Nonbank lenders are becoming increasingly attractive to small businesses, according to an article published today in the Wall Street Journal. (Alternative Lenders Peddle Pricey Commercial Loans)
The nonbank lenders cited in the article include OnDeck Capital Inc., Kabbage Inc., CAN Capital Inc. and Business Financial Services Inc.
The article states that nonbank lenders, whose loans typically are for less than $50,000, are popular – despite high interest rates (sometimes more than 50% per year) – for the following reasons.
In a recent article (Foreign Entrepreneurs Learn Art of the American Pitch), the Wall Street Journal discussed the role of “pitch coaches” who help foreign entrepreneurs promote themselves in the US. While the article focused primarily on pitches to investors, it applies to selling one’s business to clients and colleagues, as well.
The thrust of the article is that selling in the US is different from selling in other countries. In my work with international clients, I have seen the same thing.
Here are some of the ways that pitch coaches say pitches need to be tailored to work best in the US.
In an article published today, the Wall Street Journal discusses how social media and investors can come together for the benefit of startup entrepreneurs. (If You Look Good on Twitter, VCs May Take Notice)
According to the article, more “venture capitalists are taking social media into consideration before they decide to pour millions of dollars into a startup” [emphasis added].
The article includes the following eight tips [emphasis added] for how to bring a startup’s social media and investors together most effectively.
- Read more…
Last week Y Combinator announced The Handshake Deal Protocol. A “handshake deal” is an oral commitment to a funding transaction between a startup’s founders and an investor. The handshake deal is necessary in Silicon Valley because, in the world of startups, one must move quickly.
As Y Combinator notes, however, a handshake deal can create problems:
Unfortunately, things don’t work as smoothly in Silicon Valley as among diamond dealers. This is not a closed community of pros who deal with one another day after day. Many participants in the funding market are noobs, and some are dishonest.
A client told me that she wants to include Class F shares in the Certificate of Incorporation for her Delaware corporation. This post describes how we concluded that – for this client, at any rate – Class F shares were not a good idea.
Class F shares were invented by the Founder Institute several years ago to protect founders largely against investors, especially VCs. (See If You Accept Venture Capital, You will Lose Control of Your Company.) Class F shares provide 2:1 board votes per founder versus normal board members, and 10:1 share votes as compared to normal common shares.
In an article published today (Venture Capital to Suppress Its Appetite for Risk in 2013), the Wall Street Journal reports that venture capitalists have dramatically lowered their appetite for risk, reducing the power of Internet entrepreneurs who are seeking funding.
The article notes that:
- In light of disappointing stock-market performance of Facebook, Zynga and Groupon, VCs are investing less in consumer Internet companies.
- During the past year, valuations have gone down significantly.
- On a quarter-over-quarter basis, the number of deals, the amount invested and the percentage of “up” rounds all have declined.
Accelerators offer entrepreneurs seed funding and one-to-one mentoring in exchange for an equity stake, making a profit when some of their startups receive institutional (VC) funding. However, according to a Wall Street Journal article published yesterday (Start-Ups Crowd ‘Accelerators’), most accelerators – especially those outside Silicon Valley, Boston and New York – are of doubtful value.
Yesterday the Wall Street Journal published an informative piece about asking people you know and love (i.e., friends and family) for a loan (Do’s and Don’ts of Asking Friends for Money). Here is a recap of the tips offered by experts quoted in the article:
- Put yourself in the lender’s shoes.
- Borrow the money as you would from a bank.
- Bring in a lawyer to draw up the agreement.
- Ask for more money than you think you need.
- Assume the worst.
- Remember “Hamlet”. ["Neither a borrower nor a lender be...."]
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
The evening of Wednesday, April 18, I will moderate SVForum’s East Bay Series program “Improving Fundability with Social Media”.
Social media such as Facebook, Twitter, and Google+ have clearly woven themselves into the very fabric of our personal and professional lives. Their simple and intuitive user experience, and the effective and efficient means they provide to connect people, brands, and consumers are transforming the very way business is conducted. It’s natural that so much of the innovation funded by the venture community is connected in some way with Social Media, whether it’s to reach customers, respond to service issues, or build buzz about new products and services. Our panel will discuss how companies are adopting–and adapting these platforms to increase traffic, conversions, and profit as they extend relationships and make every interaction part of their experience -– and how entrepreneurs can take advantage of this trend to build successful new products and ventures. Join us and learn how having a Social Media platform can impact or improve your start-up’s potential for raising critical funding.
I recently spoke with three startup entrepreneurs who had just retained a finder to locate venture capital in exchange for an equity stake in the form of warrants (the right to purchase shares at a specified price by a specified date). They got very nervous when, after reading their agreement with the finder, I told them the business and legal reasons why retaining the finder was a bad idea:
- The finder would start by sending nondisclosure agreements to targets – but VCs generally will not sign NDAs and are likely to think the entrepreneurs don’t know what they are doing.
- The finder then would send an Executive Summary to each VC. But virtually no ExSum that is sent to a VC cold is read, let alone responded to.
- Next, the finder would make follow-up calls to the VCs. But such follow-ups will be of little, if any utility. The way to get to a VC is via an introduction from someone that the VC knows and trusts. Furthermore, VCs who are interested will not want the finder’s answers to questions – they will want to talk to the entrepreneurs.
- More fundamentally, VCs will be suspicious of, and will have little interest in engaging with, entrepreneurs who use finders. The typical VC believes that if you cannot figure out a way to be introduced by someone that the VC knows, you don’t have what it takes to build a successful business.
- The finder’s form of warrant agreement gave him anti-dilution protection – a feature that would turn off many VCs and would make them think, again, that the entrepreneurs don’t know what they are doing.
- The finder required that the entrepreneurs indemnify him against any claims associated with his activities, even if the claims arise from the finder’s negligence.