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About Eva Doss

Eva Doss is the President and CEO of The Launch Place (TLP), a venture development organization located in Danville, VA and in the Research Triangle Park, NC. The Launch Place invests in innovative start-ups with a potential to create economic impact in the Dan River Region from its pre-seed and seed investment funds. In addition to the investments, TLP provides business consulting, training, mentoring and office space to entrepreneurs.

Eva has over 25 years of experience in business consulting, business development, pre-seed and seed investment fund establishment and management, and entrepreneurship ecosystem building both in the United States and in Europe. Eva has worked with Booz Allen, RTI International, and the U.S. Agency for International Development in Washington, D.C.

Eva has an MBA and BS in business administration, a post-graduate Executive Certificate in Management and Leadership from MIT Sloan School of Management. She is a member of the national Angel Capital Association Board of Directors and serves on several other portfolio company boards in North Carolina and Virginia, and speaks several languages.

Episode Highlights

Why your cap table is the linchpin in your fundraising story
How to stay on top of your cap table as an early stage founder
How to use cap tables strategically to manage financing, ownership, and regulatory compliance.
How startup valuation approaches differ by type of investor
How to support your valuation estimate when you don’t yet have a track record
Why a high valuation isn’t always a good thing
The lowdown on SAFEs – what are they, really?
Cap table implications of SAFEs and convertible notes
The practical tradeoffs of raising on a SAFE
The soft factors that impact your fundraising vehicle
Practical insights on how to build positive investor relationships

Links and resources

The Launch Place: A venture development organization located in Danville, VA and in the Research Triangle Park, NC
Carta: A widely used software for managing cap tables, valuations, and equity distribution.
Women Investor Forum (ACA): An annual event that fosters networking and collaboration among women investors and founders.
Angel Capital Association (ACA) – A national organization that connects and supports angel investors and promotes entrepreneurial investment opportunities.

Interview Transcript

Shubha K. Chakravarthy: Hello, Eva. Welcome to Invisible Ink. We’re so happy to have you here today.

Eva Doss: Thank you so much Shubha for inviting me. I’m happy to be here.

Shubha K. Chakravarthy: So we have a bunch of exciting topics to talk about but before we jump into it, just to get us started, can you just tell us how you work with founders today and what do you do with The Launch Place?

Eva Doss: Yeah, so I’m the president of The Launch Place. We are a venture development organization. We invest in early-stage startups, both from our pre-seed funds and seed funds. To this day, we have raised $25 million and have been investing from the fund since 2012.

In addition to providing investments to early-stage startups through our pre-seed and seed funding, we also have a not-for-profit organization, that’s the umbrella of The Launch Place. Through that not-for-profit, we provide additional educational mentoring, coaching services, and technical assistance services to our portfolio companies and other startups interested in getting educated about angel investing or potentially scaling up their business. We try to provide as many services and wrap-around support to our portfolio companies and early-stage startups in our region as possible. In addition to being the president of The Launch Place, I also serve as a director at the Angel Capital Association.

Shubha K. Chakravarthy: Great. How many companies have you invested in so far through the Launch Place?

Eva Doss: So far in our portfolio, we have 27 active portfolio companies and currently we have two in due diligence. So, hopefully within the next couple of weeks, we can go all the way up to 30 portfolio companies. And we exited six and two more are currently under negotiations for potential exit.

Shubha K. Chakravarthy: I’ll keep my fingers crossed for all of those to come through in your favor. That’s awesome. And do you have a sector preference or any kind of investment thesis? What’s your thesis?

Eva Doss: So we like to say that we are industry agnostic, but because of our close proximity to the Research Triangle Park in North Carolina—we have an office there and also in Danville, Virginia. We do end up investing in quite a lot of medical device, health tech, and SaaS enterprise software companies.

When it comes to health tech, we are really focused on either remote healthcare companies or medical devices that do not need more than just a 5 10k FDA approval. But again, if it’s a good business plan or good business model, we will take a look and invite the startup founder to pitch. But those are the focus areas that just naturally ended up being in our portfolio.

Shubha K. Chakravarthy: And just for you personally, what’s the thing that keeps you excited the most about this work?

Eva Doss: Well, at the beginning, it was just getting the word out about The Launch Place and seeing all the new, exciting ideas that came along. We have been doing this for 13 years. I personally started the organization with a group of individuals almost 20 years ago as a business consulting entity, and we started investing in 2012.

So, for the last 13 years, it’s been really exciting seeing new ideas, but lately, what I’m really focused on is managing our portfolio companies and helping them get to exit. Some of them have been in our portfolio through Fund One, and some of them have been with us for seven or eight years. So, it’s time for us to realize an exit, and that’s my focus right now.

Shubha K. Chakravarthy: For the bird to fly out of the nest.

Eva Doss: Yes

Shubha K. Chakravarthy: Good luck with that.

Understanding Cap Tables

Shubha K. Chakravarthy: Okay. So, I want to start off. Since you’re talking about exit, I want to start off with you know, it’s very relevant. So, there’s a lot of mystique around this cap table. Just for first time founders who may not have much familiarity with this can you just demystify briefly what is this cap table and why is it important from day one?

Eva Doss: Absolutely. A cap table, or the longer version, is the capitalization table—the document that outlines a company’s ownership structure, detailing who owns what percentage of the company share, including different types of securities like common stock, preferred stock, options, and warrants. Essentially, it provides a snapshot of the equity distribution among all shareholders and investors at a given time.

It is really important to start a cap table—to build a cap table from day one. Even if you are just raising money from your friends, family, and fools—the 3Fs, as we call them—even in that case, it’s very important to have at least, at the minimum, started an Excel spreadsheet to record all these investments and the ownership of the investments. Because if you don’t start recording your capitalization table from investor number one, you may end up having major difficulties in the future as you have additional fundraising rounds and more investors become shareholders in your company.

Shubha K. Chakravarthy: Is there an example or a story that comes to mind of somebody who wasn’t careful with it and it came back to bite them?

