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Raise Less Money

aaronkharris.com

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Re: Raise Less Money

#21

Post by troughway »

LordFast wrote: post #11

"Good founders". 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."

In this case the word "good" is used synonymously with "profitable" or "on a trajectory to be profitable". So there is no bias or belief system at work here. It's a direct correlation.

This entire article is geared towards people who actually have a business that _can_ make money, and that they should have more faith in their abilities to make do with less.

Re: Raise Less Money

#22

Post by davidu »

1cvmask wrote: post #14
davidu wrote: post #2

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.

Would it have changed outcomes for you as an entrepreneur?

The only thing I wish I had done differently was reduce dilution, which is exactly what Aaron mentions here.

Re: Raise Less Money

#23

Post by akharris »

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…

Always enjoy our debates.

I think we're mostly on the same page here. I'm less concerned with companies that raise 18-24 months of runway than the ones who are coming out of seed rounds with 36 months or more. I think balance is critical, and I'm hoping that founders find more of that balance vs. the recent pattern I've observed of founders taking every available dollar.

Re: Raise Less Money

#24

Post by dustingetz »

Huge fundraises are celebrated because it is the only thing simple enough that anyone can understand (customers, employees, investors and other sheeple whose attention the founder must compete for).

"Airtable CEO Howie Liu on the continued importance of getting a ‘unicorn’ valuation" https://techcrunch.com/2019/02/19/airtable-ceo-howie-liu-on-...

Re: Raise Less Money

#25

Post by hinkley »

We know that in general if you have more money you will end up spending it faster, but has anyone ever tried to quantify this?

If it turned out to be a square root or even a cube root function, I would not be surprised.

Re: Raise Less Money

#27

Post by hinkley »

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…

The first time I read about this topic, the author suggested counter-offering a smaller investment for a slightly higher dilution/$ to soften the blow.

As in, “I don’t need $50m (for 20%), how about $23m for 10%?”

I have never been to any of these meetings, but it seems like the guy who just skyrocketed your valuation for his 20% is going to be “louder” than the earlier investors who also own 20%. The % of investment versus the % of investors will probably skew things a bit, too.

Re: Raise Less Money

#28

Post by itsoktocry »

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…

>our lead was happy to raise the valuation so we could take more money and increase our odds of success.

VC is such a strange world.

"Valuation" is a measure of the fair-value of an asset. How can a lead investor decide "to raise the valuation"? Why would anyone looking to invest base the valuation on people who already have money in, rather than their own due diligence? Why wouldn't the optimal valuation be as high as possible?

This game is kind of confusing.

Re: Raise Less Money

#29

Post by maire »

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…

I was at 2 successful companies that went against the normal VC path.

Vitria was able to move the VC % lower because they were already profitable and demonstrated potential before approaching the VCs. They were only using the VCs for their contacts and not for cash.

VMware never got VC funding. I am not sure why - but they tried. They finally sold themselves to EMC and were later spun out.

Re: Raise Less Money

#30

Post by daniel_levine »

itsoktocry wrote: post #28
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…

> our lead was happy to raise the valuation so we could take more money and increase our odds of success. VC is such a strange world. "Valuation" is a measure of the fair-value of an asset. How can a lead investor decide "to raise the valuation"? Why would anyone looking to invest base the valuation on people who already have money in, rather than their own due diligence? Why wouldn't the optimal valuation be as high…

It's a bit confusing but does make sense. Imagine wanting to buy 20% (or 100%) of Apple in the public markets. If you try in normal trading it will either take months based on trading volume or you'll bid up the price as you're buying.

People looking to own larger pieces of a business are often willing to pay a premium to folks trying to buy smaller pieces.

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