How To Be The Biggest Fool In Startup Investing As An Entrepreneur


When it comes to finding investors for your startup, there are many ways to succeed, and many more to fail. In startups (and business of any kind) it's important to spend your money wisely and create a sustainable business model for the long term. If you’re looking to spend wisely in startups, here are a few things NOT to do (and what to do instead) if you’re hoping to succeed financially.


Don’t: Think that the funding round is the final success. Although it feels awesome that you were able to convince investors that you will build a valuable company, you need to realize that the only reason you have the money is to execute on the plan and continue to kick ass for your customers.


Instead: Use that money to execute your plan and drive return on investment. Instead of celebrating before the finish line, make sure you have a solid plan of action for those dollars to build a successful and profitable company.


Don’t: Fail to articulate what success looks like with your investors. There are two happy points in your company lifecycle for investors: when they write their first check and when you sell the company. If you don’t create a clear picture of what success will look like with them, however, it may lead to unclear expectations, disappointment, and poor business relationships down the road.


Instead: Set reasonable expectations. If shortly after finding investors, you have a conversation with your investors about their expectations, you can make this relationship straightforward, productive, and successful.


Don’t: Forget you have investors. That might sound obvious (and it is) but you would not believe the amount of investors that tell me that they don't remember the last time they got reporting from their entrepreneurs.


Instead: Report regularly to your investors: Regular reporting to investors not only holds you accountable, but helps them help you. I would suggest monthly reporting but I would expect if you are doing well some investors would only pay attention quarterly. I worked with a startup once that's investor list included multiple investors who owned huge companies, these companies could have benefited from our services and saved millions. However no one at our company ever reached out to the investors to ask them to be customers and the company recently went bankrupt after raising $30-40mm.


Don’t: Spend like you’re a millionaire. With the funding round you may, for the first time have your head above water and be able to pay your bills. But, this is not the time to boost up your salary and join the country club. You budget was likely based on your current burn or a forecasted burn that was totally wrong. In our experience, we have seen almost every entrepreneur under budget for the expenses, and things always come up.


Instead: Make a budget and stick to it. If you need help creating a viable budget for your startup,our team at Zccounting is happy to help.


Don’t: Disregard revenue. Every founder who is "growing the user base" at the expense of revenue tells me "Instagram had Zero revenue when Facebook paid $1 Billion for it". Well, your company is not Instagram, Instagram was an anomaly. No one buys a company for the "User Base" they buy a company because it will make them more money. Take for example Starbucks' purchase of Evolution Fresh for $30 million. Was a little juice factory and 3 stores really worth $30 million? Well if you look at their CPG sales they grew from $1 Billion to $2.1 Billion and I don't think they doubled the amount of coffee beans they were selling at grocery. On the day of reckoning some banker will put a multiple on your Net Income as a basis for your offer, so focus on revenue and focus on profitability, yes today!


Instead: Have a tenacity for revenue. Your revenue keeps your business going, so it should be one of your first priorities.


To learn more about Zccounting, visit our website and keep in touch on social media!




5 Things Startups Should Know About Managing Their Finances


Managing a startup is hard work. From finding investors to putting together a high performing team of employees, it's no small task for founders to turn their passion projects into a fully functioning businesses. For any founder looking for some insight to their financial process or members of a startup looking for better ways to balance the books, here are a few pro-tips for startup accounting.


Create an account for a rainy day


All business comes with financial ups and downs. It’s important that you have some cash stashed away for when those times hit. Don’t wait until you’re seeing the financial downslide to make a backup financial plan. At any given point you should have at least three months of operating costs saved, if not six or more.


Don’t do it alone

Just managing your finances by occasional checks to your bank account is not a good system of management. Make sure you have someone specifically in charge of finances that is not you, ideally an accounting firm, a bookkeeper, or an investor that is willing to roll up their sleeves. They will be unbiased with your finances, and will know more tips and tricks to save your money.


Capitalize on customer loyalty

There are a few payment incentives that you can use to boost your finances as well as help retain customers. Set up an automatic withdrawal, and give discounts for those who pay early or have a subscription. They’ll be more likely to keep with your startup long term if they feel like they’re getting a better deal.


Make a budget

This goes for just about everything in life, but make a budget and stick to it. It’s easy to map out your finances, but it’s harder to keep with that as a variety of opportunities pop up. Decide ahead of time where your money is going so that you don’t overspend and suffer for it later.  Also create your “Oh SHIT Budget”, for the times when something comes up that was not considered or a customer is late on payment or whatever, it may not be enough to rely on the emergency fund, you may need to cut salaries, discuss early who, when, and how that will play out.  


Borrow money, but borrow smart

Many startups try to avoid borrowing from banks at all costs, so they skimp on important things like employee salaries or even their own. Others try to raise too much money too fast and end up burning out. Neither of these things will help your startup in the long run. Focus on creating things customers want and are willing to pay for that create positive net income and cashflow.


