The Startup Solution

While the internal dynamics of a VC firm may feel like a black box, you can often infer what's going on based on how your VC is acting – if you know what to look for. In this episode, Heidi explains why many VC behaviors that seem confusing or inconsistent can make more sense once you understand the inner workings of venture funds and firms.  More information: https://www.threshold.vc/podcast/inside-the-black-box-of-vc-behavior Further reading: Here's a good post about when preferred converts to common, including in an IPO, as I brought up in this episode: https://www.startupventureadvisors.com/when-should-preferred-stock-be-automatically-converted-into-common-stock#:~:text=When%20a%20startup%20goes%20public,a%20minimum%20aggregate%20offering%20amount. Here's a short but sweet summary of how VC carry works: https://www.angellist.com/learn/carried-interest Mark Suster has written some great material on understanding venture capital. His post on crossover investments will help you understand why VCs don't tend to do them: https://bothsidesofthetable.com/can-vc-s-invest-across-two-funds-5ee7313808e7 Here's a link to my own prior episode about recaps: https://threshold.vc/podcast/the-case-of-the-radical-recap/ And finally, I've linked to it before, and I'll keep doing it – here's a link to Evan Epstein's great breakdown of private company governance to share with your VC if they are putting their own interests ahead of the company in your  board meetings: https://evan-epstein.medium.com/duties-of-startup-directors-and-the-rule-of-common-maximization-9a2814b2fe2a

Founders need to understand investor priorities before they require investor action. The investor's ‘zone of indifference' describes an issue that can be problematic. In this episode, Heidi explains what it is, when it comes into play, and how to identify the likelihood of an investor landing in the ‘zone of indifference.'  More information: https://www.threshold.vc/podcast/understanding-your-investorrsquos-zone-of-indifference Further reading: As promised, here's a post written by Evan Epstein about fiduciary duties of venture-backed directors. It's a must read! https://evan-epstein.medium.com/duties-of-startup-directors-and-the-rule-of-common-maximization-9a2814b2fe2a And if you want to go deep on the seminal case on this topic, the Trados case, here's an in-depth podcast about it with Evan and Vice Chancellor J. Travis Laster of the Delaware court: https://boardroom-governance.com/episodes/travis-laster Here's a great primer on preferred stock: https://darroweverett.com/preferred-stock-primer-value-protective-provisions-analysis/#:~:text=Preferred%20stock%20sits%20between%20debt,liquidation%20events%20and%20dividend%20payouts" Here's a breakdown of simple preferred versus participating preferred and how it impacts the zone of indifference: https://veecee.co/understanding-liquidation-preferences-and-the-zone-of-indifference

Mastering cold emails is a superpower—one that can unlock dream investors, top-tier hires, and world-class mentors. The most successful founders craft messages that break through the noise and create opportunities. In this episode, Heidi shares the proven strategies she teaches at the Stanford Graduate School of Business to help you master the art of impactful outreach.  More information: https://www.threshold.vc/podcast/the-art-of-the-cold-email

If you're considering an earnout, you should know exactly what is involved to set expectations – and to give yourself the highest chance of it amounting to something. Heidi presents recent market data along with her firsthand experience to help you understand why earnouts are so challenging. More information: https://www.threshold.vc/podcast/the-case-of-the-elusive-earnout

Successful entrepreneurs seek out mentors to positively impact their careers. But how do they find a mentor, initiate contact, and build a relationship? As an experienced mentor and mentee, Heidi believes all these questions can be answered by following her tips on becoming a great mentee.   More information: https://www.threshold.vc/podcast

