Aaron SylvanConsulting CTO • Technical Due Diligence

I help growing tech companies to solve technical challenges. Specialty in B2B Enterprise SaaS. I also perform Technical Due Diligence for Venture Capital, Private Equity, M&A.

I am a veteran of the tech startup world — closed 7 rounds of financing as CEO of two companies, managed million-dollar R&D budgets, recruited over 100 employees, and closed enterprise sales with Fortune 500 companies. Former CTO to the Gartner Family Office (founder of the world's largest technology advisory firm).

Recent Answers

Whenever shares (or options) are issued, the language is normally "fully-diluted shares"... and what that means is that you *authorize* the number of shares necessary for all potential [foreseeable] options to vest.

You'll need to stop talking "%" and start talking in actual share numbers. Let's say the company has 1,000,000 shares, divided half between two founders. Then let's say a decision is made to "sell" or "trade away" 20% of the company. To do that, the founders don't lose shares — you create new ones. So the original million becomes 80%, which means you'll need to authorize 250,000 new shares. You can then sell 25,000 to the CFO for cash, let them earn up to 25,000 more, and distribute the other 8% to new hires over the coming months.

If you do this 2% transaction all by itself, the math will be more annoying the next time you want to hire someone and grant stock options or whatever.

In all cases, if you authorize shares, or issue options, and then they fail to vest (i.e. the CFO changes his mind and fails to earn the 1%), those authorized shares simply don't get issued to him, and that benefits all other shareholders proportionally.

Does that make sense? It's only "8th grade algebra", but it can be rather confusing... even many founders, lawyers, and investors I know are still prone to getting tripped up here. Feel free to contact me directly for additional help if you like.

Two key issues in your question:

(1) when you say "majority are making millions" you're not seeing the hundreds of startups that failed in the same space...

(2) if it's such a great idea, you should have traction.


Adding photos to menus is tricky... Good pics are very expensive, and bad pics will detract from a menu's appeal. I could let a restaurant owner fax me a menu and get it online for around $2 using offshore labor for data entry. But a good photo shoot would cost hundreds or more and require local talent everywhere (or place a large and expensive burden on the restaurant owners).

It's also labor-intensive to get thousands of restaurants signed on to something. Are you planning to scrape other sites and spam restaurant owners? Walk door-to-door? Buy a mailing list? If you've been personally soliciting restaurants, that's useful for market research - but obviously can't ever be profitable. You should test a scalable strategy for acquisition. Remember, a menu service that has only 30% (or even 60%) of the restaurants in my neighborhood is pretty much useless. Can you acquire them all, cheaply? Do they even want photos of their food? Only restaurants like McDonald's, Cheesecake Factory, and Chinese take-out do that these days.

To earn investment dollars, you'll need to prove: (a) you can execute this concept at scale, on boarding hundreds of restaurants, (b) restaurant owners are signing up, and (c) you're able to gain sufficient traffic to the site for the business to generate ongoing value.

RECOMMENDATION: prove yourself in one city, and investors may help you to expand to many. But if you want funding to pay for initial marketing / webdev / photography while you "gain traction", then that would be a wasted effort. Investors need to see scalable proof, and since fund-raising is time-consuming, better to invest your own energy in proving the business first.

Absolutely not possible.

The only stories you have ever heard about a "paper idea" getting funded were stories where the founder had already made millions of $ for investors, and/or invested their own money.

There are literally thousands of startups trying to do things very similar to what you describe, and the only way to raise capital is to prove substantial traction (say, 100k paying users or 1M free).

With all due respect to the other folks who answered this question, in my experience it's totally unseasonal to suggest that a well-written business plan for such a startup would raise investment capital, except perhaps from a totally uninformed novice investor. It's about progress and proof, not about a pitch.

The application you're describing is probably useful, and can probably be sold... but that's not the question :)

The question is what it will cost you to acquire a new customer, and what you can charge that customer.

Before actually BUILDING this thing, see if you can get 10 potential customers to at least SAY they're interested. In exchange for their feedback during the development process, offer them free use of the product until it's released, and then for a year thereafter. If you can't close that sale, then either you or your product has a problem.

If you CAN get a handful of customers to agree to this "free participation as a development partner" arrangement, then move on to step two: get yourself a HUNDRED signed up. This is a larger number than you can pursue manually, which means you'll have to develop your sales pitch as a landing page on a website, figure out what language will be effective, decide where to advertise, and so forth.

Again, if you accomplish this, then you're very well along the way to making this project feasible. But if any part of the above seems impossible, or too expensive, or too confusing or scary, then don't bother wasting your time creating the system.

In other words, I'm saying you need to test whether you're capable of building a marketing engine to support the sales of this concept. I *assume* you're capable of creating the underlying product, but that's far from the only challenge.

I hope the above was helpful, and of course do feel free to look me up for a call if you'd like to discuss further.

Unfortunately, this is quite far from a likely investment. Several big issues:

(1) It requires a great deal more work (read: "time+money") to SELL an app than to MAKE one. The primary risk investors need to overcome is not the question of whether the app can be built... it's whether the app can be SOLD. So if you haven't been able to demonstrate sales traction yet, then this is an unlikely investment.

(2) When an investor is in the same country, it's much easier to enforce the law. If someone in the US were, for instance, to transfer funds to a Ghanaian bank, and then you were to simply walk off with the money, they would have very little recourse. The idea of interacting with an overseas court system is a nearly unthinkable headache. I don't mean to offend or accuse you of bad intent — just pointing out that investors have enough fear within their own countries; it's compounded when looking at a foreign opportunity.

My advice is that you'll need to find a way to finish the Minimum Viable Product on your own steam, show some sales, and THEN pursue investors.

