Marc Andreessen's comments on raising too much / not enough ring true here.
Raise Less Money
91–100 of 110 posts
Re: Raise Less Money
#92My guess is that this advice of "raise less money" is a result of hanging around too many successful founders. That is, if you talk to successful founders, they will generally wish they raised less money (due to dilution). And, if you talk to failed founders, they will generally wish they raised more money (to increase likelihood of true PMF). Also, I think that fear is a useful mental state when there is real and im…
One problem I had as a founder was that it was difficult to raise little money early. There are not enough angels around here. People wanted to push too much money on too early, so "seed" was not viable. There's nothing wrong with having extra money in the bank - the problem is that a lot of VCs expect you to spend the money you have raised, which often meant scaling before hitting PMF.
Re: Raise Less Money
#93Earlier quoted context omitted.
While I tend to agree with you in principle, I'm curious how often YC is flexible on the ownership target :P
This is part of my point, founders don’t have to accept our deal even though we put it in writing ahead of time. It’s not the founders responsibility to make our business model work, it is their responsibility to build a great company. If we agree on an entry point for us to go along for the ride, great!
This is exactly the issue though? Investors say “hey you don’t have to raise from us if you don’t want to give up X% of the company”. Which leaves no room to negotiate.
The ONLY time you can expect to sell a smaller % of the company in a round is if you go to an investor and say “hey this OTHER investor wants the same % but is paying more, are you willing to take a lower % at a higher valuation?”. However, this seems very rare and the VC driving up the valuation is usually a higher tier VC in a bidding war, so founders are likely to go with them.
Long story short, if you want to convince founders to sell less of the company, you have to convince top tier VCs to take less, and founders will follow suit.
Re: Raise Less Money
#94I 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 brainpower and cash deployed in the last ten years that customers are overwhelmed by noise and expect much higher quality products before they'll meaningfully adopt and pay. My experience is that founders are spending much longer in the initial build phase getting to an MVP than they were ten years ago.
* The oversupply of venture dollars is not evenly distributed. If you're building something that needs years in the lab (chips, batteries, robots, hardware, etc), the investor herd thins out quickly and many of the folks willing to make a purely conceptual bet are much less comfortable judging whether some-progress-but-no-product is worth continued investment.
Sometimes it can be smart to raise a lot from a true believer to bridge you to the spreadsheet jockeys.
Re: Raise Less Money
#95@ 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?
Re: Raise Less Money
#96Is there any "raise a bit of money to sustain myself with a side project for a year" in exchange of, I don't know, 50%? Like a partner who will bet that this side project will be able to sustain two people, while one work on it. Example:
I want to make a small startup, I need $24k to sustain myself for one year ($2k per month). Someone gives me that in exchange of 50%. The idea is to make this sideproject to earn $48k per year, so we can both have that $24k anually after a while.
Re: Raise Less Money
#97"Confident, competent founders should take the risk of running out of money vs. the certainty of over-dilution" -- I strongly disagree with the author on this point. I would argue that founders preferring "risk of running out of money" to "certainty of over-dilution" might very well be considered irresponsible (or, at least, not responsible enough) instead of "confident".
Firstly, because it is extremely difficult to accurately estimate future financial needs of an early startup (due to lots of unpredictable factors, including R&D taking longer than expected, external/internal events and even potential pivots). Secondly, because it just makes much more sense to avoid running out of money (which is a well-known #2 reason for startup failure[1]) than to save some equity. What are you going to do with (more) equity of a failed company? Not to mention that, if a startup's team includes other people, one of the founders' top priorities should be caring for their fellow team members (and protecting company is one of the relevant aspects).
[1] https://www.cbinsights.com/research/startup-failure-reasons-...
Re: Raise Less Money
#98Earlier quoted context omitted.
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.
According to Crunchbase VMmare raised almost $400M https://www.crunchbase.com/organization/vmware/company_finan...
2/4 rounds (and the overwhelming majority of the $$$ raised) were years after the EMC acquisition, and immediately before the IPO. Not really what people think of when they talk about raising VC.
The 5 million and 20 million rounds in 2000 were strategic investments from partners who were going to resell ESX, and were done for reasons other than needing working capital. IBM and Dell were the 2 partner investors, IIRC.
Re: Raise Less Money
#99Really depends on what you are trying to achieve. VCs are very focused on the ROI for their fund. A co-founder is generally focused on generating wealth for themselves.
In the perfect case where the business finds a high growth, product market fit then VCs and the entrepreneur align. Few businesses fit this model.
As an entrepreneur you have to raise money to suit your business plan (and risk profile). Personally I prefer my customers to be the boss rather than investors.
Re: Raise Less Money
#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 venture world. It's totally possible – if you really believe your equity is that valuable, then build something valuable enough to earn some revenue and constantly reinvest that back into the business to grow.