Eva Doss: Yes, well, there are multiple horror stories. I try to be as kind as I can be, but one that comes to my mind was, for example, in the capitalization table. As you hire employees and scale up, some of the senior-level employees might require employee stock options (ESOPs), and it’s extremely important to record them as you hire these employees.

The cap table needs to be updated on a regular basis, so when you hire these employees, you have a very clear understanding of what was promised to them, and they also understand what the company has committed to provide to them, even if the employee decides to leave after the vesting period.

It has happened in the past that not everything worked out well between senior-level managers of the startup, and unfortunately, one of them had to leave—not on the friendliest terms. Unfortunately, his ESOPs, stock options, were not recorded in the cap table at the time of hire. The employee who left the company had to seek legal action against the startup because the startup simply couldn’t find the recorded ESOP shares.

Ultimately, they settled, I think, out of court and didn’t end up in a big lawsuit, but it could have been. It was just a simple oversight by the CEO or CFO of the company not recording the issuance of employee stock options at the time they were issued.

Shubha K. Chakravarthy: It’s a good telling example. Now, clearly a big role of a cap table is to figure out who owns what and how much and all of that but just outside of listing, hey, here are all the people who own stock or could potentially own stock in this company. Is it useful? Is it a strategic tool or does it have other uses that a founder should be aware of?

Eva Doss: Absolutely, because the cap table will ultimately be an extremely important tool for you to understand the basic information that you need to know before you even start a second fundraising. It really keeps track of the ownership structure, which is essential for making informed decisions about financing or investments.

For example, if the startup is looking to raise another round of financing, which most likely they will, they need to know how much of the company is already owned by existing shareholders. Using the cap table can be beneficial for efficient business management.

You always want to have an accurate understanding of who your major investors are and if one shareholder owns a disproportionately large percentage of the company or not, because if he does, it might cause some issues down the line if the shareholder decides to leave or his understanding of the company’s future is not in alignment with the owners of the company.

So, for that purpose, it’s also always good to know and monitor who the major shareholders in the company are and manage those relationships. Regularly updated cap tables ensure tax and regulatory compliance, which are really important. And especially as you get more and more investors, maintaining an accurate cap table ensures that you follow all the tax laws and regulations and don’t get in trouble with the IRS or are not late with sending mandatory notifications to your shareholders.

Also, when it comes to audits, it may become an issue later on. As a later-stage, seed-stage company that is acquiring additional financing or investments from institutional investors as part of their due diligence plans, they may ask for a company audit. A very well-maintained cap table can definitely ensure the audit’s accuracy, and it makes it much more transparent and easier to navigate throughout the auditing process.

Shubha K. Chakravarthy: So two questions on that. One, you talked about IRS and notifications and compliance notifications. Are there one or two of those big things or use cases for the tax or regulatory side that pop into mind that virtually every startup will face?

Eva Doss: Well, you also always have to send notifications to your shareholders about how much shares and at what value they own in order for them to be able to file their tax returns. And, also it was important, for example, during the COVID years when certain loans were issued to startup companies. It was really important for the federal government to understand their financial background and projections. And for that reason, it was also very important to maintain the cap tables.

Shubha K. Chakravarthy: Got it. That example is very telling where maybe an issuance of stock, especially to employees in the founding team, is not properly recorded or not recorded at all. So omission is clearly a big mistake that I’m sure you see among startups with the cap table.

Are there other types of big mistakes, serious mistakes that you see founders making, and what are those mistakes? What are the ramifications? Why does this happen?

Eva Doss: So, the number one mistake I see is not updating the cap table on a regular basis. Investors put in more money, they change their location, their contact information changes, and we keep forgetting it’s extremely important to maintain the investor’s contact information. Because as shareholders, they have to be notified about certain major decisions that are happening in the company’s life.

Another example from maybe two- three years ago—it happened to one of our portfolio companies. They ended up raising money through an online crowdfunding platform, and the crowdfunding platform. When the investment closed, they did provide our portfolio company the names of the investors who put in money through the platform, but they did not provide the actual email addresses.

At the time of the transaction, the CEO of the company didn’t really care about it. He knew the names and he populated the cap table with the name of the new investors, but there were no emails attached, no contact information attached to their names. And whoops—six months later, we had another fundraising, and the existing shareholders had to be notified that there was an additional call being opened and they were invited to participate, except we couldn’t send out the notifications. We couldn’t find these investors.

It took us three weeks to get the contact information, phone numbers, and email addresses from these investors so they could be notified. And that held back the entire fundraising and closing by three, almost four weeks.

Shubha K. Chakravarthy: Wow. That’s an interesting story.

Starting Your Cap Table

Shubha K. Chakravarthy: So I get that this is important. I’m a founder. It all feels really intimidating. I know I’ve got to start from day one. Where do I start? What do I need to do? How do I go about doing this?

Eva Doss: You can start in a very simple Excel or Google Sheets, and you just create a table. The key important elements there are all the investor information, which is critical, such as the name, number of shares, percentage of ownership held, and type of securities held by each investor, such as preferred or common stock.

The second one is also very important—the founder information. As the owner of the company, a majority owner of the company, the same information—the name of the founder and the number of shares they hold—needs to be included.

The very important is the stock value, which includes the price paid for each share of stock as well as the current value of the stock. It’s really important because two-three years down the line, if you don’t record it at the day of purchase or issuance of the stock, two, three years later, you will not remember what was the actual purchase price versus what is the current price of stock.

Additional elements that are also important—you don’t need to overcomplicate it, but the more information you have, the better. The date of the stock issuance is important. Any restrictions or limitations on the sale of shares—different shares have different terms attached to them, and keeping track of those different terms can be also very important.

Shubha K. Chakravarthy: So that’s a pretty comprehensive list. So first off, as a first time founder or the first early stage founder, the first thing I’m going to do probably is to raise on a convertible note or a SAFE. How do those types of instruments show up on the cap table and when I have a SAFE or convertible note? How should I be thinking about the percentage of ownership or the number of shares?

