Charles Rivers Ventures

Launch your ideas more quickly and efficiently

Behind every great company is an entrepreneur with a great idea. Yet getting a big idea off the ground takes more than just innovative thinking. Time, resources and capital are also required. All too often, the process of raising seed capital can consume precious time that can be better spent actually building out your idea. Often, that capital can also come at a high price in the form of painful dilution which translates into the founders getting less than their fair share.

CRV has created an innovative program to eliminate these issues and help entrepreneurs get up and running quickly - the CRV QuickStart Seed Funding Program. CRV QuickStart explores opportunities in the communications & technology, software & services, and new media sectors. CRV QuickStart provides select entrepreneurs with a loan to fund the work needed to build out your idea, enabling you to explore its potential in its earliest stage before you raise a round of formal equity financing. By offering up to $250,000 in the form of a loan (also referred to as a “convertible note”), we’re providing the capital to fuel ideas without that painful seed-stage dilution.

       

Here is how the loan works:

• A standard interest bearing loan will be made to a corporation, which we will help you establish if you do not already have one in place. CRV will not seek a personal guarantee and will not hold you personally responsible for repaying the loan.
• The loan converts into equity only if and when your company closes its next round of funding (typically a Series A round). If the company successfully raises its next round, in exchange for sharing the risk with the entrepreneur, CRV receives a discount on the conversion price when the loan is rolled into that next round. The discount will be a maximum of 25% (determined ratably at five percent per month, depending on how long it takes to close the financing, up to the maximum) off of the per share price.
  
  A simple example: if CRV loans your company $100,000 with a six percent interest rate, and six months later the company closed a Series A round, at that point the loan balance (with interest) would convert at a 25% discount (value = loan dollar amount plus interest / .75) into $137,333.33 worth of Series A stock. Given that seed funding amounts are typically very small compared to the amounts one might expect to raise in a Series A round, as the example illustrates, the aggregate discount amount, in this case $37K, is a tiny fraction of what tends to be a multimillion dollar Series A financing.
• In addition, CRV would like the opportunity to support the Series A financing and will have an option to invest equally with other new investors in the Series A equity funding. For example, if you raise a $3M Series A round, and the entrepreneur wanted 2 venture firms or investors, CRV would be allowed to contribute up to $1.5M of the round (e.g. $3M divided by 2). If the entrepreneur wanted 4 firms or investors, CRV would be allowed to contribute up to $750K of the round (e.g. $3M divided by 4). Whatever number of investors the entrepreneur wants, we will happily support the ability to split the investment equally among the investors.

Reward your advisors and partners

As part of the CRV QuickStart program, CRV appreciates that you want to appropriately reward the key people who helped you build the company. If the entrepreneur wants to do this and subject to applicable legal requirements, the corporation could issue to the following individuals/institutions a five-year warrant to purchase (exercisable at fair market value per share at the time of the Series A closing) shares of the company’s common stock representing one third of one percentage point of the company’s fully-diluted capitalization at the time of the Series A closing:

1. the person who introduced the deal to CRV;
2. the company’s principal third-party advisor (e.g., a professor, a fellow entrepreneur, or a mentor); and
3. an institution selected by the company that supports its vision (e.g., a university, non-profit organization, industry group or other foundation).

CRV helps you achieve your Series A funding

At the end of the seed process, our goal is to lead your Series A round of funding, subject to final review and approval by the full CRV partnership. We will actively work with you to assist in making progress toward a formal first round of equity financing. To the extent your company holds board meetings during the seed phase, we will attend those meetings in an observer capacity to lend both strategic and tactical advice and assistance.

Through the CRV QuickStart program, we can help you hit the ground running and explore the fullest potential of your idea as quickly and efficiently as possible.

   

Have an idea you would like to share with us?

First, we ask that you identify the partner whose investing interests are in line with your proposed venture. Then, send that partner a one page executive summary in PDF format that includes the following information:

• Your company’s mission or vision
• Brief bios of your team
• What problem are you solving? What is your solution?
• How is your solution differentiated from your competitors?
• What is your sustainable unfair advantage?
• How do you propose spending your CRV QuickStart capital?
• What milestones do you plan on reaching with your capital?
• List of 3 references

If you also have a more detailed PowerPoint presentation or a link to a demo/prototype/beta product, that will only help us in visualizing what you are building.

We will contact you if there is positive interest. We regret that we can’t contact each of you individually due to the volume of submissions we receive.

Assuming we like your materials and want to move forward, we would schedule you to come in and meet with us so that we can quickly make a decision.

Our lawyers made us do this…

See the QuickStart FAQ for further details, terms and conditions of the CRV QuickStart program. Our marketplace is dynamic and we expect that the CRV QuickStart program will evolve; CRV reserves the right to terminate, suspend, or modify the QuickStart program at any time, without prior notice. All decisions of CRV are final.

        

What is CRV QuickStart

CRV QuickStart is a seed funding program whereby CRV will invest $250K in a promising new startup in the form of a loan to the startup.

What kind of a loan is it? And who is the loan to?