Starting your own company is an unpredictable endeavour, but managing your finances well gives your company the chance to grow and thrive. To learn more about Zccounting and our accounting services for startups, visit our website!



How to Find Suitable Investors for Your Company


Not all investors are made equal. While some people may think investors have dollars at their disposal and can't afford to lose money, that isn’t always the case. Knowing and maintaining investor suitability standards enables investors to prove their credibility and give you peace of mind. If you’re looking for suitable investors for your company, here are a few tips to finding reliable financial backers to have on your side.


Large companies and entities. This can include any bank, insurance company, registered investment company, business development company, or small business investment company. This types of establishments typically have the means and the reliability to act as suitable investors.


An employee benefit plan. For companies with employee benefit plans, they may be invested in startups if they meet the following requirements: within the meaning of the Employment Retirement Income Security Act, banks, insurance companies, or registered investment advisers can makes the investment decisions, or if the plan has total assets in excess of $5 million.


Organizations with assets in excess of $5 million. This can include charitable organizations, corporations, and partnerships with this sizable about of assets in their name.


Any director or executive officer of the Company. If members of the startup would like to invest their own capital in the startup, they are considered suitable investors.


Large trusts. Any trust, with assets in excess of $5 million, not formed for the purpose of acquiring the securities offered, the purchase by which is directed by a sophisticated person should offer the financial stability your company needs.


Individuals with high net worth. This includes any natural person whose individual net worth or joint net worth with that person’s spouse, at the time of purchase exceeds $1 million at the time of the purchase. This excludes the value of that person’s residence.


Individuals with current high income. Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income in the current year.


Accredited Investors. Any entity in which all of the equity owners are Accredited Investors.


Finding the right investors for your company can be an arduous process. When financing your company, it's crucial to find investors you trust who will benefit your business for years to come.


At Zccounting, we’re experts when it comes to finances and accounting for startups. To learn more about finding quality investors for your company or for expert advice on the financial side of running your own business, contact us today!


Image courtesy of 



Zccountings Guide to Convertible Notes


If you’re part of a startup hoping to make your next move towards funding your company, you’ve come to the right place. A convertible note is a type of short-term debt that becomes equity, often tied to future financing. Essentially, an investor would provide a startup company with a loan, and instead of receiving a dollar value with interest in return, that investor would gain equity in the company. This type of financial arrangement is advantageous for early companies that are difficult to value.  It gives the entrepreneur the ability to essentially borrow from their future funding round.


Where to Start: If you think a convertible note may be the right choice for your company, here’s a breakdown of where to start, how to approach this transaction, and a few cautionary areas to be aware of.


Example text: This memorandum (this “Term Sheet”) summarizes the principal terms with respect to the proposed sale and purchase of Convertible Promissory Notes (the “Notes”) by [your company name], a [Delaware Corporation] company (the “Company”).  Such summary of terms is intended solely as a basis for further discussions and is not intended to be, and does not constitute, a legally binding obligation.  A legally binding obligation will only be made pursuant to definitive agreements to be negotiated and executed by the parties.


Private Placement Terms: The Company is offering (the “Offering”) Notes to accredited Investors on the following terms.


Issuer: The Company


Amount of Investment: Minimum investment of $50,000 for An aggregate of up to $3,000,000


Why? A high ‘minimum investment amount’ reassures large investors that you will not have many small scale investors that could interfere with their deal down the line. Realistically, you should try to keep investors at a $250k minimum but really strategic people you could take smaller amounts, down to about $50k. If you have multiple people who want to invest small amounts, we can also host a syndicate, whereas we invest in a vehicle with the purpose of investing at your minimum.


Term: The entire amount of principal and accrued interest under the Notes may be paid or convert as set forth below on May 1, 2019 (the “Maturity Date”), if not converted upon an earlier date.


You are required to raise more money the range is usually 12-24 months, you can usually get this one on the upper limit.


Interest Rate: The Notes shall accrue interest at a rate of four percent (4%) per annum


Why? Four percent  is a low interest rate, however I like to start out, and plead ignorance since this is what mortgage rates are at, and you believe that your company is as sure as a shot as your mortgage. Anything under eight percent is a decent rate in my opinion.


Investor Eligibility: This Offering is limited to persons who qualify as “accredited investors” within the meaning of Rule 501(a) under the Act.  See the accompanying Investor Suitability Standards.


Why? When you use rule 501 of Reg D you are only able to take money from known accredited investors.  Who is accredited?  Individuals that make over $200k couples that make over $300k or any other investor with more than $1,000,000 in investable assets.  Let me emphasis known, because if you publicly disclose to strangers you are raising money, you must verify their income or assets, which no investor will let you do.  