Eva Doss: Yeah, so that goes into valuations a little bit because the higher the valuation, the more shares as a founder you can retain versus the lower valuation, the less shares as the founder you will retain. But just like I said, ultimately, once you are beyond just raising money from your friends and family and people you know from college but you actually are reaching out to angel investors whether to an angel fund or a network. This would be the time for you to switch from just a regular spreadsheet on Excel or Google Sheets.

It’s really important at this time or perhaps even sooner for you to acquire management software such as Carta, Capshare, or Shareworks. The most prevalent is Carta and that’s what we use. That’s what I’m familiar with. At the date of issuance of the stock, all the information is automatically included, and all you have to do is just fill in the numbers.

And if you don’t feel comfortable with that, your CFO can do that, but also your lawyer actually can be very helpful in filling out and helping you create the cap table. The common mistakes when it comes to the cap tables, again, are neglecting to update it, inaccurately recording the stock value, the price of the stock, missing shareholder information, not considering vesting schedules. Overly allocating too much equity to investors can also be a problem, and also failing to change documents, because once you record, for example, an issuance of a convertible debt instrument, that convertible debt will have a maturity date of, I don’t know, 12 to 36 months, and that will convert to actual equity and shares. And if you do not record it at the correct time, it’s going to have an impact on your value on the shares.

So it’s really important to always maintain an updated cap table. And every time there is a qualified financing or another secondary financial round, you need to make sure that the cap table is always updated with all the information.

Shubha K. Chakravarthy: Got it. So let’s say I’m a founder doing this for the first time. I take all your points on how important this is. I get Carta, I have the lawyers, whatever the case might be. First of all, how do I get up to speed? How much do I need to know, even if I have qualified legal and financial counsel on, you know, these are things that are impacting my outcomes at the end of the day. How do I get up to speed and how much is enough for me to know about all these technical terms that you just laid out?

Eva Doss: So as a first time founder, you don’t need to know all the conversions and what different rights mean in the long term, what stock has, what provisions, attached to them. What is however important for you is to really understand how the distribution of shares actually happen in each financial round.

It’s very important for you to understand that the higher the valuation of the company, the smaller equity shares you need to give up. The lower the valuation as a founder, you’re more likely going to give up a larger piece of your company. But what is also important for you to make sure that you educate yourself ahead of time.

If you are only raising a pre seed round of $50,000 from family members, this is not as important as in later stages when you are getting ready to actually go out to institutional investors and angels and angel funds and networks. You should know how a cap table is structured. There are multiple ways to get that information from. I would highly recommend checking out the Angel Capital Association’s Angel University classes, and online webinars because they go through in depth into cap table discussions, into valuations, into how to read the term sheets.

So that can be a really important source. Secondly, I also would look around in your community, who are the angels, who are the funders, who are the different networks. And more often than not, these organizations, including accelerator programs, do have webinars, lunch and learn with lawyers and investors about specific themes and topics. And I would definitely start attending those and learn as much as I can. But the first source for me would be the ACA university courses.

Shubha K. Chakravarthy: Got it. I like the on demand resources from the ACA that you mentioned because I can do it on my own time is probably more time efficient than as much as I would like to attend all the seminars and outside. There’s a trade off in terms of how much time I devote to it. And I have only X number of hours a day. So that’s very well taken.

Valuation Insights for Founders

Shubha K. Chakravarthy: So we talked about cap tables, and then you mentioned this point around valuation, right? That’s another big huge sticking point for founders, especially if I don’t have access to PitchBook or other aggregated sources of data for me to peg correctly what I should walk in with valuation. Can you just talk about how different kinds of investors, so for example VCs versus angels, might approach valuation and whether valuation is even important if I’m raising a SAFE or a convertible note?

Eva Doss: Angel investors tend to be more flexible and rely more on qualitative factors like the founder’s team and vision when evaluating early-stage companies, while VCs use a more structured approach. They heavily rely on market analysis, potential exit strategies, and they might also have a targeted return on investment to determine valuation.

VCs often—though not always lead to higher valuations for the same-stage company compared to angels, but it also depends on regions. Again, this is my experience, and these trends do apply in the Southeast, but there might be different factors playing into valuation discussions in different parts of the country. So you need to really know whom you are talking to. What are your angel’s preferences? What do the VCs look for?

If I can overgeneralize, the valuation approach for angels is often to prioritize the entrepreneur’s passion, market potential, and the strength of the team over concrete financial metrics. This can lead to a valuation based more on potential than current revenue. Angels have a tendency to look into the future and what great potential the company holds, whereas VCs focus on the numbers today—sales, revenue, and the company’s current financial position.

Angels, depending on whether they are a network, an individual investor, or a fund, may conduct less extensive due diligence compared to VCs since they are investing their own money. This can result in a quicker decision-making process and potentially a more flexible valuation approach. However, angel networks are now creating their own venture funds. For example, at The Launch Place, we have full-time professionals and conduct very extensive due diligence. So I wouldn’t always say that the due diligence process is shorter for angels than for VCs but overall, it’s probably true.

We also use different methods. For example, our fund uses a scorecard method. As angel investors, we use the scorecard to evaluate startups, assigning points based on various factors like team strength, market size, technology, and competitive landscape. This helps determine valuation on a holistic level rather than just looking at current financials and revenue.

VCs on the other hand, are more likely to use the venture capital method. They typically have a predetermined expected return on their investment and calculate backwards from that targeted ROI to determine an expected exit valuation.

When thinking about valuations and how they impact the future of the company, taking money from angels versus VCs can affect valuation, but it can also impact control and influence. VCs often seek more control by taking board seats and actively influencing strategic decisions, which can shape their valuation expectations.

Angel investors, on the other hand, may be more hands-off—perhaps serving as board observers—while providing mentorship and connections, potentially settling for a lower valuation.

Preparing for Valuation Discussions

Shubha K. Chakravarthy: So you know you just laid out a really comprehensive overview of how the investor landscape might look at valuation. So imagine I’m a first-time founder. I’m walking in, maybe I have a STEM startup that I’m going out to fundraise for the first time. Typically I don’t have access to sources like PitchBook. Here information is power right?