All entrepreneurs should understand what venture debt is so they can make an informed decision to take it or not. Heidi poses a series of questions and scenarios to help founders know whether it's a good option for their company. And if it is, how to set it up and use it.  More Information: https://www.threshold.vc/podcast/the-case-of-the-venture-debt-dilemma Further Reading: As I mentioned in the episode, General Catalyst has an interesting offering around a financing model for growth equity that is a hybrid of debt and equity: https://www.generalcatalyst.com/stories/the-unbundling-of-growth-equity Also, as mentioned, the next version of the SAFE has arrived in the form of a SAFERloan agreement, which allows for some repayment instead of conversion: https://www.liquiditygroup.com/resource-funding/what-is-the-safer-agreement Here's a solid primer on debt covenants:https://www.lightercapital.com/blog/what-are-debt-covenants-on-a-loan#:~:text=A%20debt%20covenant%20lays%20out,more%20specific%20and%20complex%20requirements Finally, one thing I didn't cover in the episode but is relevant to the decision-making about debt is that the lender may ask you to move all your banking business to their bank. And that can prove disastrous in situations like what happened to SVB. Here's a great piece on that danger: https://www.linkedin.com/pulse/wake-svbs-collapse-some-tech-founders-turn-against-venture-tanya-dua

Many entrepreneurs start companies to solve a big problem or apply innovative technology, or both.  But when they fail, it's typically the result of a business issue. Heidi has observed that founders usually run out of money because they didn't pay close enough attention to running the company. Here, she shares practical advice to help entrepreneurs become great at business.  More information: https://www.threshold.vc/podcast/the-best-entrepreneurs-are-great-at-business

 When the world is uncertain, it is especially challenging for an entrepreneur to steer their company forward. Heidi's six-word operating manual helps founders face the unknown and lead. Caution: Heidi's operating manual may sound simple, but executing it takes grit and leadership. More information: https://www.threshold.vc/podcast/six-word-operating-manual-for-entrepreneurs Further reading: No additional reading for this episode, but as promised, here's the link to the Etsy shop that sells the bracelets. You do have to specify to the shop owner what you want the bracelets to say! https://www.etsy.com/listing/575211134/personalised-stamped-bar-bracelet-on?click_key=1ae487b1f6385e2ed98e175cf738ae2369e5fbbe%3A575211134&click_sum=eefd3991&ref=nla_rv-1&frs=1&sts=1 

Shareholder voting rights are an essential element of the many crucial decisions made in a company. For example, they may come into play during a fundraise or M&A. In this episode, Heidi explains what shareholder voting rights are so you can be well-informed and avoid messy situations in the future. For more information: https://threshold.vc/podcast/the-case-of-the-shareholder-shenanigans/ Further reading: For those of you who think shareholder shenanigans only happen in small companies, Joy's case is similar to the HP case of many years ago, fascinating reading for those who like Succession and boardroom drama: https://www.zdnet.com/article/hp-directors-slam-walter-hewlett/ Every entrepreneur should understand the impact stacked preferences may have on governance, board votes, and shareholder votes. This article does a great job of laying those out: https://thevcfactory.com/liquidation-preference-conflicts-venture-capital/ The Council of Institutional Investors has an interesting piece on dual-class stock: https://www.cii.org/dualclass_stock And for more details on why I think good governance is good for entrepreneurs and their companies, see https://www.threshold.vc/podcast/the-case-of-the-infallible-founder/ 

Over twenty years ago, Heidi Roizen became the subject of a Harvard Business School case on how to build a successful business network. This episode is a culmination of Heidi's best answers and actionable advice on the best ways to build one's network — or, as Heidi likes to put it, how to build a relationship-driven life, as opposed to one that's transaction-driven.   More Information: https://threshold.vc/podcast/the-case-for-a-relationship-driven-life Further Reading: Here's another take on my favorite sentence in a negotiation: What problem are you trying to solve? https://www.tumblr.com/heidiroizen/92662870040/the-magic-question-that-turns-transactions-into?source=share Funny enough, First Round Capital covered me and my advice about relationship-driven living and more here: https://review.firstround.com/8-rare-gems-from-heidi-roizen-on-building-a-fulfilling-life-and-career/ And, if you want to actually read the Harvard Business School case, you can find it here: https://www.hbs.edu/faculty/Pages/item.aspx?num=26880