If the opportunity is so strong, for instance, perhaps you can convince your Serbian colleague to invest his own time in completing the project — in exchange for shares in the enterprise? If you hope to convince an investor to give you cash, then a good "baby step" would be to first convince a developer to give you their time...

Happy to discuss further on a call, if you like.

I've been raised angel money as CEO several times, and also advised angels on multiple transactions...

Of course the investors understand that you don't want to "give away too much" equity, but of course if they believe in your business then they'll want to acquire a meaningful position.

If you're still pre-revenue (or even if you have revenue but still negative cash-flow), then the thought-process in the angel mind often goes like this:

1. How much money does this company need, to significantly transform itself to the next stage (and either become cash-flow-positive or at least become a serious candidate for a much larger round of funding)?

2. For my risk, I'm going to take around a third. (Maybe 20-40%).

3. Therefore, if I think this company needs $400k to hit its next milestone, and I want to take 40%, then I'm going to give this company a pre-money valuation of $1M.

And then, of course, the question is, "do I think it's ok to risk $400k on this enterprise."

If you were to counter-offer to an investor, "gee, thanks, but we don't want to give away that big a %age — so we're only going to take $200k," the investor would have a huge problem:

The angel would say, "but you just got done telling me that the company absolutely needs $400k to grow! so, if you 'settle' for $200k, won't you be in trouble? or were you lying when you said you needed a full $400k?"

It can become a bit of a catch-22 if you start down this road.


Figure out what you truly think the company needs, to really transform itself into something much bigger. Try to raise that much in the round. LISTEN to the feedback you hear from angels. They will drop hints (or tell you explicitly) if they think you're asking too much or too little. If your round is over-subscribed, that is, if you're able to get more investors than you needed, then you can run up the $ valuation. Otherwise, keep it modest and expect the early risk-takers to eat a big chunk of equity.

But don't counter-offer a lower amount of money for the round, because it would discredit your earlier claims about what you need.

Of course I'd be happy to jump onto a call and discuss this further if you like. And above I was pretty much assuming you're pre-revenue; I would change some of what I said if you have positive cash flow or at least some revenue.

The idea is a very small fraction of what it takes to earn the first million. Certainly billion. What actually matters is your ability to *execute*.

Entrepreneurship means "having the talent of translating opportunities into money". Or, as Alexis Ohanian of Reddit said, "entrepreneur is just French for 'has ideas, does them'."

As much as it may seem that transitioning off your 9-to-5 is the biggest hurdle, it's not. If you can't "get out of the gate" then you're also not ready to deal with the real challenges of business, like "competition that has 1,000x your funding" or "suppliers that jerk you around" or "customers who steal your intellectual property".

It's easy to have a "billion dollar idea". I'd like to mine gold off of asteroids; I'm sure that would be worth billions. I'd also like to invest in Arctic real estate that will become coastal vacation property after fifty more years of warming. And, of course, to make a new social network that everyone loves. But saying these things is very very different from accomplishing them.

Prove your concept by first taking a small step, such as making the first dollar. (Maybe try Noah Kagan's course at http://www.appsumo.com/how-make-your-first-dollar-open/). If you can't figure out a way to "make it go" without a giant investment, then you're kidding yourself about your ability to execute the business. If you *can* figure out a way to get a toehold, then by all means do it now!

Happy to advise further, feel free to contact me for a call.

Angel Investors will understand that you have a need to draw a salary... but the idea of taking their cash and putting it to personal use would be a "no-go".

If you were on your Series C of Venture Capital, raising $100M and you wanted to sell $3M of shares to buy yourself a nice house, for instance, that might be okay. But if you're raising $500k and you want to pocket $50k of that to clear your credit card debt (for instance), that would be a deal-killer.

Two reasons: (1) it shows the investors you're not great at managing your own funds, and (2) it's hard enough for a company to survive and grow with the investment that Angels provide — they definitely expect every penny to go into the company's growth.

That said, if your profits are strong and the reason for the equity sale doesn't set off 'red flags' (i.e. family medical expense?), maybe you can get away with it.

But remember: investors get pitched by hundreds, even thousands of candidate companies. That's your competition. Some of those companies look just like yours, and *don't* have a founder who's looking to use some of their cash for an early exit. So, it would be a significant strike against.

I've built two funded software companies, and served as Interim CEO to several others. The answer to your question depends partly on whether you mean "established business owners" or "aspiring entrepreneurs".

Here are a few practical topics people often miss:

• Intellectual Property (difference between copyright / trademark / patent, and when to file) can be interesting to the 'aspiring' set, but established folks will know that.

• How to pitch investors (has been covered heavily by many other folks, but if your audience is young they may still be interested)

• How to structure equity compensation for key employees and co-founder partnerships (can be important to everyone)

• When to engage a PR firm and what to expect

• How to buy and manage advertising on digital media


Of course feel free to contact me directly, and I'm happy to answer more in a follow-up call.

Yes, you should always know the exact amount of your 'ask'.

Angels don't do $10k at a time, because the cost of doing the transaction is likely to exceed that. Similarly, if you say you're raising $500k, and then it turns out you can oversubscribe the round (i.e. raise $800k instead), that's a "happy problem" and not a missed opportunity.

The purpose of the next round is to "take the company to its next major stage". Your business plan should demonstrate how you hope to accomplish that, using the funds you're seeking. The investors are well aware that they can push you down or pull you up, to different funding levels... but you *plan* should demonstrate that you have a coherent explanation for why it's the proper amount of funding. They might argue with your story, but you should at least enter the negotiation *having* a story. If you just say "well, I need lots, so I'll take whatever I can get", that would be the voice of an unqualified CEO.

I hope that helps, and of course I'm happy to discuss it further if you like.

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