negative impact.
Watch out for aggressive terms. The biggest one: more than 1x liquidation preference.
If raising on a note, understand the implications of using pre and post-money valuation caps.
13 Key take aways from One up on Wall Street
Last year I took two Finance classes as a part of my MBA curriculum which got me more interested in understanding investment principles. I had recently decided that I felt more comfortable having a financial advisor manage my investments but this class got me excited about investments again. We had spent a fair amount of or time in Investments class talking about Peter Lynch, I ended up picking up his book, One up on all street. Surprisingly, I found his book quite entertaining and insightful. I felt like, I learned more about investments from this little book than what I had learned in a 8 week course. Here are few general principles that stuck with me.
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If you are not willing to spend time doing research, put your money in the market instead of picking individual stocks
- If you can not beat the market, put your money in a good mutual fund.
- If you can’t find any companies that you think are attractive, put your money into the bank until you discover some.
- Invest in fundamentals and not news and rumors
- You do not need to be able to pick all winners to have a successful investment portfolio. Most of the times 6/10 is enough
- Dont get too attached to any stocks, when the fundamentals /story is no longer good, its time to let it go
- Invest in what you know and understand. This a principle Warren Buffet follows and recommends as well.
- Price drops in companies with strong fundamentals should be viewed as buying opportunity.
- According to Peter Lynch, some of these are characteristics of company worth looking into: The company has a boring name , company is a spin off, the company is a fast growing company in a no/low growth industry, the company produces a product that people keep buying-in good times and bad, Insiders are buying shares, low percentage of shares are held by institutions, the company is buying back shares.
- When insiders are buying, its usually a good sign. Of course, do you research and check for all fundamentals and relate news.
- Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.
- Everyone has the brainpower to make money in stocks. Not everyone has the stomach. If you are susceptible to selling everything in a panic, you ought to avoid stocks and stock mutual funds altogether.
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Market does not always behave rationally.
By no means this is investment advice but simply take aways I found useful from the book.