Tag Archives: founders


Be Nimble: Keeping Milestone Optionality

Identifying milestones for your company’s development is beneficial for an early stage startup for many reasons: the first is that planning milestones allow you to focus what you will be working on, secondly the process of identifying and planning them make you question when and in what order you and your team should try and execute something, and lastly, from a fundraising perspective (something I cover in more detail in my blog post on milestones) milestones are useful to tie together what you need to accomplish with how much money it will take to get there, and fundraise accordingly.

On this post, however, I’d like to address a very important concept that should be considered during this process of outlining and planning milestones. I call it, “keeping milestone optionality”.

The principle is very simple… even though you plan your company’s future growth and associated cash needs, you can’t lose sight of the fact that you’re a nimble startup.. not a large corporate that has to report to analysts and public market shareholders. Your nimbleness is your strength. A startup’s growth plan isn’t linear, it’s more like a series of zig zags. As such, whilst it is useful to forecast your milestones so that you have a plan, and understand your cash needs, it is also useful to look at that plan with one eye, while the other eye looks out for actions which might be more beneficial to your company than what you had originally envisaged or agreed with existing shareholders.

On my post on 7 reasons for founders to avoid tranched investments  I spoke about how a future tranche (a glorified milestone, if you will) could have a negative impact by dictating what a company should do, even if midway through its execution it turns out that it was a bad idea for the company to have that goal. For example, imagine if your plan had in place a monetization strategy (and associated revenue stream) kicking off in month 6 of your operations. Month 6 comes along and well, uptake is poor and your revenues are not coming in as expected. You have some chats with your customers and you find out that actually, the value they are getting from your product is mostly around the emerging network effect of your product, and because the network is still small, your early monetization is stifling the value they are getting because the barrier for new users to sign up is still high, and thus those that would be likely to pay are reluctant to pay.

Well, if you (or your investors) held you strictly to your original plan for the sake of ‘keeping to the plan’, you’d kill your company quite quickly, but by staying nimble and adapting your milestones to what you think should be the new direction, you might actually be better off than you would have been before. Naturally, this optionality comes at a cost, as your original plan will have changed and thus your cash burn will change and your goals (KPIs) will change as well… and that’s ok as long as you are aware how.

Good early stage investors (particularly those that invest in pre product-market fit companies) know that this kind of change mid-way through their funding is a possibility and they should be backing you in your ability to make these difficult calls even if it means a deviation from the plan they invested in. However, you should be mindful that there are many investors out there, that for some reason, still believe highly in the adherence to a stated plan. If you can, avoid taking money from them. At the very early stages in a company’s development, particularly during the pre product-market fit phase, investors should invest in you for your ability to adapt to changing and evolving circumstances, and not in your ability to predict the future 18 months in advance and stick to the plan when it clearly isn’t working.

Of course, this isn’t a recommendation to throw out all forms of planning, it still helps to create a milestone plan based around your hypothesis of growth (and relevant KPIs), cash needs, for you can’t be changing strategies every month and you need to keep an eye on cash burn. At the same time, however, you should constantly monitor whether there is another milestone optionality play coming up. If you do find, however, that you are constantly questioning your original hypothesis for growth, perhaps there is a bigger problem you are facing, but by keeping an eye open for milestone optionality events, you might fare better than if you exert uber discipline to a rigid plan that was built before you learned many new things.

In conclusion, as a founder, plan for the future, identify key milestones to grow towards, but always keep milestone optionality, particularly in pre product-market fit companies.

In Which Country Should I Incorporate My Company?


An important decision that companies often ask when starting a company outside of the USA is ‘where should I incorporate?’.

The reason why this question comes up is often because there are a series of benefits pulling founders in different directions and many times founders can receive conflicted advice from well-intending advisors. Some of the issues that founders may be balancing as part of a decision on where to incorporate include things like tax implications (tax breaks or penalties), local grants, and paperwork. This is particularly the case when they are also thinking that the USA might be where they will end up in the future.

Therefore, the purpose of this post is to identify WHAT ISSUES to think about when making the decision so that you can feel more confident about it and it is NOT about recommending a specific jurisdiction to incorporate.

Let’s start by stating that, for the most part, incorporation decisions aren’t necessarily permanent. Yes, there are cases where you make things increasingly hard for you to ‘flip’ your company (flip = taking your company from one legal jurisdiction to another), but for the most part, you can almost always find a way to move your company later if it benefits you to do so. Generally, the cost of doing this will be proportional to the complexity and legal jujitsu your lawyers will have to do in order to make this happen (more on this later). So while not permanent, worth considering all options before taking the easiest or most obvious choice.