So I’ve talked to a lot of founders who actually are very nervous about I don’t even know where to start the valuation. I’ve talked to other founders who have come up with like ridiculous like 37x revenue or whatever. It’s like this guy came in with a 37 million valuation for a pre-seed or seed which I was like okay. So given that you’re walking in with this information asymmetry working against you right you don’t know a lot and you don’t know where to start.

So how would I equip myself as a founder for a good valuation discussion so that I don’t hand over the shop nor do I walk in sounding like I’m completely out of touch with market realities. Like what’s a practical way for me to do that that doesn’t take me six months to just get to a valuation number.

Eva Doss: If you are very early, early like pre-seed, and this is really your first fundraising, I would strongly recommend starting to talk to investors even before you ask them for money. That’s why the networking piece I referred to before is pretty important because you can meet potential investors you will be targeting six months from now when you are ready to raise money.

You can meet these investors at pitch competitions or when accelerator cohorts have their demo days— all of us are always there. I would just approach a person, a fund, or an angel fund operator and say, “I’m planning on fundraising and I’m planning on approaching you in the future or applying through your website, but I really am struggling with valuation. Would you mind talking to me?” I would say nine out of ten times, every investor would sit down and help you because, for us, it’s also important to establish those relationships early so by the time the company seeks funding from us, we have a much better understanding of the CEO, the company, and the valuation.

So don’t be shy to ask investors to help you establish a valuation that can be accepted by both sides. You need to analyze your company’s financials and be fully aware of all the details of your financial statements, whether it’s COGS or not, because that’s going to be a key element of establishing your valuation number.

Understand the market trends. If you have a great technology but the market is kind of in turmoil, that is going to demand that you lower your expectations when it comes to valuations. What’s also very helpful when you are a first-time founder, especially when this is your first time raising money, is researching comparable companies. I do understand that as a first-time founder, you might not have access to PitchBook, but there are other university sources in your area—MBA courses that can actually help you research these comparables. Also, now with AI, you can really do thorough research and understand what the comparable companies are, not just nationally but also in your geography.

Again, ask investors whom you’re going to target, “What are the companies you have been recently investing in? At what valuation?” and they will provide the information for you. I also want to emphasize that for a pre-seed and seed company, a very early-stage company, what’s important is that although you might not have years of cash flow information and financial data, you need to know your market. Research your market, know your market trends, and focus on the potential market penetration numbers you believe you can achieve in the short and long term.

You also need to emphasize the strength of your team and how it can affect valuations. Maybe you have somebody on your team who has been through this before—this is their second rodeo—and they were a member of a company that recently exited, so they have gone through that process. Or maybe you have a team of extremely talented individuals who have created an IP portfolio that really stands out to me as an investor.

You really need to focus on the story of the future if you don’t have current numbers yet – your market penetration numbers and the trends of the market you are in.

Shubha K. Chakravarthy: So if I try to kind of play back what I heard and synthesize it right, the first piece is it feels like you need to get a good sense of what is the starting point, like what’s a good starting point. And for that it’s around talking to investors who might be investing in your area, doing the AI assisted searches.

One question on that is why will an investor tell you what valuation they put on a company that they just invested in? I mean that’s private market information and potentially there’s a conflict of interest. Like why would I come and tell you, like I mean I’m just being a little skeptical.

Eva Doss: I wouldn’t tell you that I invested in Eva Doss’s company and the valuation was six million dollars. I would not say that, but I would tell you that during the last 12 months we have invested in eight companies and the average valuation for those eight companies was six million dollars.

I’m making it up, okay? Out of those eight companies, three are more comparable to you than the others, and the multiple that we used for calculating the valuations for those three companies, the industry multiple, was 3.5. So I’m not going to disclose confidential information about specific companies in my portfolio, but I will be able to tell you where the market is and what we are seeing, not just in terms of our new investments, but also in terms of our bridge financing of our existing portfolio.

So we are very aware of the market trends and the market conditions. We are very aware of the comparables. And we are happy to share that information with you on average. But no, we will not be disclosing sensitive private information, with names and stock prices.

Shubha K. Chakravarthy: So, do you think that’s uniform across A, angels, and B, VCs? Like, somehow I’m very skeptical that it’s going to be uniform, that people are going to be so helpful and say, you know, to the point that you just mentioned, like to that extent.

Eva Doss: I can only speak to my ANGEL fund and network experience. Us as angels, we do work together very well and co-invest in multiple companies. We are members of multiple syndication networks through the Angel Capital Association, but also in our region. And it is in our best interest for our angel networks and funds to work together because none of us are large enough to be able to carry and completely fund seed fundraising.

We are not going to write a two million dollar check and carry the whole entire fundraise. So, as funds and networks and angel investors, we have to work together. And, believe it or not, it’s a very collegial, cooperative, helping each other market, at least in North Carolina, Virginia, and the Southeast. That has always been my experience.

We also want to make sure that by helping the founder to get to a realistic valuation number, we also are going to have an easier time when we come to an actual negotiation on the terms and the valuations because the expectations are set both by the founder and by us.

So, it’s more of a comprehensive approach in terms of finding a balance between what the founder wants and what the investor wants and finding that middle ground. In order to find that balance and come to a mutually agreeable valuation number, we need to help the founders, and we do.

On the VC side, it might not be the same situation, but when it comes to angel investors, we work together, we share information, and we help founders to be able to close their fundraising as soon as possible by collaborating and sharing information with.

Shubha K. Chakravarthy: Got it. So, okay. So point number one: talk to investors, get a good lay of the land. Thank you for explaining that. The other piece I picked up from your earlier explanation was you need to have some sense of numbers in terms of what your potential is, what your market penetration is. You talked about multiples.

How can a founder get a realistic sense of what that market penetration is? I mean, we’ve all seen the big TAM, SAM, SOM numbers, you know, that they just throw it on without any background. What will convince you, as an investor, if I come in as a founder and say, these are my market penetration numbers, and therefore my valuation, I can justify my valuation that I’m putting forth of X?

