according to this the main problem with notes is a down round can get you into a lot of trouble because of the liquidation preference multiplier. but what if you never have a down round? if you can avoid the down round, it seems like convertible notes are still preferable. down rounds are bad even with priced seed rounds.
The liquidation preference multiplier has to do with when noteholder gets preferred only instead of preferred + common on rounds that are a higher valuation than their cap.
1) If an investor invests $500k at a $4.5MM cap, he signs up to get 10% of the company assuming the Series A priced round will be at a higher valuation. But, if Series A is at a lower valuation, say $2.5MM, then the investor gets 20% of the company. However, if there was a discount associated with the convertible note then the note converts at 80% of $2.5MM. So a down round is really bad for the founder. But I can't imagine a down round being much better for a priced round.
2) If the Series A is $3MM at $12MM pre with 1x liquidation preference, the Series A investor gets 20% of the company. The seed investor who invested $500k will have his shares converted at the $5MM valuation. However, he will end up with a 3x liquidation preference or $1.5MM in liquidation preferences. I think this is okay as long as you raise a few hundred thousand dollar convertible note seed round. If the convertible note seed round ends up to be in the $1MM range I think this can become an issue for the Series A investor which is Suster's main point.
Convertible notes have benefits like high resolution financing, less control & no board seats. I still think convertible notes are the way to go if you are raising a few hundred thousand dollars in seed. But if you raising a seed in the $1MM range, it seems like priced rounds are preferred.
re #2: Yes, many notes have the provision to make sure the investor gets a 1x preference on dollars invested (some preferred and some common for their investment.) and this is, IMO fair.
re high resolution financing: if you are offering different investors at different prices, you are likely to make your investors less than happy with you.
re less control and no board seats: in my experience, having a board correlates strongly with success. so i think this is a negative. to put money where my mouth is - for my last startup, I took a board even though I did not have to.
re raising a few hundred thousand or less: in my experience, strongly correlated with startup death.
re high res financing: closing dates can also vary in addition to cap. i've personally experienced varying closing dates with same cap and the initial bit was much needed at the time. haven't experienced priced yet but can imagine process being a bit slower.
re less control and no board seats: agreed. though i think it depends on the board member. in your case, i'm sure he was top notch :)
re raising few hundred thousand or less: hmm, don't have enough data. but uber's initial round was $200k. https://angel.co/uber
Uber was cofounded by someone with a large exit. This number does not represent the actual finances available and is likely misreported. I have a single exception to the low initial raise as well. Still anecdata and does not really refute the point. There are successes, but there are way, way more failures; early investors hate to reinvest pre-traction.
Just having the dynamic of "down rounds" harms some of the value proposition of convertible note seed funds --- the C.W. behind them suggests that you can use them to raise casually, without freaking out about company valuation. But if they create a signaling problem for an A round, operators need to be just as careful with pricing the notes as they would with their A round, and A round pricing is arduous.
Would you not have filtered out the novice Larry Ellison through this standard? He started Oracle when he was 33 and I can't find anything substantial he did prior to that.
This is really cool & solves a problem for me. I installed the bookmarklet and am looking forward to using it. I see that you are relying on the community to summarize pages & don't have a large enough data set built up yet.
What would be awesome is if you could somehow automate summarization using NLP. Check out condensr.com. They are able to summarize restaurant reviews...might not be at the same quality level as your current summaries but it came out of research from MIT & could be useful to you.
Hi, thanks a lot for the feedback! we're glad that we're solving a problem for you! You're right that we have little content for now, but we don't think NLP is the answer.
Humans are so much better than algorithms at summarizing content and we really want to focus on quality rather than quantity for now. We want to become a platform for the content that people deem worthy of being summarized and are hopeful that the overall quality will therefore be astounding. As such we are focusing on building a community of excited contributors.
I'll definitely checkout condensr.com to see if it can help at all though!
Thanks for the comment. The bold is applied again in the css...not ideal. Removing it makes it less heading like though. Can increase the font but not sure if it will suffice.
Sorry, I think you misunderstood me, I am specifically referring to the New York Times review of it, which is one of the 4 negative reviews of the book, but if you read it is in actual fact positive. My mistake though, because I accidentally linked the same page twice when I wanted to link this the second time:
http://www.nytimes.com/2011/03/13/books/review/book-review-m...
We have a strict set of criteria when rating a review as positive or negative. In general, if the review is even slightly negative we rate it as such...in the case of Moonwalking, NYT expresses a few disappointments about the book. This is to help surface only the very best of books in each genre.
Any review of sufficient length and thoroughness is likely to include at least some criticism, if for no other reason than the reviewer not wanting to look like a cheerleader. The NYT often selects reviewers with relevant domain knowledge, or who are themselves authors in a related genre. So opinions will be expressed, hobbyhorses ridden, and nits picked, even in glowing reviews.
You should be careful to avoid setting up a business rule that could overemphasize a few negative raisins in a positive pudding.
The idea of a binary positive vs negative is really troubling to me as far as an algorithm goes. It should very much be on that sliding scale that Metacritic or Rotten Tomatoes uses--sentiment analysis shouldn't return just a 1 or a 0.
I'm not sure how giving such a binary 'good' or 'bad' to a review is helpful for books. Reviews could be on a continuum (hence the star rating system that many folks use) and calling a review negative just because of a few negative opinions voiced in a review could potentially miss the point of the review.
There's a problem with "critic" reviews, at least from where I'm sitting: critics don't review anything that's not backed by a huge publisher, effectively locking out all of the small-time authors who might actually have something good.
For example, I was interviewed about my book for School Library Journal, but the book reviewer side of the house refuse to even consider it for a proper book review.
Didn't think you could get more granular than SFF. We tried to group genres together for simplicity. But some users don't seem to be liking that. All genres/categories are currently listed in the dropdown in the header.
The dropdown doesn't have Fiction, which was surprising since that's what I went looking for first. Also, when I figured out that I could click on the "Recent Fiction" heading on the homepage, I was disappointed to see that there was no way to filter down to Literary Fiction, the way most publishers do. Otherwise, all the top items are mass market fiction, which is a very different genre.