Now that you perhaps feel a bit more ‘relieved’ about the not-so-permanent nature of your decision, let’s look at some key factors to consider which will affect your decisions down the road:

1) Tax implications & Tax treaties – One of the key things that can really impact your personal returns and that of your investors, now and in the future, is whether there will be a tax impact to you (and your employees and co-founders). Consider things such as tax relief on returns as a founder or if you flip to a different geography in the future. Consider income tax liabilities as well as capital gains liabilities (note: links are to UK site, but there for definitions, which are universal). Additionally, for potential future investors, consider whether your local jurisdiction has a negative tax impact further down the line for them. These questions can sometimes be answered by tax specialists within your lawyer’s firm (particularly if your law firm has offices abroad) or your accountants.

2) Investor implications – As mentioned above, one reason why the jurisdiction of choice matters is because investors are optimising around what they know their tax implications are, but additionally, there are other matters in the final legal docs which they may prefer dealing with in their local jurisdiction rather than in new ones they are less familiar with. Additionally, they may have a preference where you incorporate due to tax relief they may receive as part of investing in your company. Company governance may also be affected by where you are incorporated. Certain company governance structures are enforced on your company depending on where you incorporate and investors may have an opinion on that one way or another.

3) Paperwork implications – Paperwork is clearly one of the bigger headaches of making this decision. This includes the interval in which you need to report as well as other requirements such as company filings required by Company’s Law of the country where you incorporate.

4) Residency implications – Some geographies may have a residency requirement for the founders, but others not. Keep this in mind, in particular if you don’t have the appropriate immigration status or it is hard to get it.

5) Human Resources implications – In some countries it may be harder for your employees to move to if necessary, and/or hiring may also be a problem because of lack of human capital or cost to hire and retain. Additionally, there may be restrictions on how you can hire / fire employees that might affect how you upscale / downscale your company’s employees. João Abiul Menano of CrowdProcess also suggests: “One should also considered tax over labor, in some cases a tax incentive given to an early stage start-up can largely help to keep the burn rate low (more important even for companies in which labor costs account between 70% and 90% of monthly expenses)”

6) Governance implicationsCorporate Governance requirements tends to vary from country to country. Since you’ll have to abide some of these requirements, you might as well familiarize yourself with these variables before making your decision.

7) M&A implications – When your company does eventually get sold or merged or floated, it’ll have to go through a process. In some countries this process is straight forward and simple and easy for potential acquirers to understand and do quickly. In other countries, it may be less known and thus may cause delays or complications.

8) Free Information Availability –  Although you will likely have a Lawyer helping you through many of these topics, it’s always great when you can learn on your own from others’ experiences. Some jurisdictions have more founders sharing on forums and the like, how they overcame their specific problems. This can be a very valuable way of reducing your cost to learn and thus reducing your legal costs as you know which issues to flag to your lawyers.

Having reviewed all of these issues with your current and/or future shareholders, you should at least have a better starting point to make a well thought-out decision.To further elaborate on these topics, and to be more specific about one particularly common case for UK founders, let’s look at UK vs US incorporation.

Tina Baker, of JagShaw Baker breaks down what the key pros and cons are of incorporation in each:

UK Pros -

· Simple to set up

· Form (Template) documents available (Seedsummit and BVCA)

· Good for companies with international investor base – The UK is one of the most friendly of the European jurisdictions

· SEIS/EIS tax relief for investors may be available for your company –  helps more investors take an interest in investing in early stage

· EMI (for employees) may be available – helps to attract talented staff

US Pros -

· Well-developed template documents for seed investment (lowers legal cost)

· Lighter touch, more founder friendly

· Simpler mechanisms to issue shares (except for US securities laws)

· Document execution streamlined – can be easier than the UK at times

· Privacy – company information (board, shareholders) and financial information not publicly available for private companies

· Large and seasoned US investor base

· Can sell easily to US buyer via merger mechanism

UK Cons - 

· Many US investors will not invest in foreign entities (even if the UK is probably the best 2nd option if International)

· Information about the company (board, shareholders) and financial information publicly available (in some circles, this is seen as a pro….)

· Depending on investors funding rounds can be over-complicated – not all investors are familiar with using the streamlined forms that are readily available

· If you have US investors that are funds, you may be required to give tax covenants/indemnities

· Merger mechanism may not be possible if there is a sale to a US buyer, so exits may be more complicated

· A US listing may be more complicated

US Cons -

· Can be expensive, especially if there is no business in the US

· May not be as easy or as tax efficient to operate in Europe through a branch

· Possibly inefficient tax-wise if not generating major revenue in the US

· US Securities Laws are more complicated

· Filings required with the US Department of Commerce

· SEIS/EIS and EMI may not be available

While this decision is clearly not a black and white one, hopefully, the 8 factors to consider before incorporating highlighted above + the UK vs US example help you better understand how to approach making this decision for your specific case and which questions to ask your lawyers. It may very well be that there are some similarities between the above two countries and your own, but the best way to finalise this decision is by having a conversation with your lawyers about what is best for you, your investors and the jurisdictions in question.