Eva Doss: Yep, so I will immediately ask you about your customer discovery journey. How many interviews have you conducted? How many surveys have you conducted? Have you gone through 100 interviews with your potential target market customers? How many institutional target market customers have you spoken to, and what was their feedback?

So I really need to know that the numbers you are presenting about your potential for growth and market penetration are supported by your surveying and researching your target market customers. And even then, we’re not going to take it at face value because during our own due diligence process, we will be talking to your potential customers and also through our networks, find comparables—whether it’s a hospital system, an educational system, or a big manufacturing organization. We will be testing your numbers during our market discovery, during our due diligence process.

But having the numbers and being able to prove that you have done your homework, that you have spoken to a hundred customers in the last two months, and this is the feedback you have received, is very important when an angel is making an investment decision.

Understanding Valuation in Angel Investing

Shubha K. Chakravarthy: Got it. So, the picture that I’m seeing coming up is like—there’s nothing that’s isolated on its own. Valuation is not just some number that’s hanging out there by itself. Yes, there’s a market input into it in terms of where you are relative to all other startups and your peer group, but your own financial story, so to speak, is an integral part of why you’re able to support that valuation. So, in other words, you’re not doing customer discovery on its own and then valuation on its own. They all have to speak to the same storyline, and they all have to hang together.

My last question on that is: let’s say I do all the research. I’ve given you the summary of a hundred customer interviews I’ve done. I give you a projection of, Here’s where my market growth is going to be. How, then, do you translate that into the valuation result?

Eva Doss: So, the valuation result—again, comparables. We will look at other comparables and also reach out to other investors, co-investors, and syndication partners and ask them, This is a SaaS software, enterprise software company targeting higher educational institutions. Have you guys had experience with this, and what were the actual terms under which you invested?

At that point, we are going to be making our own due diligence amongst our investment partners and also looking at comparables. We do have access to PitchBook and other industry-generated sources, so we can actually look at the actual numbers that the market is giving us and then come up with a valuation.

We’re also going to look at the company—how it relates to our overall portfolio of invested companies. What is our portfolio structure? In the last 12–18 months, what were the deals that we closed, and what were the companies we invested in at what valuation points?

So, the valuation discussion is not a science; it’s an art when it comes to angel investing. With VCs, it’s much more strict because of the financial focus and the actual number they need to get at when it comes to ROI. But with angel investors, it’s a discussion. There are financial components to it, and there is an actual number that we need to come to but it’s definitely more of an art form than a science, and it’s part of a negotiation process.

The Risks of Overvaluation

Shubha K. Chakravarthy: Got it. So, the one thing is, there’s this tendency on the part of founders, or at least the inclination is: I want to get as high a valuation number as possible for obvious reasons, right? Because I want to minimize my dilution, I want to get a bigger check, blah, blah, blah.

Too low a valuation isn’t good. But is there a point at which too high a valuation isn’t good? And, if so, what are the negatives from having a valuation that’s too high?

Eva Doss: So, when valuation is too high, first and foremost, you need to be very careful because if you need to raise subsequent funds and you have another round 12 months from now, fundraising, you might not be able to demand a higher valuation from your current valuation if the current valuation is already set too high.

You might end up having to have a downward scenario where you have to cut the valuation, and trust me, nobody’s going to be happy about that because everybody’s going to get diluted—not just the founder, but the investors in the current round as well. And secondly, it also can create a reputation and market reputation amongst investors.

And again, as an industry, we work together. We co-invest together. We look at almost the same companies together and we do talk amongst each other. And if you come across as a very stubborn, you know, individual who cannot find a common ground, a balance, then we’re just simply not going to invest. And later on, when you come back to us for another fundraising, that reputation will be there.

We have had a company that—actually, it happened to us multiple times—that they were raising a seed round, and the valuation was very high. I don’t remember exactly the numbers, but I know it was very, like, multiple, three times as high as we were used to seeing in the marketplace.

And we told them that, sorry, because of the valuation, we just simply cannot continue in the negotiations. And the response back was like, Okay, then we’re just going to go to California or somewhere else in another region where they will give us the valuation we want. And I said, Well, great. Good luck. I hope it works out for you.

And in one case, six months later, and in another case, 12 months later, they came back to us and said, Well, we were not really lucky raising that amount at the valuation level we demanded because even outside of the region, investors refused to take that valuation we wanted from you. So, would you reconsider coming back to the table and renegotiate?

So, we renegotiated, and we ended up investing in the company, but they lost, in one case, six months of fundraising, and in the other case, 12 months of fundraising because they refused to lower their valuations, and they were not able to secure funding.

So, you need to be looking at what are the pros and cons, and I completely understand—the lower the valuation, the lower the shares and the controls of the founder. But ultimately, very high valuations can also negatively impact the founder and ultimately, the investors in the long term.

Shubha K. Chakravarthy: Got it. And, you know, this is one thing that I think I see founders missing a lot of the time—that investors have a much stronger grasp—which is, it’s not just about the valuation. You know, your deal has a lot more aspects to it than just the valuation. So, the question to you is, as an investor, is the valuation a sticking point by itself or are you willing to give on the valuation? So, how are you looking at valuation in the totality of the deal terms?

Eva Doss: Valuation is one of the key elements of agreeing to the deal. It’s not the only element, but I would say it’s definitely in the top three elements. Even if everything else fits—even if we agreed on the terms, whether it’s going to be an equity round or a convertible note issuance, if we agreed on the proceeds of using the funds, and whether we’re going to get board seats or not—ultimately, if the valuation is too high, we will not do the deal.

But if the valuation is accepted and mutually agreed upon, just because the valuation is good and agreed upon, we also may not invest because the valuation is just one of the key elements in the structure of the deal. Does it make sense?

Advice for Women Founders in STEM

Shubha K. Chakravarthy: Total sense. So given how important valuation is, right. And one of the things I’ve talked to multiple investors about, as well as some legal advisors, is a trend that has kind of bubbled up. When women founders go to the table to negotiate, there’s a kind of triple whammy effect—they get a smaller check, lower equity, and a lower valuation kind of deal.