In Season 3 Episode 8 of The Startup Solution, Heidi covered "How to Think About Venture Capital" and explained the VC business model. She now wants to dive into the topic of dilution - that is, how to think about the tradeoff between what you give up and what you get when it comes to your startup's equity.  For more information: https://www.threshold.vc/podcast/how-to-think-about-dilution

To determine if you should pursue VC dollars to fund your company, you first need to understand how the venture capital model works. Heidi covers the type of businesses and growth potential required for a VC to make an investment, along with the high risk involved in venture capital and an explanation of the power law. More Information: https://threshold.vc/podcast/how-to-think-about-venture-capital Further Reading: I promised a lot of additional reading – so here goes. First off, understanding the VC power law is fundamental to understanding the VC business model. Here's a post about it:  https://x.com/speechu/status/1083921878786310144   And a whole book abot it: https://www.amazon.com/Power-Law-Venture-Capital-Disruption/dp/0241356520 The topic of whether venture capital is the right way to fund your business is critically important. Here's a post by VC Erik Berg that nicely captures many of the key points to consider: https://abergseyeview.com/is-venture-capital-funding-right-for-my-busines  Here's a fantastic article by the New York Times about why some entrepreneurs didn't take VC:  https://www.nytimes.com/2019/01/11/technology/start-ups-rejecting-venture-capital.html And here's a post by entrepreneur Anthony Collias about the pros and cons of taking that venture investment given his experience as an entrepreneur: https://blog.joinodin.com/p/vc-steroids A bit dramatic, but the gist of it isn't wrong – The warning label that should come with VC money: https://hackernoon.com/the-warning-label-that-should-come-with-venture-capital-9432500b7195 And for those of you who like stats: Here are some interesting stats on startup financing from Fundera: https://www.fundera.com/resources/startup-funding-statistics A great infographic by Entreprener on where startup financing comes from:  https://www.entrepreneur.com/money-finance/where-startup-funding-really-comes-from-infographic/230011 And venture investing data from Crunchbas: https://news.crunchbase.com/venture/global-funding-data-analysis-ai-eoy-2023/  And more data from the National Venture Capital Association: https://nvca.org/wp-content/uploads/2024/05/2024-NVCA-Yearbook.pdf As for startup failure rate,  there's this piece from Harvard Law School: https://corpgov.law.harvard.edu/2023/09/29/startup-failure/ Here's the story about the Wordle creator and his sale to the New York Times: https://corpgov.law.harvard.edu/2023/09/29/startup-failure/ The Benchmark/eBay story is summarized here:  https://medium.com/venture-capital-research/8-vc-insights-from-the-genesis-of-benchmark-capital-8915d4fe6f39 And last but not least, my Alec Baldwin quote comes from this famous scene in Glengarry Glen Ross:  https://www.youtube.com/watch?v=Q4PE2hSqVnk

A person with a big online presence is calling out Athena for the seed investment she received from a big corporation that appears to be in opposition with Athena's company's mission. Heidi points out why founders need to know as much as they can about potential investors before they take their money to avoid being blindsided by an association that may lead to reputational fallout.  More Information: https://www.threshold.vc/podcast/the-case-of-the-compromised-capital Further Reading:  Spot on to the topic in this podcast, Should Climate Tech Startups Accept Money From Big Oil?: https://sifted.eu/articles/climate-tech-startups-big-oil-gas An article about tainted donors, though topics also relevant to tainted investors, Tainted Money and Tainted Donors:  A Growing Crisis: https://johnsoncenter.org/blog/tainted-money-and-tainted-donors-a-growing-crisis Business Insider's take on the topic: https://www.businessinsider.com/startups-silicon-valley-jeffrey-epstein-problem-2019-8 An article highlighting increasing concern about taking money from Chinese investors due to geopolitical clouds on the horizon: https://www.wired.com/story/chinese-venture-capital-silicon-valley-party-over Here's the apology statement from Joi Ito, former director of MIT's Media Lab, about taking money from Jeffrey Epstein: https://www.media.mit.edu/posts/my-apology-regarding-jeffrey-epstein/ Interesting Quora thread on “Catch and Kill” startup M&A: https://www.quora.com/Why-do-big-companies-acquire-and-then-kill-promising-startups

