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Raise Less Money

aaronkharris.com

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Re: Raise Less Money

#101

Post by zeckalpha »

owens99 wrote: post #3

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…

This sounds like a variant of the winner’s curse. https://en.m.wikipedia.org/wiki/Winner's_curse

Re: Raise Less Money

#102

Post by zeckalpha »

lpolovets wrote: post #90

> "If you’re a good company, you’re either going to raise your Series A - or Series B - in the next 12 months or have significant revenue such that you won’t need more capital. 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." I'm a big fan of Aaron and his posts, but strongly and respectfully disagree with this line of thinking. As a VC, I've worked…

Those delays seem correlated with the OP’s point: those earlier rounds are too large. If the rounds were smaller, they wouldn’t wait 40 months between rounds.

Re: Raise Less Money

#103

Post by CerealFounder »

corry wrote: post #15
owens99 wrote: post #3

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…

This is it. These people are money managers that market based on owning x amount of one of the top 50 companies each year in order to raise a new fund. If they take smaller % the model fails both executively and from a marketing perspective.

Re: Raise Less Money

#104

Post by threeseed »

frequentnapper wrote: post #95
jonathanehrlich wrote: post #20

@ Aaron - Thanks, as always, for the thoughtful note but I disagree with you on this. Yes, there is risk of over-dilution if you raise boatloads too much out of the gate (including the very real and potentially fatal risk of being undisciplined on spending). But at the end of the day, if a founder figures out the business in that first 12 month window and is still sitting on another 12-24 months of cash, she has so m…

Is it still possible these days to found a startup and raise funding based on just powerpoint slides? Are there examples of this?

Yes very common.

Almost always however there is something special about the founders e.g. they previously exited a successful startup or are simply a rockstar who all the VCs follow on Twitter.

It's not recent but Canva got funding with just a Powerpoint. And I can't imagine Justin Kan needing an MVP for Atrium in order to get into YC.

Re: Raise Less Money

#105

Post by threeseed »

zuhayeer wrote: post #100

"How much could you get done in the next 12 months with the amount of capital you are planning to raise? If you’re a good company, you’re either going to raise your Series A - or Series B - in the next 12 months or have significant revenue such that you won’t need more capital" I think getting to significant revenue such that you won't need more capital is an underrated approach that seems to be brushed off in the ve…

Great discussion about bootstrapping:

https://twitter.com/chriscantino/status/1293687510841716736

Re: Raise Less Money

#106

Post by mauriziocalo »

Relevant PG tweet:

> assuming I got in [to YC] I would not get sucked into raising a huge amount on Demo Day.

> I would raise maybe $500k, keep the company small for the first year, work closely with users to make something amazing, and otherwise stay off SV's radar. In other words, be the opposite of a scenester.

> Ideally I'd get to profitability on that initial $500k. Later I could raise more, if I felt like it. Or not. But it would be on my terms.

> At every point in the company's growth, I'd keep the company as small as I could. I'd always want people to be surprised how few employees we had. Fewer employees = lower costs, and less need to turn into a manager.

(https://twitter.com/paulg/status/1132012625527750661)

Probably a good example of a confident, competent founder (Founders who raise too much capital are acting out of fear rather than acting out of confidence. // Confident, competent founders should take the risk of running out of money vs. the certainty of over-dilution.) as described on this essay :)

Re: Raise Less Money

#108

Post by imtringued »

Alex3917 wrote: post #12

> 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…

>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?

That's the opposite of doing badly. If success is only a few months away then you can simply ask for more funding.

Re: Raise Less Money

#109

Post by tixocloud »

csmajorfive wrote: post #94

I think you're largely right -- a lot of founders get trapped in mediocrity because they raise so much that they don't feel enough pressure to execute. And that frequent, high-resolution fundraises are much more viable than they were ten years ago. On the other hand, I'll offer two countervailing observations to keep in mind: * In well-understood categories (e.g. horizontal B2B SaaS), there has been so much brainpowe…

You're spot on with both observations and it has been our experience with the venture circuit. Especially for enterprise accounts, the bar is set significantly higher for what companies are willing to shell out money for. Good high-quality software that enterprises are willing to adopt generally takes 1-2 years of full time development. There's definitely a need for true believers but for founders, without a solid network, it's hard to find.

Re: Raise Less Money

#110

Post by jjeaff »

pge wrote: post #74
brettcvz wrote: post #68

Earlier quoted context omitted.

As PG recently shared, when an investor puts money into a company it is a calculated bet that the company is actually worth _more_ than the valuation they are investing at. No one invests $1 for a 10% chance of making $10. So if the valuation goes up, it basically eats into an investors expected “profits”.

While I am not going to argue that valuations are wholly rational (and specifically the fact that valuations increase with investment size), it is also true that having more capital may make the company able to accomplish more, and thus raise the expected exit value for the investor. If so, that provides a rational basis for increasing the valuation of the company when giving it more capital. (Present valuation being…

I would also add that having more/too much capital may also be the downfall of many companies.
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