I think the spectacular real time failure of Uber is going to drive a lot of those valuations down.
I think you're right but VCs have only themselves to blame for that fiasco.
Dilution
31–40 of 126 posts
Re: Dilution
#32Earlier quoted context omitted.
Why would employees lose years of their career? While it's true that early work-ex in a company that eventually becomes Google is great to have, it's not exactly a black mark on your resume if you have worked in a company that didn't do well. You still got plenty of engineering experience.
Sadly, four years of "heroic effort at failing startup" doesn't look as good on the resume as "worked at Google".
[deleted]
Re: Dilution
#33Caveat: I'm a seed stage VC, so obviously I have a horse in this race. I don't agree with this advice. Well, in theory , I strongly agree that avoiding excessive dilution is ideal. But the suggested numbers (10% dilution for a seed round) feel very unrealistic to me. It's very hard to get far on that kind of money for a seed stage company. If anything, the proliferation of bridge rounds and seed extensions and series…
We are VC/early stage investors in New Zealand, and give the advice constantly to raise as little as possible at each stage - and plan to get back to cash-flow positive if another round does not turn up. It's a function of our lean investor ecosystem here, but it also creates companies that treasure every dollar and are even more attractive for investors.
Re: Dilution
#34Earlier quoted context omitted.
Employees also take more risk. Investors just lose money but employees lose years of their career if things go wrong.
"Investors just lose money but employees lose years " Comparative value. Most employees are fairly well paid, and don't 'lose years' unless they are working for free, or 'very cheap' which usually isn't the case.
How many two year sprints at 150% can you do during your career? One? Two? Three? Yeah you can totally do it again until you can't.
Burnout is a real thing.
Re: Dilution
#35Earlier quoted context omitted.
I'd argue the better analogy is "If you have a great idea, what's more important to get it to market: your first engineer or your first investor?" The next is always going to be "well, do I have enough money to pay my engineer?" This is why the investor holds all the cards and therefore gets the best deal up front. Without that up-front money there is no eventual business.
That's not true. You have the option to give that engineer a real slice of the cake instead of the misers share that's common. I've seen co-founders be labeled 'engineer #1' because they sat down 15 minutes after the first meeting where a company's founding was discussed. Non technical founders can - and do - use investors money to try to limit the number of co-founders so they get a larger share themselves. Technica…
> Technical founders are less likely to do this to non-technical co-founders. (But it does happen.)
Technical people are so great, aren't they! No bias here.
Re: Dilution
#36> Most founders' instincts seem to be to give too much equity to investors and not enough to employees. Is this wrong? Investors don't receive anything for their capital but equity. Employees receive income, benefits, etc. that have to be factored into the equation.
Employees take a risk. First, they don't have to work for your startup. They could go to work for BigCo and have a secure paycheck. Second, they get options for common stock which vest over years. Generally that first year is at will.
Re: Dilution
#37Caveat: I'm a seed stage VC, so obviously I have a horse in this race. I don't agree with this advice. Well, in theory , I strongly agree that avoiding excessive dilution is ideal. But the suggested numbers (10% dilution for a seed round) feel very unrealistic to me. It's very hard to get far on that kind of money for a seed stage company. If anything, the proliferation of bridge rounds and seed extensions and series…
We are VC/early stage investors in New Zealand, and give the advice constantly to raise as little as possible at each stage - and plan to get back to cash-flow positive if another round does not turn up. It's a function of our lean investor ecosystem here, but it also creates companies that treasure every dollar and are even more attractive for investors.
I think that's a great mindset to have and to encourage. My main argument is that "as little as possible" -- especially in Silicon Valley -- is usually much closer to 20% than 10% dilution at seed. E.g. an FTE salary might be $125k-150k/yr, and selling 10% at a $5m cap gives you enough capital for 3-4 people for a year, which is a very small team and very little time to make enough progress to raise a Series A.
Re: Dilution
#38Caveat: I'm a seed stage VC, so obviously I have a horse in this race. I don't agree with this advice. Well, in theory , I strongly agree that avoiding excessive dilution is ideal. But the suggested numbers (10% dilution for a seed round) feel very unrealistic to me. It's very hard to get far on that kind of money for a seed stage company. If anything, the proliferation of bridge rounds and seed extensions and series…
I agree. Ironically, this was the advice we got while going through YC (yours, not Sam's.)
Specifically: don't worry about valuation because success is binary. You either make enough money that you don't care too much about percentage or you make zero dollars in which case you don't care about percentage.
The idea of constraints helping to focus a team sounds true, as long as people have enough to not worry about money. Note that this advice comes from Sam, who literally got scurvy from eating too much Ramen while a founder of Loopt.
Re: Dilution
#39Money is simply wind in the sails.
Re: Dilution
#40Caveat: I'm a seed stage VC, so obviously I have a horse in this race. I don't agree with this advice. Well, in theory , I strongly agree that avoiding excessive dilution is ideal. But the suggested numbers (10% dilution for a seed round) feel very unrealistic to me. It's very hard to get far on that kind of money for a seed stage company. If anything, the proliferation of bridge rounds and seed extensions and series…
> I imagine if a company becomes enormous, I'd care less about whether my net worth was $200m or $250m as a founder
As an ex-founder I never understood why people make this argument because it's completely symmetric. I.e. I could rephrase it as "I imagine if a company becomes enormous, I'd care less whether my outcome was $200m or $250m as a VC"
I agree with the advice in the article but would phrase it slightly differently -- work hard to structure your company such that you can get away with raising as much as you need and still give away only 10%-15% each round. (Or, yet another way to put it, build a company so successful that you can dictate the terms)