If you have any additional points for founders to consider as they go through this process, feel free to post them in the comments below. Additionally, if you have any feedback on the points above or have a good story to tell about your experience through this process, feel free to post as well.


How does an investor evaluate a startup’s team?

Management structure of BEST

Image via Wikipedia

A startup’s management team is its lifeblood… no amount of awesome ideas will ever overcome a fundamentally flawed management team. In the early stages of any startup, it is all about the people.

But what makes up a good team? How do you know if you have a good team, if you are a good team member, and if an investor will perceive you the way you perceive yourself?

Perhaps it is best to then approach this question from a different point of view…

A startup is fraught with challenges from day one. These include commercial, HR, and technical hurdles of all sorts, to name a few. These generally require a certain attitude and personality attributes from the founders for the startup to have a chance at surviving.

These personality attributes include a combination of confidence, stubbornness, individuality and a sense of self without arrogance, curiosity, humility, energy, maturity, and an eagerness to learn. I have found that founders that share many of these characteristics tend to fare better over the long run than those that do not share these.

While the above are just personality attributes of a likely ‘good’ founder, the equation is in fact far more complex. In addition to the above, I also believe you need to include the following variables as well when doing an analysis:

1)    The technical or commercial competency (depending on their focus) of the founding team. This can either mean the founder(s) have the relevant experience from either having done a startup before (or the relevant role) or they have developed the appropriate skills necessary to execute on the stated vision of the company.

2)    The ability to resolve conflicts quickly and constructively within a team. As most teams will likely hit road blocks when they can least afford them, an ability to either insert humor at the right time, or to divide a problem into parts, or know when to take a break, can all be really important skills to demonstrate the longer term likelihood of a team staying together and working well in spite of the inevitable conflicts that will arise. Although I have heard of some investors doing an artificial ‘stress test’ during investment reviews, it isn’t standard practice for you can usually tell just from spending time with a team, when a team may have potential internal personality issues.

3)    Intuitively know when to persevere and when to quit (on anything). Some people just quit too early, others keep on going too long beyond the point when a strategy is the right one to use. Although harder to evaluate when meeting a founder or their team, this is an important attribute to have internally so as to use an investors time and money most optimally.

4)    The team understands the assumptions and metrics about the market they wish to operate in, or have at least an understanding on how to research this information (the Lean ‘Build Measure Learn’ loop is a good example of a framework that is applied). An airplane pilot can fly an airplane through the dark and through really bad weather because he understand where he was, where he is going, and what he needs to be keeping an eye on the dashboard during the flight. Every great team I’ve ever met always understood the dynamics of their market well enough, knew what they needed to find out as part of what their startup was attempting to do, and knew how to measure it so as to know if they were going down the right ‘flight path’.

5)    The team or founder can articulate their thoughts and plans. Communication both internally and externally is the most important thing to get right within an organization. It makes absolutely no sense if you have an awesome coder who can put out some amazing things if they are wrong because he didn’t get specificity from management or didn’t understand what he was supposed to be working on. Also, it is pointless if the founders of a company are awesome at building product, but then are entirely unable to communicate their vision to the outside world to both interest others to join their business and also to raise more capital.

6)    Although defined as ‘working together to achieve a common goal’, I believe you could argue that collaboration can be summarized as a combination of both conflict resolution skills and communication skills. A team’s ability to collaborate both internally (with team members) and externally (with biz partners, investors, and the media), I believe, greatly increases the chances that they will succeed.

7)   The geographical spread of a team is also something to be considered. This has mostly to do with the dynamics of working as a team. Yes, Skype has done marvels to revolutionize the way we communicate, but for the necessary ‘collision’ of ideas (borrowing from Steven Johnson’s book on Where Good Ideas Come From) to occur repeatedly, close physical proximity is an asset for any new team.

8) The equity spread between founders. Although generally speaking most founding teams have an equal equity spread (50/50, 33/33/33, etc) an investor will take note if there is an equity imbalance that makes for a key hire or co-founder to feel unmotivated.

So, when I meet a startup’s management team… aside from looking at the attributes I’ve listed above, I generally ask myself three questions:

  1. Does this team have the necessary experience it takes to deliver what they have set out to do? (Teams with technical founders are of particular interest to me).
  2. Does this team have the insight to identify their own weaknesses and hire good people to complement them?
  3. Can this team constructively deal with all the challenges that are and will occur during the life-cycle of a company?

Once I feel like I’ve been able to answer these questions while also keeping an eye out for the attributes I’ve listed above, then I feel comfortable in appending the arguably overly-simplified statement of “they have a good team” when speaking about a startup.

