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Saturday, March 26, 2005

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Jeff Clavier

Ram's statement was something like 1/3 VCs, 1/3 founders, 1/3 employees (which is high, unless the CEO is not a fouder). But he invests very early, sometimes before VCs.

VCs will typically advertise their signature deals, if they can in comparable companies to the startup you are pitching to them. And they will also mention how much money the founders of these companies made, more than what they made for their own investors. Furthermore IRR is not a very meaningful metric for these kinds of discussion, since it embeds the time value of returns.

Dave McClure

thanks for the disclosure Brad... it seems you're sucking less all the time! ;)

also appreciate your articles & info on term sheets -- good stuff.

Brad Feld

Sucking less has been an aspiration of mine since I was a teenager, so I do what I can. Fred's talked openly about the motivation for his blog being transparency - I completely agree with him and you that disclosure and transparency are huge positive indicators of "less suckage."

Regarding the specific question as to median equity stakes, ours probably are around 25%. We'll typically own between 20% and 30% of a company, with some outliers as low as 5% (usually due to the acquisition of one of our companies by another private company) and as high as 70% (usually due to a recapitalization where we are the only investor that continues participating).

I think you'll find this range true of many mid-size to large VC firms. You'll often hear the phrase "it's not worth it to us to have less than 20% of a company" - most VCs want enough to have a meaningful stake, but not so much that they effectively control the equity of the company.

And - yes - it's tougher to measure than a straight % due to the characteristics of different classes of preferred stock and how the entire capitalization fits together (hopefully my posts on term sheets create some transparency around those issues), but a decent proxy is "what do you own on a fully diluted as converted to common basis?"

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