11–20 of 110 posts
I think it's prudent to at least take a minute, step back and examine the potential cognitive bias going on in one's head when the belief system is built on something like "there's plenty of food on the table for good people."
If you were writing a book and it was taking six months longer than expected, but was otherwise high quality, would you just abandon it? Or would you say that, you know what, in the big picture an extra six months isn't really material in terms of the expected benefits that will accrue over the next 20 years of my career?
I understand that by raising capital you're committing to provide a certain return on investment. But if you're actually making progress toward creating some asset of value, then structuring your business so that you need to shut it down if it's taking longer than expected seems to be not aligned with what would seemingly be in the best interests of any rational stakeholder.
Venture Capital would be helped by a formal renaming of funding rounds. "Series A" or "Series B" is not indicative of what that money is for. Even "Seed" doesn't really mean anything these days. It would help clarify expectations for founders and VC.
This is great advice that has been ignored for the 16 combined years I've been fundraising as an entrepreneur and investing as a VC. No reason it'll change now though hopefully writing about it helps a bit. One of the great myths in company-building is that increasing runway beyond 24-36 months increases chances of success.
Aaron is very smart, but what this article is missing is that valuation often follows the amount of capital you raise. What I mean is your valuation is determined by the demand for your shares. VCs have a specific ownership % they need for their model to work. Whether that is 10% or 20%, large rounds at very high valuations happen because of bidding wars. More VCs are bidding over that 10% or 20% they are looking for…
In my own experience, this minimum % ownership target is a very real issue and bar to jump over for most "proper" Series A VCs. At least the ones leading the round.
If I was in that position, and it was a great fund, it would be very hard to imagine saying "no, I'll value my company less, and take less $$$, for the same dilution." Human nature IMO basically favours taking more $$$ every time ONCE % is fixed.
However, Aaron might say that the best companies can easily push back on that fixed % approach, which is the true issue here. And that's a good counter point. But many of us, even as YC-backed companies, don't know how to effectively push back against that dynamic.
For me, out of the 5 Term Sheets I got for our Series A, I think all of the funds involved had a minimum % ownership target. Hard to negotiate around that. Normally if there is a term you don't like, and you have multiple sheets, you can just play them off each other. But it seemed pretty universal in my admittedly narrow experience.
Aaron is very smart, but what this article is missing is that valuation often follows the amount of capital you raise. What I mean is your valuation is determined by the demand for your shares. VCs have a specific ownership % they need for their model to work. Whether that is 10% or 20%, large rounds at very high valuations happen because of bidding wars. More VCs are bidding over that 10% or 20% they are looking for…
Aaron is very smart, but what this article is missing is that valuation often follows the amount of capital you raise. What I mean is your valuation is determined by the demand for your shares. VCs have a specific ownership % they need for their model to work. Whether that is 10% or 20%, large rounds at very high valuations happen because of bidding wars. More VCs are bidding over that 10% or 20% they are looking for…
While VC ownership targets are part of their business models, founders don't actually have to agree to meet them. From what I've seen, those targets are far more flexible than anyone admits at the start of a negotiation.
Aaron is very smart, but what this article is missing is that valuation often follows the amount of capital you raise. What I mean is your valuation is determined by the demand for your shares. VCs have a specific ownership % they need for their model to work. Whether that is 10% or 20%, large rounds at very high valuations happen because of bidding wars. More VCs are bidding over that 10% or 20% they are looking for…
I've heard founders say this too. The mentality is "look, you'll end up giving away 20% of your company on the round anyways, so you might as well get more $$$ for that 20%". As if the % is fixed and immovable. In my own experience, this minimum % ownership target is a very real issue and bar to jump over for most "proper" Series A VCs. At least the ones leading the round. If I was in that position, and it was a grea…
> If you're doing badly, why would you want to keep working on this for 24 or 36 months? That’s a waste of your time. If you were writing a book and it was taking six months longer than expected, but was otherwise high quality, would you just abandon it? Or would you say that, you know what, in the big picture an extra six months isn't really material in terms of the expected benefits that will accrue over the next 2…
To use your example - if you're writing a book as your full time job and, after 12 months, haven't finished the first page of your manuscript, it would make sense to seriously reconsider whether or not you should be writing that book.