7 DO’s and 5 DONT’s for Entrepreneurs (LA VC Revisited)

by Ryan on June 14, 2011

to do list photo

Ever since my post on Los Angeles venture capital, I’ve been getting a lot of email and phone inquiries from local entrepreneurs seeking advice.  It’s not surprising because the post presently shows up #3 on Google when you search “los angeles venture capital” and the 100+ re-tweets and 20+ FB likes certainly helped solidify this position.

Typically the entrepreneurs that reach out want to meet in person and ask for advice.  I try to disclaim everything in that I OFFER OPINIONS, NOT ADVICE.  I’ve been compiling these opinions and figured I’d jot down the cliff note version here.  Without further adieu, here are some strong opinions on various topics that have come up in my recent correspondences with local entrepreneurs.

7 DO’s:

1. Choose a freaking huge market.  Don’t play around in a small market.  If you can’t quantify the size of your market, that means it’s too small, especially for VC.  Go big.

2. Quit your day job – sooner rather than later.  If you want to build a business, it takes 110% commitment.   You’re never going to get anywhere if you relegate your dream to a side project for nights and weekends.  Quit now, not later or you’re only proving that you’re not as committed as you should be.

3. Learn to use an RSS reader.  If you’re in tech but don’t use RSS, I fear for you.

4. Have founder vesting.  There’s nothing worse than founders not having 4 year founder vesting in place, with or without outside investors.

5. Tell anyone and everyone about your idea.  Ideas are a dime a dozen, execution is everything and you’ll learn far more than you could ever possibly lose by sharing your ideas with all.

6. Fire people as fast as possible. The second you think things are not working out.  Fire away.  You’ll never regret firing, you’ll only regret having not done it sooner.  Everyone is replaceable.

7. Read Mark Suster’s blog.  Pretty much every single question I get asked has an answer on BSOTT – “Both Sides of The Table”.  The answer is already out there.  Do your friggin homework.

5 DONT’s

1. Don’t raise money from non-millionaries.  Raise from deep pocketed institutions and corporations.

2. Regardless of what the lawyers tell you, do not form an LLC.  Lawyers love LLC’s.  You know why?  Because lawyers are not entrepreneurs.

3. Don’t have a 50 / 50 co-founder (or 33 / 33 / 33 for that matter).  One of you needs to be in charge and be in control and if you’re the leader…the real entrepreneurial one bringing this thing to life, then it should be you.  Founder shares must have vesting (i.e. be restricted) and be subject to a buy-sell agreement (aka pre-nup).

4. Don’t get caught up in all the press and attention your competition gets.  It’s truly meaningless and in no way indicative of financial success.

5. Don’t raise a round of convertible debt (exception:  if the terms are so Y-combinator style crazy in your favor that you’d be a dumb-ass not to take the cash).  If someone wants to invest, they should set a price and take an equity stake.  If you want a loan, you’d be asking for one or you’d go to a bank / credit card company.

Now each of these points could be a blog post of their own backed up with experiences and circumstances to help you understand why I’ve formed these opinions.  Maybe I’ll get around to doing a deep dive on each item but for now, the cliff notes will have to do.

Now it’s time to get back to what matters most – executing.

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p.s. I use stock photos from Photoxpress.

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  • guest

    Ryan- Great post and insightful.  I have few questions for you:  With
    regards to founder vesting, do you include the original co-founders,
    meaning everyone, or do you mean more in context if you start a company
    and bring on a “tech founder” you should have them vest for 4 yrs?  The reason I ask is I’m incubating an idea right now with a partner.  Even if I own 51%/my partner 49, should we both vest for 4 yrs?  Also, why no LLC and why  incorporate in your opinion?

    Thanks. 

  • Thanks for the comment Burt! The founder vesting is for BOTH of you. Regarding LLC’s, I don’t want to get too wound up today ranting on LLC’s but the issues I have with then are primarily related to complicated to paper, complicated to change, expensive to convert, VC’s much prefer corporations and some won’t even invest in LLC’s period, taxed based on revenue – not profits (for real and totally ridiculous) – in CA, and little to no benefit over c-corp treated as s-corp except you can have foreign shareholders an still remain a pass-through entity. For more information on formation and why C-corp / S-corp is better than LLC, please check out Brad Feld’s book “Do More Faster” Chapter 6. You can by a copy here –> http://amzn.to/ij60t3

    Best of luck to you!

  • Good solid advice. Applicable to the big venture rather than the small business  but contains nuggets that are equally applicable to both. Interesting read. Thank you for the advice.
    http://www.PremierBusinessNet.com

  • Thanks for the comment Michael. You are totally correct in that a some of the opinions would not be applicable to small business or non angel / non VC backed companies. However, some of the opinions certainly would. I guess I could separate them into 2 groups at some point.

  • Sometimes #4 is tempting. But I’ll agree with this post. It’s meaningless and a complete waste thinking about how your competitors are doing when it comes to maybe income. But I think it is still critical to know what they’re actually doing.