The Case For Priced Seed Rounds

When I was a kid, there were a series of memorable commercials from a company called Fram which made automobile oil filters. The message behind all of their commercials was that you could pay $4 for a quality oil filter today or pay hundreds or more to fix your engine later. If you’re over 45 you’re smiling now. If younger, here’s an example:

These commercials come to mind as I’m witnessing the effects of the proliferation of capped convertible note seed rounds. Mark Suster, Brad Feld, Duncan Davidson and others have written insightful pieces lately about the downstream challenges these notes are causing entrepreneurs when it comes to raising subsequent capital. Click on their names above to read them.

When I started in the venture business, you rarely if ever saw a convertible note. Today, it’s the priced seed round that’s rare. There’s no doubt that a convertible note makes life easier for a founder when raising a seed round. First, most founders believe their seed-stage startup is worth more than they could fetch in a negotiated priced round and the capped or (god-forbid) uncapped note is a great vehicle which allows an entrepreneur to grow their company into a higher valuation. Second, it allows them to delay what they perceive to be an uncomfortable valuation discussion. Solution? Throw a cap on a note and kick the can down the road.

Sadly, I’m watching this strategy come back to haunt so many founders going out to raise their seed extension or Series A rounds because of the inflated post-money valuations their companies are now sitting at as a result of their capped notes. Most entrepreneurs I know haven’t taken the time to fully understand the implications of these notes. Even at Techstars where we teach our founders about this, I still see mostly capped-note seed rounds. I get it. It’s easier.

My advice? Price your seed rounds. It was done for decades and it worked. It leaves no ambiguity and all the investors know exactly where they stand. Most importantly you’ll have no cap table issues when it comes time to raise your next round of capital. Is it a little more work to get this done? Yup, but tell me anything worthwhile that doesn’t cause some discomfort. Most founders I know don’t take the easy route when building their products because they know there’s negative downstream effects of that strategy. Why do it when raising capital?

What’s the cost of doing a priced seed round? Well, you’ll have to find an investor who will A) be willing to price your round (usually your largest investor) and B) you might not get the valuation you were hoping for. The former shouldn’t really be all that difficult and there’s reams of great posts out there supporting that the latter is irrelevant if you build an important, long-lasting company. So like the Fram commercial says, you can pay now, or you can pay later…

Posted in Angel Investing, Fundraising, Venture Capital | Tagged , | 7 Comments

Communication Breakdown

Over the last few months, I’ve watched three separate episodes of blowups between co-founders or between CEOs and board members. In each case, it’s evident in hindsight that it wasn’t a single act, but historically poor communication which led to pent up anger that ultimately boiled over into fractured relationships. These wrangles have not only caused harm to the individuals, but created collateral damage among the management teams of the companies as well.

During the early years of marriage, many young couples inevitably reach a point where they have to learn to communicate better or watch the foundation of their new relationship begin to crack. Little things like left-open toilet seats, uncapped toothpaste tubes and lights left on foster passive-aggressive behavior until someone explodes over something silly like dirty coffee spoons left on the counter instead of in the sink by their mother-in-law (yup, that was me). Luckily I’m married to Pam, a woman who has patiently taught me to be a better communicator and finally, after more than twenty years together, has been hinting to me lately that her work with me might be nearly completed.

As anyone reading this knows, building startups are indescribably taxing, even among the most functional teams. With everyone moving at warp speed, it’s easy to get frustrated and annoyed by little things that colleagues say and do. As someone who leaned towards passive-aggressive behavior when I was younger, looking back, I know I didn’t always handle these types of situations with patience and understanding. I can think of a couple of valuable relationships in my career that were irreparably harmed through poor communication on both sides. While I’m not big on regret as life is one big learning experience, in hindsight, I’m confident that healthy, open and honest communication would have saved those relationships which mattered a lot to me.

Two years ago, David Cohen told me he wanted to bring in David Brown as our partner to manage the operational growth of Techstars (absolutely brilliant move, he’s an operations ninja). He and David had worked together for almost 25 years across three startups. I soon found myself in a partnership with two people who had been working together since college. The two of them talked like an old married couple while David Brown and I spent the first few months feeling each other out. We certainly had our share of miscommunications (and still do) but we quickly developed a real knack for diffusing them in real-time or shortly thereafter. “Hey, when you said yada yada about that thing this is how it sounded to me” or “Your email to me earlier today felt a little off, is everything ok?” has become the norm between us. It’s fostered an incredible working relationship and a deep mutual respect.

After a couple of decades of being around management teams and boards of startups, it’s clear to me that healthy communication is a big stumbling block for many and causes a good deal of harm not only to the two parties, but the momentum of the company itself. If you see it happening in your company, you might want to consider bringing in a coach like Jerry Colonna and his team at who can help a team get through these issues.

Halfway through my 50th trip around the sun, I’m far more focused on quality, high-functioning relationships than being right or getting my way these days. As those close to me might attest, I still have my moments, but I’ve learned that being thoughtful, proactive and choosing my words carefully produces much better outcomes than the power play of passive-aggressive behavior or the instant gratification of lashing out.

Posted in Startups, TechStars, Techstars Ventures | 6 Comments

Boise Rising

As usual, I woke up early this morning, poured my coffee and started scrolling through my streams to start my day. I was really happy to see that my friend Jeff Reynolds launched Built-In-Boise today, his labor of love to showcase Boise’s terrific entrepreneurs.  I shuffled off to the gym and as I sat on the bike, the miles rolled away as I reflected on all the great things happening in the startup community here in my hometown and then it struck me, they’re all being led by entrepreneurs!

It wasn’t always that way. Over the last couple of decades, plenty of effort has been made by various committees and organizations to kick-start our startup community. Groups led by various members of the ecosystem started well-intentioned efforts to make things happen here, all with the same results; a lot of fanfare & hand waving with little to show for it.

