Start Up Stories

How Can You Tell When Your In A Start-Up?

Posted in Uncategorized by Devon on January 31, 2009

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     It’s early September and I am thinking about pricing stock options, a lot.  You know you are in a start up when everyone is talking about stock options a lot – and with great passion!  It turns out that the value of a stock option in a start-up, with predicted price volatility of >200%, 10-year expiration, is equal to the value of the stock at time zero using the Black-Scholes methodology — which we turned to when bi and trinomial methods failed to deliver a consistent and observable equity value.   

     We were also thinking about our blogging strategy which, actually was difficult given the fact that the business model would change significantly in a month. 

     We were also preparing for our first board meeting, which would turn out very well and advance what we would call eventually call the labor for equity framework – a system, grounded in sound market and financial principles, which allowed us to easily trade executive labor for stock options; this, we got right. 


Lessons Learned/Questions to Ask

  1. Early equity agreements really matter – spend whatever time is necessary to get them right in the eyes of the founders.  
    1. Are you spending your more productive times of the day working through founders equity agreements?
  1. Get a good board of advisors early if you’ve got a big idea that is likely to take more capital than you can personally invest. During this pre-customer stage, you’ll need smart people to report to who can help direct your thinking. 
    1. Have you got regularly scheduled board/advisory board meetings with advisors who know something and are likely to challenge your thinking?

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