Investment Terms

First, all of our general investments (those not done with incubator partners) will be preferred equity in a corporation. We will not take a Board seat, but will have reporting requirements. Companies will have to use our standard chart of accounts, engage a bookkeeper to do their accounting, upload a Quickbooks file to us monthly, provide a copy of monthly bank statements, and submit monthly reports describing significant business events. This arrangement will efficiently provide the visibility we need into portfolio companies while minimizing the impact on operations.

Second, founders will be required to take a reduced salary and contribute their own investment capital. One of the reasons we can effectively make investments in so many startups that do not have track record is that we ensure the founders also take a substantial risk. They should expect to take at least a 50% pay cut compared to what they could make on the open market and put up a cash investment that is significant relative to their financial means. We will offer some discretion in how founders allocate salary restrictions, investment requirements, and founder equity among themselves.

Third, while we will not have traditional liquidation preferences, we will have technical preferences that ensure companies comply with the above requirements and that they manage the company with the goal of achieving a liquidity event.

Preference Termination

The only reason we require most stock preferences is to ensure we can efficiently supervise hundreds of portfolio companies without seats on their Boards. Of course, we don't want these preferences to interfere with subsequent investment rounds. So if a portfolio company gets a qualifying round of professional, outside investment that results in a sufficient number of outside directors on the Board, these preferences will automatically terminate.