Rudy, a founder in fund-raising mode, received a verbal term sheet. A what? Heidi informs Rudy that there is no such thing as a verbal term sheet and flags all the other issues with the investor's offer. In this episode, Heidi resets Rudy's expectations of what is involved in the fund-raising process, including the time it will take to properly diligence investors.  More information: https://www.threshold.vc/podcast/the-case-of-the-verbal-term-sheet Further Reading: Here's a great piece about whether Term Sheets are legally binding, and what happens to your reputation if you renege on one. Term sheets are typically non-binding in that neither side is obligated to close the deal. But what is usually binding is confidentiality and exclusivity: https://www.jdsupra.com/legalnews/are-term-sheets-really-nonbinding-1765649/ Y Combinator has a great piece on seed fundraising, which goes into detail about debt versus equity here: https://www.ycombinator.com/library/4A-a-guide-to-seed-fundraising Here's a good post on SAFEs versus convertible notes: https://blog.hubspot.com/sales/safe-vs-convertible-note And, finally, seed-stage investor Chris Neumann on how to diligence a VC: https://chrisneumann.com/archives/how-to-diligence-a-vc   

Simone is a founder in a challenging situation. The only financing she can raise comes with a catch – she needs to do a recap. Heidi reviews how Simone landed in this position, what a recap entails, and the best path forward for the company and investors.  More information: https://www.threshold.vc/podcast/the-case-of-the-radical-recap

What do you do when you want to exercise your startup's stock options but need to borrow money to do so? Do you take an interest-free loan from your company? Heidi counsels her former student Aisha on why that may sound like a great offer, but the devil is in the details. It's likely that a loan could lead to painful financial consequences later. More Information: https://www.threshold.vc/podcast/the-case-of-the-dubious-debt Further Reading: Here it is, straight from the IRS, what capital gains are and the rate at which they are taxed:  https://www.irs.gov/taxtopics/tc409 And also, straight from the IRS, how they look at forgiven loans as ordinary income: https://www.irs.gov/taxtopics/tc431 And here's a comprehensive

Many founders, like Alyssa, worry that a 409a valuation is considered a true market-based assessment of a company's overall worth or potential. It is not. Heidi points out factors that influence a 409a valuation along with what is not reflected, namely, leadership, team quality, and disruptive potential.  More information: https://www.threshold.vc/podcast/the-case-of-the-409a-freak-out Further Reading: Carta provides a pretty comprehensive discussion of 409a's here: https://rb.gy/z4vsky While we all think of 409a's in the context of getting a valuation for common shares, it stems from The Internal Revenue Code, section 409a. A little ‘fun' (if you think of the Enron bankruptcy as fun) history here: https://www.equityeffect.com/blog/irc-409a-overview-409a-valuations-explained/

An independent director can play a crucial role in mitigating conflicts of interest among board members while also providing valuable input. Heidi explains what an independent director does and why it's important for a founder to include one on their board. More information:  https://www.threshold.vc/podcast/the-case-for-the-independent-director Further Reading: Every entrepreneur who raises capital should understand how preference structures work and the inherent pitfalls this creates in corporate governance. Excellent article on the topic here: https://thevcfactory.com/liquidation-preference-conflicts-venture-capital Fortune recently published an interesting piece on director independence. While it is mostly aimed at public companies, there are good considerations for private companies too: https://fortune.com/2023/10/16/modern-board-directors-independence PwC issued this handy guidebook to the whys and hows of adding independent directors to private boards, which you can find here: https://www.pwc.com/us/en/services/governance-insights-center/pwc-why-private-company-boards-need-outside-directors-v2.pdf A solid checklist from Underscore.vc for bringing on an independent director here: https://underscore.vc/startupsecrets/add-an-independent-director-to-your-board And finally, when you're ready to actually look for that great independent director, theBoardlist (https://www.theboardlist.com) can be a great resource for you, as can Bolster (https://bolster.com).