So, what advice would you give to women founders in STEM to get the best—not necessarily the highest—valuation, but the best outcome on valuation for their own startups, given that they may be battling these kinds of barriers?

Eva Doss: Women founders will face the same obstacles potentially, when it comes to valuation negotiations, but they even say we’ll be facing more obstacles because, simply, there is a gender bias. And there are legal barriers and a lack of access to resources for women more so than for men. And the gender bias is there.

There are very few angel investors who are running venture funds or angel group operators, although lately, it has been changing, and more and more female investors have started their own funds, are managing their own funds, or are becoming network operators. But there is still an overall gender gap between how many female investors are investing and also how many female founders actually are seeking investments from investors.

In order to overcome these barriers, my first advice to every female founder is to really be strategic and intuitive in selecting your investors. Just like us investors select the companies we invest in, I think the funders also need to be very cognizant of which investors they would like to accept money from.

And I would strongly recommend for female investors to seek out the networks that include female investors run by female fund managers or network operators, and there are many funds and networks now. The whole purpose in life is to only invest in female founders. There is a good list on the ACA website, but also, Silvia Mah from Stella Ventures in San Diego created a list on LinkedIn that’s very up-to-date about all the female funders. I mean, female investors—who fund female-founded companies.

That would be definitely my number one choice for women founders: to reach out to women investors. Secondly, I would also attend, if you can, both in person or online, events, pitch competitions, and meet-and-greets with female investors. At different events hosted by ACA every fall, we have the Women Investor Forum in Boston, for example, which is a good event to attend. But also, inside your own region, seek out events and networking opportunities where you can meet female founders and female investors. Because those networking opportunities will lead to connections, and sometimes it’s very good to even not just seek out female investors, but also female funders, because those female funders can introduce you to investors who have helped them fund their own companies.

Shubha K. Chakravarthy: So, your points are very well taken. And, you know, I think the resources that you mentioned are awesome. We’ll make sure we include links to them. Can I challenge you on that a little bit on two points?

The first is, the unspoken assumption is that you’ll get a better deal with a female investor. My pushback to that is, how do I, as a woman founder, get a better valuation outcome, regardless of, you know, even if I’m talking to male investors? I mean, just pure absolute terms, there are more male investors in this early-stage startup system than female investors, or at least more dollars—let me put it that way. There are more investment dollars controlled by male investors than by female investors. So, as a woman founder, I’d want to make sure I get the best outcome, even if I’m talking to a male.

Eva Doss: I did not make that assumption that just because you’re going to talk to female investors, you’re going to get a better outcome. Talking to female investors might actually get a meeting for you and get invited to pitch, versus if you are focusing on investors or funds that are not focused on female investors. You might just get lost in the many different applications.

So, my point was, is that even getting a pitch or getting a consideration, your chances might be higher by first approaching funds and investors, female investors, whose purpose in life is to invest in female-funded companies.

Shubha K. Chakravarthy: Got it. Sorry and my bad. Thank you for correcting me on that. So what I think I heard you say is yes, the valuation comes. Make sure that you actually get in the door to get that discussion and for that. Is that the main point?

Eva Doss: Yes.

Shubha K. Chakravarthy: Clarifying that. My second point on that is there was a research study that came out recently that showed that women investors investing in women founders in the first round actually turns out to be unfavorable for future financing for women founders because the assumption is you were invested in because of homophily, meaning that, you know, they invest in you and because you’re a woman as opposed to because you have a, you know, fundable startup.

So I’m just curious what your thoughts are. I mean, I know this is getting a little away from valuation, but since we’re talking about that, I just want to get your thoughts on that.

Eva Doss: Well, that’s unfair, but life is unfair. I mean, we know that there is a gender bias, and this is part of the gender bias. Having said that, if the company, as a female founder, can prove that, yes, my first investment I received from a female investor wasn’t because I was a female. It was because I had a strong business model, and look what I did with that funding, how I used it, and what are my attractions to this date?

So for women, you also need to be able to tell the story much more. Perhaps aggressively—I don’t like that to use that word—but you need to persuade the investors that you are not just getting the female investor funds because you are a female yourself, but because you can prove to them that you meet your milestones, that your financial management skills are much better, that you can go further with less money compared to your male counterparts, which is the case very often, actually. And you need to point at these achievements that you have achieved since your first fundraising, to persuade that the second round, you do have very viable fundamentals, whether it’s the financial results, whether it’s your market penetration, whether it’s the IP structure that you have created, that you deserve the higher valuation, and the women didn’t invest in you just because you are a female.

All About SAFEs

Shubha K. Chakravarthy: Got it. So, kind of the main takeaway for me—and that is a very helpful explanation—is you take the doors that are open to you, and then you continue to aggressively build the fundamentals, the financial story, to make sure that your story is standing on its own legs and that the numbers are speaking for you to counter any potential negative backlash that you took any money from a female investor.

With that, I want to talk about funding instruments. Everybody’s not favorite topic. I just had Liz Sigety on, and we talked about convertible notes. In this conversation, I want to do a deep dive into SAFEs because there’s so much conversation around SAFEs.

So, there’s a lot of pros and cons. There are many pro-SAFE people, and there are many anti-SAFE people. Can you just give us an overview of maybe some of the misconceptions around SAFEs, both on the positive and negative side?

Eva Doss: When it comes to SAFEs, I am a little bit biased because our fund does not invest in SAFEs. And, again, we are in the Southeast, and that’s just a prevalent theory around here. We do not prefer SAFEs, although SAFEs, which by the way stands for Simple Agreement for Future Equity, started in California. Since its beginnings, originally, SAFE was used to really raise pre-seed money in the very early stages, almost ideation stages, and maybe $100,000 to $200,000.