No Escrow of Proceeds: The proceeds from the Offering would be immediately released and available to the Company as received in the course of the Offering.  There is no minimum amount that must be sold in the Offering and no escrow of proceeds prior to receipt of a threshold amount.  The Company cannot assure you that the proceeds from the sale of the Notes will be sufficient to allow us to conduct our business.


Automatic Conversion on Preferred Financing: Upon the next preferred equity financing of the Company providing gross consideration to the Company of at least $5,000,000 (excluding the amount of the Notes) (the “Preferred Financing”), then the entire principal amount and accrued and unpaid interest outstanding under the Notes will be automatically converted into units of equity securities of the Company (the “Equity Securities”) at a conversion price equal to the lesser of (i) eighty percent (80%) of the price per unit paid by investors in the Preferred Financing for the Equity Securities or (ii) a price per unit equal to the amount that would be paid for the Equity Securities if, without giving effect to and excluding the amount of money invested in the Company in the Preferred Financing, the pre-money valuation of the Company was $21,000,000 (the “Valuation Cap”).


I advise against letting lawyers accept checks and hold them in escrow. Oftentimes lawyers will take a long time to remit funds. Instead, have some term that allows a rolling close so that when you get a commitment you can take the check. Time kills all deals. Escrow can also be expensive, so I recommend taking the money directly.


Conversion on Change of Control: If the Company consummates a change of control prior to a Qualified Financing, then, upon the election of the holder, either (i) the holder shall receive a payment equal to 150% of the Investment Amount, or (ii) the entire Investment Amount shall convert into shares of the Company’s Common Stock at the Valuation Cap.


A ‘Change of Control’ as used in this Term Sheet is (i) a consolidation or merger of the Company following which holders of the Company’s outstanding equity securities immediately prior to such event own less than a majority of the voting equity securities of the surviving entity or its parent, (ii) the closing of the transfer, in one transaction or a series of related transactions, to a person or group of affiliated persons (other than an underwriter of this corporation’s securities), of the Company’s equity securities if, after such closing, such person or group of affiliated persons would hold 50% or more of the outstanding voting equity securities of the Company (or the surviving or acquiring entity) or (iii) a sale of all or substantially all of the Company’s assets or equity securities, other than in connection with an equity financing for cash.


Convertible notes, must convert to equity. They convert to equity when you raise your next equity round. This number I put at $5mm because I want you to be able to easily convert if you want to be able to convert. (Note: the faster you convert, the less interest will accrue, thus less dilution) This number is low compared to your raise, you might want this to be a bigger number as it gives the investors an idea of the expected size of your next round. You might want to make this $10mm to show that you will be raising more than $10mm


The other benefit of a low number is that the lower the number the lower the financing risk to your investors, meaning that they can be more sure they will be able to easily convert to equity.


Note Purchase Agreement: An investment in the Notes will be made pursuant to a Convertible Note Purchase Agreement.


If you sell the company the investor only gets 1.5x their money back. I have seen this for 1x-3x. Most commonly is around  2x. The investor usually gets to pick if they take 1.5x or if they convert at the valuation cap. They usually ask for some provision where they get an analysis before the acquisition where they can evaluate the conversation or not.


Investor Representation: Each Investor shall be asked to represent that he/she/it is a Qualified/Accredited Investor as defined in Rule 501(a) under the Securities Act of 1933, and has performed sufficient due diligence prior to making their investment decision.


This doc is not the final doc they sign, it's only for discussion, the final doc is 40 pages or more and drawn up by lawyer.


Additional Information: This Term Sheet does not purport to be all-inclusive or to contain all of the information that a prospective investor may desire in investigating the Company.  Each prospective investor must conduct and rely on his, her or its own evaluation of the Company, its business and the terms of the Offering in making an investment decision with respect to the Notes.  Any prospective Investor having questions regarding this Offering or desiring any additional information or documents to verify or supplement the information contained in this Term Sheet should contact the Company as follows:


    Your name and address


Expenses: The Company and each Investor shall each bear their own legal and other expenses with respect to the transactions contemplated by this Term Sheet.


I would try and stay away from paying for your investors legal expenses, this burns a lot of cash because their counsel will always take the max amount they can.


Finders Fees: The Company and each of the Investors shall each indemnify the other for any finder’s fees for which either is responsible.


Finders fees are looked down on by VCs.  When they invest the money, they want it to go to operations and increasing the value of their investment.  In terms of finders fee, especially at seed stage, if you have to offer anything, offer some small nominal stock options.  


Non-Binding: The parties agree that this Term Sheet does not create any binding obligation on the part of the Company or any other party, including any obligation to negotiate in good faith, and is subject in all respects to the negotiation and execution of definitive agreements.


Image courtesy of



Please see Andrew's Linkedin Posts

Print Print | Sitemap
© Zccounting