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Basic accounting errors founders make
Basic accounting errors founders make
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Of late, have come across multiple early-stage startups making a basic accounting error. While digging their choppy monthly revenues, I realized these startups book revenues in the month cash was received, and not when the product/service was delivered. While this seems very tactical to founders early on, it’s important.

Examples – a SaaS startup charged & booked annual revenue upfront, while clients could cancel any month with refund.

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Reverse Pitch for AI startups
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In today’s Livemint, I wrote about some of the areas we’re looking to invest in at Globevestor. In this article, the focus is on ‘AI at workplace’ companies. You can read the article on Livemint here.

We believe that for businesses to thrive in the future, human intelligence and artificial intelligence (AI) will need to work in tandem. And that the next wave of ‘AI at workplace’ startups would help employees become better at their jobs.

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What’s the first step for founders?
What’s the first step for founders?
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Most tech founders start their journey by writing a lot of code. However, many times it’s better to begin with validating product need through a quick non-code/ light-code exercise. E.g. if you’re planning a market-place, you might try to get a couple of transactions done by matchmaking supply-demand simply over email/ offline. Or you might set up a single landing page to collect emails and try digital ads to figure out cost of customer discovery.

Protecting the idea, big bang launch, stealth mode, wowing customer at first experience, etc are all fine ideas if you’re very sure of who your customers are and what they want.

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What can one make of the early-stage funding implosion?
What can one make of the early-stage funding implosion?
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There’s consensus now that seed to pre-Series A funding environment isn’t rebounding. In fact, 2017 has been worse than 2013/2012 globally, and trending back to 2014 levels for India.

There are no indicators that next 6 months will be drastically different. It doesn’t help that there’s too much noise in every sector, including AI, fintech, SaaS, etc. which leads to higher burden of proof for startups. Moreover, every investor is currently distracted by shiny new objects of blockchain & crypto, due to strong bull runs there.

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Why do investors ask startup founders for stock vesting/ restrictions?
Why do investors ask startup founders for stock vesting/ restrictions?
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A majority of founders today seem to be comfortable with stock vesting provisions in termsheets. However, still encounter a few (usually first-time) founders who see vesting as investor tactic to gain more control. Some feel they’re being forced to ‘earn’ ownership in their own ventures.

This interpretation of vesting is harmful. Investors invest in the mid-long term future potential of a startup, and the team sticking around to achieve its ambitions is key. A non-executive founder (w/o day-to-day role) is as good as dead equity. If a founder leaves, it’s a big blow to the execution ability of a team.

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What’s with this tranched investing?
What’s with this tranched investing?
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I had another call today where co-investors batted for tranched investment to ‘ensure financial discipline’ in startup founders. I am strongly opposed to it. Either you trust in founders and invest, or don’t. Put terms in agreement to ensure financial oversight.

Hate milestones based investing. Things go wrong all the time. Putting founders under added stress of uncertainty on funds is useless.

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How much runway should you build during a fundraise?
How much runway should you build during a fundraise?
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Early-stage startup founders must’ve often heard from investors/ advisors to build runway for at least 18 months when fundraising. Yet, quite a few founders plan for much less. “We will raise Series A in 9-12 months” is a risky strategy, usually driven by an attempt to limit dilution.

There is a simple reverse-calculation to justify a minimum 18 month runway.

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Should you have targets in investor agreements?
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If you’re an entrepreneur raising funds and the investor is keen to put in specific targets in your shareholder agreement & link it to valuation/ investment tranches, understand the following 3 things before you sign.

1. Get ready to be distracted: This isn’t super founder friendly behavior and builds uncertainty on your dilution/ funds availability. It will be distraction that’ll keep from 100% focus on business even after fund closure. Question if the investor is right for you.

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Tech sector is booming: 4 lesser-known ways to get recruited in it
Tech sector is booming: 4 lesser-known ways to get recruited in it
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It’s common knowledge that the technology sector is booming, almost globally. Tech companies continue to grow and create value at a pace previously unheard of.

Today, 5 of the 10 most valuable public companies (by market cap) are from the tech sector (via Globevestor). One would expect this to get even more skewed in favor of tech over next few years. In 2016, while the tech sector in US employed only 4% of the total workforce, it created 10% of all new jobs.

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