Chester, an early-stage entrepreneur, wants to put terms in place so he can never be fired by his board. Like many founders, he saw what went down with Sam Altman at OpenAI and wants to know what he can do to avoid a similar situation from ever happening to him. Heidi explains why boards are set up the way they are and reassures him that a board and accountability are good for an entrepreneur and their company.  More information: https://www.threshold.vc/podcast/the-case-of-the-infallible-founder

Some ambitious entrepreneurs embellish the truth to achieve their goals. Is this seemingly innocent practice appropriate, or is it a gateway to engaging in illegal activities down the road? Heidi shares why well-meaning people become frauds and the steps every founder can take to catch and prevent this behavior. More information: https://www.threshold.vc/podcast/the-case-of-the-fraudulent-founder

Miles wants to hire an advisor, a well-respected University of California professor but needs help defining the role, setting expectations, and formalizing the rules of engagement. Heidi, an experienced advisor herself, walks Miles through a step-by-step process to help him establish an advisor's obligations and compensation to ensure a mutually beneficial relationship.  More Information: https://www.threshold.vc/podcast/the-case-of-the-ace-advisor

The CTO needs to fire someone who is awful at their job but is the big brother of the CEO. Heidi recounts firsthand experience of navigating a complex commingling of family and startup dynamics to strengthen a healthy and productive company. More info: https://www.threshold.vc/podcast/the-case-of-the-nepo-nightmare

Secondary stock sales can be tricky. Heidi shares a financial drama where the founder is upset that her VC is selling, and the VC is upset that the founder is selling. Learn about the ins and outs of a process that can lead to happier, wealthier, and wiser stakeholders. More information: https://www.threshold.vc/podcast/the-case-of-the-secondary-showdown

Leon no longer wants to be the CEO of the company he founded. He makes his decision after completing an exercise Heidi suggested to him in Episode 5 – “The Case of the Frustrated Founder." In this segment, Heidi helps Leon take the steps needed to communicate his decision to the board, identify and onboard a new CEO, and transition into a new role and happier life.  More info: https://www.threshold.vc/podcast/the-case-of-the-c-suite-shuffle

Leon is a founder who wants his company to succeed but hates his job as CEO and is unsure if he's the right person to lead the team. In this first of a two-part episode, Heidi shares how the founder role changes over time, what a founder can do to navigate that change to still love their job, and an exercise to find out the best path forward. In part two, we'll find out what happens to Leon.    More information: https://www.threhsold.vc/podcast/the-case-of-the-frustrated-founder

Luka is sued! As part of the lawsuit, he must hand over all his email messages and texts as evidence. Heidi reviews what “digital communication hygiene” every founder should follow to avoid any bumps in the road if served papers. She also shares how the term “legal privilege” can protect you – but only when correctly used.  More information: https://www.threshold.vc/podcast/the-case-of-the-email-evidence

Anya needs to sell her company, but to do so, she needs to keep her team. She decides to financially motivate them with a carve-out agreement that will pay them when the company sells since their common shares will likely be worthless. Learn all the important steps to make when putting a carveout together.  More information: https://www.threshold.vc/podcast/the-case-of-the-carveout-conundrum

Julian is running low on cash and starts to prep for an M&A way too late. Heidi shares what's involved in an M&A process and the importance of building relationships with potential acquirers early so you have options in place. More information: https://threshold.vc/podcast/the-case-of-the-mythical-manda