The loan is a convertible note made to the entrepreneur’s company. It is unsecured debt. If the company goes out of business, the entrepreneur is not personally liable in any way. The purpose of the loan is to get the entrepreneur up and running and proving out their concept quickly.

Why is it a loan?

Well, because entrepreneurs started asking us for their seed funding to be a loan. The advantage of the loan is that it allows the entrepreneur to keep the entire equity of the company for themselves as they prove out their concept. There is no equity dilution for taking the loan.
It is also a simple 2 page loan that is easy to understand. And it is fast. There is no need to go out and convince and negotiate the “valuation” of the company for the entrepreneur. And since it is a loan, there is not the usual public registration of an equity investment. This allows for the entrepreneur to operate and prove out the concept in a stealthy way.

If the entrepreneur wanted the seed funding of CRV QuickStart to be seed equity instead of seed loan could they do that with CRV?

YES, this is totally up to the entrepreneur. We are just offering another option.

Why is CRV doing this?

Because entrepreneurs kept asking us for this and we realized the whole startup funding market was entering a new long term trend. A trend where with $250K an entrepreneur could build out and prove a concept.
We believe that there is heightened experimentation on the part of entrepreneurs and we want to support as broad a landscape of entrepreneurship in these projects that are “capital light.” We realize that CRV QuickStart could be viewed as disruptive to the business model of seed equity angel investors who traditionally ask entrepreneurs to dilute their stock during the seed phase. We didn’t set out on purpose to disrupt anyone’s business model. All we are doing is moving in the direction of the entrepreneurs’ needs to get concepts out and tested quickly in a way that is palatable to the entrepreneur.

If this is so great for entrepreneurs, what is the benefit to CRV? In exchange for giving $250K as a loan to the company what does CRV get?

Very simply, CRV gets the right to participate equally with other equity investors IF and WHEN the entrepreneur decides they want to raise a Series A equity round.

Assuming the entrepreneur accepts the $250K CRV QuickStart convertible loan, what are their obligations to CRV?

The obligation is a right for CRV to participate in the first EQUITY round (Series A) with other investors on an equal basis. On our website, we state that we have a right to participate in 50% of the Series A equity round. Frankly, we said that as most Series A investments have 2 venture firms as investors. And we’d like to be 1 of the 2. Thus 50% of the Series A round. But if the entrepreneur wants more than 2 firms, all we are asking for is the right to participate equally with other investors in that first Series A.

Who controls the size, timing, valuation, etc. of the Series A equity round?

The entrepreneur does. CRV claims no right at all here. We believe that the entrepreneur has the right to go to the free market and suggest the size of Series A they want to raise. At the time they want to raise it. At the valuation they are seeking. From whatever investors they want.

Will CRV help me in raising Series A?

If the entrepreneur asks us to, we are happy to introduce the company to quality investors that we know and trust.

Why is CRV charging interest on the loan?

Because we have to per IRS rules regarding loans. We have ZERO desire to operate as a bank. We are not in business to make money directly on these loans. Our hope is that the company does super well and we can convert the loan into equity. And participate in the growth of the company. That’s what we’d like to do.

What is the “discount” on the seed loan mean?

The discount is a discount on the conversion price of the seed loan. That discount would get applied only if and when an equity round is raised. And the discount is only applied to the seed loan portion ($250K) of the future series A equity round. The example on QuickStart shows an example of this. It is definitely not interest and does not get paid out if a Series A equity round is never raised.

What happens if the company never raises a Series A and is acquired before raising equity?

That’s ok with us. We ask that the loan be paid back at the time of acquisition.

Can the entrepreneur include other investors in the seed round?

Yes. We are happy to include other investors in the seed round if the entrepreneur wants to include them. We aren’t doing this to block other investors out. We are doing this to participate in new, really exciting concepts that are sprouting all over. So if inclined, other investors including angel investors can join in the seed round if the entrepreneur wants.

Will CRV continue their traditional venture investing?

Yes. All we are doing is extending our offering to cover the new reality and new marketplace.
The benefit to CRV is that CRV will get to participate in a lot of really exciting startups in a way that is good for CRV and good for the entrepreneur at the same time. We are just evolving and changing with what the market needs and wants. That’s why we are doing this!

Our lawyer made us add this one:
Does the website description of the CRV QuickStart program or this FAQ create an agreement with any entrepreneur or any other person?

No they don’t. The CRV QuickStart program is only effective for a particular entrepreneur once CRV has accepted that entrepreneur for the program AND CRV and the entrepreneur have signed a Promissory Note. No advisor, institution or introducer may rely on the website description of the CRV QuickStart program, this FAQ, or any other description of the program for any reason; that description and this FAQ are NOT promises by CRV to issue warrants or other equity to anyone. Also, CRV may update the FAQs or the program description at any time and the updates will control instead of prior versions.

Our marketplace is dynamic and we expect that the CRV QuickStart program will evolve; CRV reserves the right to terminate, suspend, or modify the QuickStart program at any time, without prior notice. All decisions of CRV are final.