What’s really cool is that it’s starting to feel different around here. Jeff’s launch of Built-In-Boise is just latest of a handful of entrepreneurial-led efforts and the vibe is beginning to change as a result. Recently, my friend Raino Zoller launched The Trailhead, a non-profit community effort to connect entrepreneurs with each other, mentors and capital. Raino’s a successful serial entrepreneur who has been through venture financing, exits, mergers as well as disappointments. As an experienced tech entrepreneur himself, he’s the perfect person to lead an effort like this and I know The Trailhead is going to have a fantastic impact on our startup community.

One of the most innovative ideas I’ve seen anywhere in the country is Boise State University’s Venture College, which is teaching students to launch startups while still in school. Of course, Venture College wouldn’t have happened without the leadership of Kevin Learned, an entrepreneur who co-founded Idaho’s first software company and its first angel investment group. Another person leading the way is Jess Whiting, who has brought Startup Grind to Boise. Jess grew up in Silicon Valley and has deep ties to the venture community there. She’s leveraged her network to begin building bridges to the valley for startups in Boise. In fact, she’s bringing Scott Kupor (COO of Andreesen Horowitz) to Boise for Startup Grind on March 9. I’ll be there, you shouldn’t miss this. You can get tickets here.

Boise’s startups are thriving too. Terrific companies like Balihoo and Cradlepoint (which I’m proud that we financed both Series A and subsequent rounds at Highway 12 Ventures) are doing tens of millions of dollars in revenue and growing fast. Other new and exciting startups include TSheets, Wevorce and Meal Ticket (which the latter two we’ve financed through our funds at Techstars Ventures). Boise’s also becoming a hot cultural scene as well. As events like SXSW seemed to have grown so large that they’ve eaten themselves, Boise’s Treefort Music Fest is quickly becoming the most talked-about music event in the Northwest.

While my work at Techstars is taking me all over the world these days, nothing makes me happier than being here in Boise. I really believe it’s the most livable city in the country. Our trail system is second to none, we’ve got world-class skiing right here in town at Bogus Basin, and we’ve got a burgeoning startup community that feels a lot to me like Boulder did a decade ago. If you’re looking for the next great startup town in the country, come visit and I’ll show you around.

Yup, Boise. It’s surprisingly cool…

Posted in Boise, Startups | Tagged , , | 5 Comments

Past Is Prologue

It’s almost surreal for me to think that exactly twenty years ago, I was a green twenty nine year-old working on the first startup financing of my career and that yesterday, we announced our new $150 million fund at Techstars. Many people have heard Steve Jobs’ famous speech about only being able to connect the dots looking backward and I’ve been reflecting lately on the dots that brought me to this new and exciting chapter in my life.

When I moved to Idaho and co-founded Highway 12 Ventures in 2000, I never could have imagined that it would lead me here to this moment in time. I was a young, brash east-coaster, trying to raise my first small fund ($25M). Pam and I started out living in her mother’s house and had a one-year old daughter with a son on the way. With the dotcom bubble imploding, it was probably the worst time in the last fifty years to try and raise a venture capital fund.

With the help of Jim Hawkins and our terrific partners at Village Ventures (Matt Harris, Bo Peabody & Matt Warta), we somehow raised the fund. Around the same time I met Phil Reed, the amazing partner who’d I’d go on to work side-by-side with for the next dozen years. I’ve been incredibly lucky to have had his mentorship all these years. He’s been part father, part brother to me and his impact on my life has been profound. As Phil enters the twilight of his remarkable career (which included founding or co-founding over a dozen companies including both ComputerLand and BusinessLand), any startup would be lucky to have him as an outside director. His wisdom and kindness is immeasurable.

I’d also like to thank Mike Mers, George Mulhern, Glenn Michael, Decker Rolph and Eric Breon who all made enormous contributions to the success of Highway 12 Ventures along the way. I’m grateful to all of them. The most special thanks go to my amazing assistant Denise, who is currently finishing up kicking cancer’s ass with a grace that’s been an inspiration to everyone who knows her. I could never do what I do without her incredible support. I’m also thrilled that one other person who made a great impact at Highway 12 Ventures has recently joined Techstars. Derek Keller (who cold called me for a summer internship after graduating college 8 years ago) has done an unbelievable job as an associate and then principal at Highway 12, and has now joined Techstars Ventures as a principal.

Connecting the dots to this next chapter, David Cohen wrote a beautiful post yesterday about how it came together and Brad Feld added his perspective in this wonderful piece. I feel so fortunate to be working with 60 absolutely remarkable people at Techstars. We’re empowering entrepreneurs worldwide with the network and resources to build successful businesses wherever they want to live. David Brown wrote a great summary the other day about how we’re doing here.

In his uniquely special way, David Cohen did such a beautiful job in his post recognizing so many people who have contributed to the magic that is Techstars. The Managing Directors, Program Managers, Associates, Hackstars, Staff and Mentors are what make Techstars such a special place for the founders who choose to partner with us.  I echo David’s sentiments about all of the incredible people we get to work with. They make Techstars a community filled with such positive energy that you can’t help feeling fortunate to be a part of.

While David mentioned them all, I’d like to point out a few people by name who have made this such an incredibly rewarding experience for me. Molly Nasky, David Brown, Jason Seats, Nicole Glaros, Ari Newman, Brad Feld and Jason Mendelson, thank you from the bottom of my heart. Words can’t begin to express my gratitude.

Lastly and most importantly, thanks for saving a seat on the train for me David. You inspire me and everyone around you. It’s a helluva ride…





Posted in TechStars, Techstars Ventures | 4 Comments