Eddie reposts an inappropriate meme on social media and ends up with angry employees, disillusioned investors, and a tarnished reputation. In this episode, Heidi addresses how to develop a personal social media strategy to minimize the chance of creating a situation like Eddie's. More information: https://www.threshold.vc/podcast/the-case-of-the-social-media-meltdown

For the final episode of the first season of The Startup Solution, Heidi tackles what is, perhaps, the single most difficult thing an entrepreneur may ever have to do: wind down a company when it clearly just isn't working. More information: https://www.threshold.vc/podcast/the-case-of-the-company-that-wasnot

Felicia's boardroom has become a battlefield due to the disruptive and even destructive behavior of one of her board members — but he is also one of her largest investors. Heidi lays out a variety of options for addressing this, including the nuclear one: how to unseat a board member who's causing problems. More information: https://threshold.vc/podcast/the-case-of-the-boardzilla-board-member

Carl, a startup CEO, accidentally left a list of every employee's pay and equity in the printer. Soon enough, it was circulating on the company Slack. Heidi helps him understand that the most troubling thing exposed wasn't the payroll. It was the company's lack of a proper compensation philosophy. More information: https://threshold.vc/podcast/the-case-of-the-exposed-compensation-file

In the process of closing her startup's first round of outside capital, CEO Claire hit a snag. One of her co-founders had already left the company, and his massive share position for only a year of work concerned the new investor. Heidi explains how to allocate founder shares fairly, and what can be done if you may have already done it differently. More information: https://www.threshold.vc/podcast/the-case-of-the-deadweight-co-founder

Nate has a first-world problem: As VP of Engineering at a startup, he thought he'd become a millionaire when the company had its big exit — but he was crushed when he got only 5% of what he expected. Heidi helps Nate understand what likely went sideways, and what to consider the next time around. More info: https://www.threshold.vc/millionaire

Heidi changes gears from recounting other entrepreneurs' challenges to share a story of her own from when she was the CEO of a software startup. Learn how a mishap with the office sprinkler system led to a reckoning about her company's culture. More information: http://www.threshold.vc/podcast/the-case-of-the-soggy-software

Trent hits a crisis when his strategic investor lets their term sheet expire, and his $50 million round falls apart. Strategic investors are a huge part of the startup ecosystem but differ from regular VCs. Learn about the pros and cons of strategic investors, and how to craft a good deal for both sides. More information: https://www.threshold.vc/podcast/the-case-of-the-strategic-sucker-punch

JJ, a Threshold Venture Fellow at Stanford, has in-laws who want to pull money from their retirement fund to participate in a “friends and family” allocation in JJ's seed round. Heidi sets JJ straight about the ins and outs of seed investing — and suggests at least one way to reward his in-laws for their support without putting them at risk. More information: https://www.threshold.vc/podcast/the-case-of-the-in-law-investors

Founders often think of valuation as the grade at the top of the paper, which is why few things take an emotional toll like the prospect of a down round. When Ann's company is faced with just such a thing, Heidi explains that terms end up mattering more than valuation — and that a down round needn't be a downer.   More information: https://threshold.vc/podcast/the-case-of-the-downer-round/

When Priya informed her board that the company missed its quarterly sales target, she was met with a barrage of attacks. The real error wasn't the business shortfall — it was how she managed the situation. Learn how to avoid her mistakes.   More information:  https://threshold.vc/podcast/the-case-of-the-boardroom-blow-up-1/

The Startup Solution is a new podcast from Threshold Ventures. The series tackles the make-or-break challenges that startups face, offering clear advice on how to survive and thrive in an early-stage company. Who's it for? Founders, startup execs, and investors who want to hear (and learn from) rarely discussed real-world “oh shit” moments. All names and details have been changed to uphold our commitment to the Entrepreneur Protection Program. Heidi Roizen, partner at Threshold, unravels a new startup situation each week, breaking down why it's a big deal, and talking about how it was solved — or could have been solved. Heidi closes each podcast with a clear review of lessons learned.