So, some parting thoughts and advice for anyone evaluating their own team in the context of forming a new startup or raising money:

  1. Get a co-founder that complements your skills
  2. Understand what skills you lack as a team and hire them
  3. Research the hell out of your market & understand your customers
  4. var stated_vision = (think_big) *  2; -> multiply your vision by two.
  5. Rehearse your pitch A LOT
  6. Don’t be arrogant, but also add some spice and humor to your presentation

Appendix A:

John W. Mullins, PhD, Associate Professor of Management Practice, Marketing and Entrepreneurship at London Business School has kindly offered for download chapter 7 of his book titled The New Business Road Test.

Appendix B:

In my experience, the more subjective a subject matter is, the better off you are by getting more opinions to ‘triangulate’ around a ‘right answer’. To that end, I asked some friends of mine what their thoughts were around this topic. I have included their thoughts below:


In my view, I look for three things:

(i) Leadership: a CEO who can articulate a vision that excites and imbues a sense of mission in his team is very important. This is often evidenced by the calibre of team he is able to recruit around him [when he has nothing else to offer].

(ii) Self Awareness:
a) Breadth: businesses need ‘flour to balance the yeast’. The great teams have a balanced breadth of expertise and experience, not just one hero.
b) Evolution: as a business grows, so the team must evolve. A willingness to embrace this change is critical.

(iii) Openness: We look for teams who are willing to consult and collaborate. We are not good passengers and we wish to work closely with and assist teams wherever possible.

Alliott Cole (@alliott)- Octopus Ventures


 ”I look for founding teams with a balance of skills in the following three areas:

1) design / ux,
2) marketing / distribution and
3) tech.

However the skills are distributed amongst the founders, they need to be present. I don’t worry too much about traditonal management skills, other than the founder who is the CEO showing a desire to learn them.”

Sitar Teli (@sitar) – Doughty Hanson Technology Ventures


“When we look at very early start ups, there is not much to judge, but the story and how it is told. The delivery of the story is as important as its content. The founder(s) have to be credible. One of the issues is that technical founders are proud of their technical competence and tend to overdo it on tech and lose the perspective of the other side of the table, that is thinking “are these guys going to make me money?”  That is the bottom line, but it is not a question you can ask directly. The first attempt to answer comes out of the observation of the team during the first hour of meeting (it then needs more time to confirm it, but if the first impression is negative, there is the end of the journey). Are they passionate? Competent? Ambitious? Do they come across as honest and dedicated? Is this “a project”, or is this the thing they will be doing 22 hours a day for the next years? how is the team dynamic? Do they complement each other or are their duplication of the same guy. Is there a decision making process, or is it one guy that decides. Do they argue against each other (bi no-no during the pitch) or they have built a good delivery of the pitch so that it shows maturity and collaboration. “

Ivan Farneti (@ivanfarneti) – Doughty Hanson Technology Ventures


1) Balance: product, technology, market/commercial.
2) A Leader [in the team].
3) Good mutual respect for one another.

Robin Klein (@robinklein) – Index Seed


“Eden likes to invest in a team.  That is NOT one founder who has hired a group of employees but still holds all the equity him/herself.  To us, a team is a group of like-minded people who have come together to pursue a common vision.  They are all ‘at risk’ in the opportunity and so are looking for significant wealth creation.  They regard each other as ‘peers’ in the business and have comparable equity stakes.’

 They have to be smart.  And persistent.  One good sign is where the team worked together before, it didn’t work out but here they are again on the next gig.  Let’s call it ‘stickability’.

 ’It’s easy to build a team once you have raised money.  We often hear that ‘the team will come once the money is in’.  This is not what we are looking for – we are looking for a team that has been built on a common vision through the tough times of starting a company.  Where the founders have got behind the opportunity, as a team, before the cash came in.’”

Ben Tompkins (@b_tompkins) – Eden Ventures


 ”Metrics, knowing your numbers cold, measuring everything. I’m all over that stuff. Seriously. Don’t know what’s going right or wrong if you’re not measuring it.”

Sean Seton-Rogers (@setonrog) – Profounders Capital


“There are lots of “obvious” qualities which a founder/management team should have – they must know their market, they must me smart, they must be extremely dedicated etc. This has been said a million times already of course, but that doesn’t mean it’s wrong.

To pick one quality which is particularly important from our point of view, the founders need to be able to build a kick-ass product which solves a real problem. As early-stages investors we can and love to help in many areas like sales, marketing, hiring, financing etc., but the ability to create a great product with a clear product/market fit is something we believe needs to be in the founder team DNA.”

 Christoph Janz (@chrija) – Point Nine Capital


 ”I look for teams that innovate vs optimize.”

Jason Ball (@jasonball) – Qualcomm ventures

Appendix C:

I recently wrote a blog post on understanding how an investor evaluates the vision of the founders.


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