What I have described as the “Work Horse” in early stage finance is a convertible note, bridging the investor into a discounted piece of the next, presumably institutional round of financing …the Series A, let’s say. Herewith some thoughts on that subject; I am plagiarizing from what I currently have in print (see https://josephbartlettvc.com/2015/08/21/the-work-horse-in-early-stage-financing, and am repeating myself in order to emphasize an often overlooked rationale for this structure. And, for purposes of simplicity, I am not including what would call the West Coast version of the Work Horse, the SAFE https://blog.vcexperts.com/2015/03/03/better-safe-than-sorry-a-new-way-to-finance-start-ups/.
Guest post by Barry Moltz, Entrepreneur and Consultant
Sometimes I find that the company’s founder is so far ‘outside the box’ that they ‘stretch the envelope.’ As an angel investor, I review more than 500 business plans each year. Unfortunately, many are so riddled with economy lingo, business jargon and clichés, that they do not communicate any real business value. In my opinion, terminology, such as disintermediation, sweet spot, ASP, best of breed, and win-win should be outlawed for the next 100 years.
When rumors start swirling that a company … an emerging growth company (“EGC”) … is thinking about going public, two groups often come running to call on EGC management. First to the front door are the investment bankers who want to chaperone the EGC through the IPO process and represent it afterwards on secondary offerings, acquisitions and the like. But, right behind the bankers are often strategic acquirors. (Also institutional investors who relish participating in five or six bridge rounds with exits on the horizon given the effect of the time value of money on IRRs.)
After posting our Early Stage Deal Term Report we decided to dive deeper into one of the companies that caught our attention. Beepi is the first and only 100% online peer-to-peer marketplace to buy or sell a car. According to their website they “…take up to 9% of all transactions. To put that number in perspective: dealers mark cars up to 54%. [They] are able to offer low prices because [they] connect buyers and sellers directly and don’t have overhead like salespeople or physical lots…”. Beepi has raised north of $57M based on regulatory filings and we valued them at $166 M post-money after their Series B round. You can see the investment profile below.
Earlier this week we posted Some Issues to Consider When Negotiating the Term Sheet: The Series A Round, so we thought it would be necessary to provide some of the granular data that our Intelligence Database offers. Take a moment to check out some of the trends surrounding Early Stage Valuations and Deal Terms in our Report. Included in the report is an analysis of of over 500 companies and 500 deals, including some gazelles like Mixpanel, The Honest Company, and Beepi.
VC Experts – Early Stage Deal Term Report is FREE, please don’t hesitate to pass it along.