Now, lately, what I have been seeing is a lot of companies putting forward SAFEs for multi-million dollar fundraisings. Actually, that just happened to me last week, and I said, Now, at this point in time, you have been operating the company for four years, you can do a priced round. But SAFEs are becoming more and more prevalent. Some companies prefer that, some funds prefer that, and individual investors prefer that because they say it’s simpler.

The convertible debt instrument is registered as a debt on your cap table, whereas a SAFE is not. But the SAFE will become important when the qualified financing happens, and the SAFE converts into actual common or preferred shares. I don’t personally like SAFEs because they defer very important investor rights for the future. Many companies that come to us with SAFEs do not necessarily understand that.

I believe that SAFEs can be used in situations where the company only needs a few thousand dollars and in regions where there is an overflow of investment dollars. If you are in a region where investors are more scarce, and the investment activity is not as high as in Silicon Valley or New York, then you potentially need to be considerate of the investor’s willingness to even consider SAFEs.

I think convertible debt and equity rounds are much more acceptable by investors, even though nationally, the usage of SAFEs is growing. They are considered simpler and faster to set up and often do not include valuation caps whatsoever. That might be a good thing for the founder, but not necessarily for the investor. Sometimes they do include some investor protections, but many times they do not.

I just came across a situation a couple of months ago where the company was raising a SAFE, and we were the first institutional investor that they approached. I was very open with them and said, I love the business model. I love what you are proposing. We would love to invest. However, we don’t invest in SAFEs. We would like to have additional protections because we also don’t just write one single check. Our tendency is to stay with the company for multiple rounds of financing, and we don’t just invest $50,000, but we can go up to $750,000 to a million over a period of years.

So, as institutional investors, you might want to consider negotiating with us because we can be helpful to you, not just today during this fundraising, but all the way through potentially to exit. The founder was very sensitive to my request, and we started negotiating. Ultimately, what ended up happening was that I requested him to give us a side letter. The side letter had to include all the investor protections and provisions that we normally would have in a convertible debt instrument. It secured our redemption rights, pro-rata rights, and gave us additional observation rights and board observation seats. So all the terms that we would negotiate in a convertible note, we ended up negotiating in a side letter.

Then the other investors also wanted a side letter. So, by the time the founder actually closed the round on a SAFE, pretty much each and every investor had a separate side letter. It took him at least three months longer to close the round because everybody wanted the extra protections. Ultimately, all of this could have been totally resolved by just doing a convertible debt instrument, which ACA has on its website—a very simple convertible note document—and just using that. So to me, from the investor point of view, SAFEs are not as good as convertible debt, and many institutional investors, whose purpose in life is to really stay with the company until exit, more often than not, do not accept SAFEs. Did I say too much?

Shubha K. Chakravarthy: No, I love the way that you really explained it because many founders don’t understand it. They don’t get it. And you really made it, you know, you made it real. So I appreciate that. So, is it a question you’re seeing? You yourself commented that SAFEs are becoming more popular. What’s driving that? Is it just a question of too much money chasing too few deals? Because the market isn’t there.

Eva Doss: Yeah, so it’s a, I think it’s a combination because again in Silicon Valley in California, SAFEs were invented there, and SAFEs have been approved and accepted for a much longer period of time than in the other parts of the country. But also, a SAFE is not the same SAFE today as SAFE was when it was introduced.

So the prevalence or the increase in the usage of SAFEs might be also contributed to the fact that, yes, even investors who sign SAFEs, technically it’s still called a SAFE. But if they have an attached side letter, which side letters are almost like a norm now to SAFEs, that’s what I’m seeing in our region.

So it’s still called a SAFE, but technically it might as well be called a convertible debt because investors negotiate those side letters. So I don’t know if the increase in the number of SAFEs is just purely attributable to the fact that there are more angel investors who are willing to accept it, or is it more a causation that, yes, it’s a SAFE, but investors are willing to and are more successful in negotiating the investor rights that they are looking for there.

Shubha K. Chakravarthy: When you said that with the side letter and all the protections it becomes almost equivalent to a convertible note, I’m assuming it still is missing the interest rate piece, right? There is no interest rate. It has everything else minus.

Eva Doss: A minus interest rate and a valuation cap. Although I have seen that too. I have seen SAFEs with a valuation cap and an interest rate included in the SAFE; it just didn’t have investor protection. So there are different variations of SAFEs, and you need to be very careful reading all the terms and conditions in them because it’s different. Every single SAFE I’ve read or seen is different.

Shubha K. Chakravarthy: So from the point of view of a founder, what I’m hearing you say—and thank you for being upfront about your bias—what I’m hearing you say is yes, there’s a perception that SAFEs are “simpler” and cheaper, but in the absence of investors chasing you down to give you money on any terms, including doing a SAFE, you might be better off considering whether a convertible note, if not a priced round would be just as good and maybe even more effective for you purely from a selfish point of view—you want to get it done sooner, you want the money faster. And you want to keep moving ahead and keep your investors happy. Is that a fair conclusion?

Eva Doss: And also, one, there are other things that SAFEs are problematic down the line, but one of them is also future fundraising. If you are raising on a SAFE, I don’t know, a $500,000 round, and then half a year later, six months later. You go out and raise a $2 million seed round on a convertible debt instrument or equity round but most likely by now it’s convertible, the investors who are coming in potentially on the second round of financing will not agree for the SAFE investors to have better investor rights if they put in less money. So eventually, you will have to go back, on some occasions, to your investors who put in their money under the SAFEs and make them agree to the terms of the convertible note that came later, which is time and money and negotiations.

A lot of investors will not consider investing in your company if everybody on cap table is SAFE and the SAFE investors are not willing to agree to have the same terms as the investors coming in the latest round.

Shubha K. Chakravarthy: Got it. So, there’s one aspect which we didn’t talk about from a SAFEs standpoint, which is what is the implication of SAFEs? How does that flow into your cap table and how should you be accounting for SAFEs in your cap table if you ever shoot them?

Eva Doss: So the SAFE just like you have the different sections about what type of stock was issued. You just count them as a SAFE. You say it’s a SAFE agreement, so you’re not going to have a valuation cap, and then you need to register the issuance of the SAFE, the number of stocks, and the terms of either the conversion or the liquidation.

