Archive for the ‘Investing’ Category

Foursquare does a down round

with one comment

11th April 2013 Update – Foursquare have finally announced a $41m round of debt and/or convertible debt. Union Square Ventures’ Fred Wilson has blogged about the round

Keith Rabois appears to be enjoying his birthday. After a Twitter tête-à-tête with Foursquare founder/CEO Dennis Crowley (which was amusingly misreported by Business Insider as “Square-bashing”), Rabois referred to “another down round” (emphasis mine) at Foursquare, which intrigued me, so I asked the obvious question:

Rabois

Read the rest of this entry »

Written by jackgavigan

March 17, 2013 at 8:15 pm

Introduction to SEIS

leave a comment »

The slides from my “Introduction to SEIS” talk at the Hacker News London meetup on 25th May 2012 (video below) can be downloaded here.

Written by jackgavigan

May 25, 2012 at 4:00 pm

UK angel investment on hold ’til April?

leave a comment »

On Tuesday, the Chancellor delivered his Autumn Statement to Parliament. It included the news that, following this summer’s Treasury consultation, a new Seed Enterprise Investment Scheme (SEIS) will be introduced next April, offering “50 per cent income tax relief on investments” and “a capital gains tax exemption on gains realised in 2012-13 and then invested through SEIS in the same year”. There will also be changes to the rules governing EIS and venture capital trusts.

I’m not going to regurgitate all the details here – you can read all about them in the Statement itself – but it’s clear to me that the new scheme will spark interest in angel investing amongst high net worth individuals (i.e. rich people) who might not otherwise have considered it and that can only be a good thing. From a personal perspective, I’m pleased that the government is enacting measures that will benefit startups across the whole of the UK, instead of just in one small region.

However, there’s one small problem – these measures don’t come into effect until 6th April 2012. We’ve got a whole four months between now and then, during which (a) any potential angel knows that a new, more favourable tax treatment of angel investments will be coming into effect in April, and (b) the old rules will still be in effect.

Since yesterday, I’ve been trying to figure out why an angel who will be able to take advantage of SEIS would choose to invest between now and April. I thought I was missing something but, if I am, nobody has yet enlightened me. In fact, Robin Klein is of the opinion that angels should wait, if they can. If they do, this raises the prospect that, for the next four months, very little, if any, angel investing will take place here in the UK. However, come April 6th, we’re likely to see a flurry of deals.

So, sit tight, batten down the hatches, tighten your belt and don’t book any holidays for the first week in April.

Written by jackgavigan

November 30, 2011 at 8:51 pm

Will Groupon be able to pay me in 60 days time?

with one comment

Update: Commentary added on 7th September after news emerged that the Groupon IPO may be delayed.

The traditional path from startup to success used to be as follows: a company gets founded, it gets funded by VCs and then it either IPOs or gets sold to another company, allowing the founders, VCs and employees who have been granted share options, to cash out their shareholdings and reap their just rewards.

Over the past few years, however, things have begun to change. Companies like Facebook and Twitter are now eschewing IPOs in favour of staying private, in order to avoid the public disclosure requirements and regulations that a public company must comply with. The downside of this is that the time horizon for founders and employees to receive their pay-off stretches out into the dim and distant future. To solve this problem, it has become common practise for shareholders to cash out small portions of their shareholdings as part of investment rounds, thereby liquidating some of their wealth and enabling them to buy a house, a Ferrari or whatever else they fancy. However, when this occurs, it normally only accounts for a small fraction of the investment round, with the majority of the money raised going into the company, to fund its growth and expansion towards an eventual exit (or, if they opt to remain private, profitability).

Groupon have been doing things slightly differently.

Between its founding in 2007 and the Series E round in November 2009, Groupon raised $35.8m.

Then it stepped up a gear. Since the beginning of 2010, the company has raised over a billion dollars – $1,098.2m to be exact.

Here’s the interesting thing: of that $1,098.2m, $946.8m (more than 86%) has been distributed to the founders or earlier investors in the form of share buybacks.

Read the rest of this entry »

Written by jackgavigan

September 5, 2011 at 12:07 am

Posted in Bubble 2.0, Investing

Angel investing on the cheap

leave a comment »

Earlier this year, I invested in a startup. A side-effect of this is that I get a lot of people asking me what term sheet I used or what law firm I got to draw up the deal.

The fact of the matter is that I didn’t use a term sheet template nor did I take any legal advice. I did ask a lawyer friend of mine how much his firm would charge to handle an angel investment. He said it would be at least £1,000. I decided that, given the investment was relatively small, I didn’t want to incur a comparatively large (as a proportion of the investment) legal bill.

So, the startup and I thrashed out an investment agreement over the course of a couple of days, going back and forth on email and by phone, borrowing bits and pieces of terminology from various documents we found online. Eventually, when we were both happy, we met up (in a pub, natch) to formally sign the agreement.

Now, I’m sure that any half-competent lawyer could poke it full of embarrassing holes but that’s something we accepted at the outset. From my perspective, I’m about to give thousands of pounds to these guys. That implies a certain level of trust up front. It also implies a certain acceptance of risk (let’s face it, if I was risk-averse, I wouldn’t be investing in a startup in the first place).

So, in the interest of demonstrating to other prospective angels that investing in a startup needn’t involve spending hundreds of pounds on legal fees (and at the risk of some smart-ass lawyer – qualified, amateur or wannabe – making me look like a fool), I present a redacted version of the investment agreement between the startup and I.

I deliberately did not opt for a convertible loan, anti-dilution provisions, extra options, preference shares, the right to participate in future rounds or anything fancy like that because (a) I wanted to ensure that the investment would qualify under the Enterprise Investment Scheme and (b) I didn’t want to complicate or put any obstacles in the path of future investment rounds. The whole rationale behind making an angel investment is that you’re providing funding to allow the founders to develop the idea to the stage where they can attract the next round of funding. You don’t want to do anything that might complicate or jeopardise that process, which is why I kept things simple.

Written by jackgavigan

May 31, 2011 at 11:17 pm

Posted in Investing

Angels: Trust the founders

leave a comment »

I’m a big believer in putting one’s money where one’s mouth is. It separates the men from the boys and those who genuinely know what they’re talking about from the bullshitters (and, trust me – there are a lot of bullshitters in this industry). However, despite having been involved in a bunch of startups over the past 16 years and despite having pitched to a lot of VCs over the years, I’ve never actually invested any of my own money in a start-up – until this week.

I’ve long believed that the best way to understand risk is to take some and I reckon that the best way to understand what motivates potential investors is to become one yourself. So, earlier this week, I invested a (very) low five-figure amount for a (very) small stake in a classic dot-com startup

In time, I plan to share some of the lessons I learn from the experience but, for now, that’s all the information I’m prepared to divulge because the management team of the startup I’ve just invested in have decided that they don’t want to make a big song’n’dance about the fact that I’ve invested. And therein lies the first lesson – when you invest in a startup, you’re effectively investing in the management team, which means that you need to trust them. If you don’t trust them, don’t invest. If you do trust them, don’t try to second-guess them. You can (and should) advise them but, ultimately, it’s up to them to decide whether or not they should follow your advice.

Basically, it’s their job to run the company. So let them get on with it.

Photo: A snowboarder grabbing some big air in St Moritz.

Written by jackgavigan

February 9, 2011 at 11:07 pm

Posted in Investing