Preferences on the SAFE and, at the time of conversion, which is most likely a qualified financing, the SAFEs either convert to common or preferred. So there is not a big difference in recording them between the convertible note and the SAFE. Convertible notes just have more terms related to protecting investor rights.

Shubha K. Chakravarthy: Got it. So with that said, we’ve talked a lot about cap tables, we’ve talked about valuation, we’ve talked about funding instruments. Taking all of this and taking a big step back, if I’m a first-time founder, I’m now contemplating doing my first outside round and potentially the first of many, you know, multiple outside rounds.

What are the top three actionable takeaways you would give me to start working on tomorrow so that I’m in the best possible shape to make my startup a success and have good financial outcomes?

Eva Doss: So first and foremost, I would do my homework on understanding the investor landscape in your region. Know your VCs, know your angels, know your individual angels, know who is out there in the marketplace because when you start fundraising, and this is your first time fundraising, the likelihood of you securing investment from a local regional partner is much higher than if you go outside of the region.

Angels still like to invest in regional companies that they can visit or attend board meetings, so really understand who is in your market, who are the Angel Funds, Angel Networks, and the VCs, and get introduced to them as soon as possible. Even prior to officially announcing your fundraising, start attending their events, start reaching out to them.

Many of us judge at different business pitch competitions, attend different events—make those connections early on and understand what drives them, what are the motivational factors for each VC, Angel Fund, or Angel Network. Understanding investor motivations will really help you navigate the whole negotiation process because then you will know how to prepare to negotiate with an Angel Network versus an Angel Fund or a VC.

Individual angels have different motivational values and different motivational outcomes and expectations than VCs do. VCs are about return on investment, and they’re investing other people’s money, whereas angels are investing their own money. And in many cases, angels do want their money back—don’t take me wrong, this is not their charitable giving contribution. They do want to make money on the investment, but they also want to give back to the community.

In many instances, they were founders at one point in time, they exited, they had a healthy exit, and now they are investors. They want to help other companies coming behind them, and they’re also very motivated by making sure that founders get access not just to dollars but also to educational coaching and mentoring activities. So really do understand who is in your marketplace and what is their motivation.

And thirdly, when it comes to valuations, really do your homework and try to understand as much as possible about comparative valuations, comparative companies in your region or nationally. Even if you do not know an exact valuation number, have an understanding that you are at least in the ballpark with your comparatives and are not outpricing yourself from the market just because you are demanding a very high valuation. I think those would be the three points.

Shubha K. Chakravarthy: Perfect. Thank you very much. So we’ve covered a lot of things and you’ve been very clear and interesting the way you laid out a lot of these things. On these topics, is there anything that you wish I’d asked you, but I didn’t?

Engaging with Investors Effectively

Eva Doss: Maybe how to engage with investors, but I have talked about that throughout this podcast. I think many times founders are afraid to engage with investors early on. Don’t be afraid—just ask, introduce yourself because while you are looking for your future investors, we are also looking for qualitative deal flow. We like to know the founders early on, even before they potentially start fundraising, and establishing those relationships is really important.

So don’t be afraid to reach out to investors and approach them at events, webinars, or wherever you come across them. Start the conversation because it’s going to be very beneficial to you once you start fundraising.

Shubha K. Chakravarthy: So I’ll ask you just one question on that before we close, which is: we know many angels in common, and when I talk to them, every one of them says they get all these unsolicited DMs on LinkedIn that are just like, Hey, give me money, right? Clearly, you don’t want to be engaged that way. What is the right way that will make you most willing to respond and say, “Hey, that’s interesting. Yeah, sure, let’s talk?”

Eva Doss: Always, the number one best way to approach an investor is through a warm introduction. If another investor with whom I have a good relationship wants to introduce you to me, fantastic. If your accountant or the accounting firm you use happens to know an angel investor and makes the introduction, that will definitely get attention.

No direct messaging. I don’t know how many pings I get on LinkedIn—I simply don’t have time to read them all. I’m not saying they aren’t good companies, but I just don’t have time to go through them. Warm introductions are the number one way.

Second, look out for the websites of angel funds and networks. Many have application formats you can fill out. If you go through the process of applying on the website—whether to our fund or another angel network—it automatically guarantees that I will read your page and application. That’s really important.

Lastly, attend events, listen to seminars, and find out where investors will be—where they are judging or networking. Make an appearance, approach them in person, and talk to them on the spot.

Shubha K. Chakravarthy: And what would I ask you first? So if I don’t have the accountants outreach, if I don’t have all these and I’m only seeing you at a pitch event because I don’t have the networks right what would be most effective if I saw you at a pitch competition you’re judging and then what do I say to you, to say, Eva?

Eva Doss: Yes, Eva, thank you so much for coming today. I’m really interested in learning more about your fund. I’m starting a company, and I’m very early on. I know you guys also have a pre-seed fund and a lot of educational, mentoring, and coaching services. How can I learn about that?

I’m there to judge not because I have nothing else to do in my life but because I’m also looking for deal flow for our funds, right? Sometimes those are the pitching companies we are judging, but more often than not during the reception time is when I found founders and the founders found me. Once I can put a face with the business card, I will say, yep, you want to learn more? Go on our website, look at the different services we are providing, and if you like any of them, please reach out to me.

Here is my email. And then, once I give the email and an invitation to follow up with me, you need to follow up with me. If I don’t hear from you for six months and six months later you’re like, hey, remember me in January? We were at this event. I probably won’t remember or by that time we have moved on to something else.

But yeah, don’t be afraid. When people approach me at these events, I am always very happy to talk to them because we have a common goal here. We want to find good investable companies, and the founders want to meet investors who can invest in them.

Shubha K. Chakravarthy: Fantastic. This has been an amazing conversation, Eva. Thank you so much for taking the time. And, we really appreciate it. I know that listeners will really benefit a lot from this. So thank you very much for taking the time.

Eva Doss: Thank you so much. I really appreciate it. Thank you.