Raise Less Money
aaronkharris.com
Raise Less Money
1–10 of 110 posts
Re: Raise Less Money
#2This 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.
Re: Raise Less Money
#3Aaron 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 and that drives the price up. Many successful entrepreneurs say its not the amount you raise that is dilutive, it’s the number of times you raise.
In addition, good seed VCs are happy to give you a higher valuation when you have investor demand, so you can take more capital. This was my personal experience. Before our round closed, we had $X committed at $Y valuation, giving up 20%. When more capital came calling, our lead was happy to raise the valuation so we could take more money and increase our odds of success.
Would be great for Aaron to address this point.
Re: Raise Less Money
#4Didn't HBO's Silicon Valley do a bit about this?
Re: Raise Less Money
#5There is an old saying that people respond to greed or fear. In fundraising, the greed is price, the fear is control.
When I fundraise, I start with the greed so investors optimize for it. Right before we hit an understanding (pre/post term sheet), I switch gears and exchange lower valuation for more control.
Works really well.
Re: Raise Less Money
#6>Venture capital is designed to speed growth, not to extend runway.
Isn't it a combination of the two? That seems to be the nuance. Just take a look at YCombinator. Investing in founders, not ideas.
Re: Raise Less Money
#7This article boils down to "all things equal, it is better to own your company than not." Yes, of course.
But it also ignores that the primary reason to raise money is to leapfrog: a business is not short-term sustainable, but IS long-term, and investor capital gets you over that hump.
With this view, the reason higher-value companies get diluted more is because the hump is larger: founders can only justify a high valuation with a significant influx of capital (the before-cash valuation is effectively 0), leaving the investors with the bargaining power, not the founders.
Yes, people should be less enamored by the VC hyper-growth model than they are, but that doesn't mean that people already in the forget-short-term-profits game shouldn't raise a lot of money.
Re: Raise Less Money
#8Just my likely outdated experience from a different country.
Another reason to have a long runway is to avoid having to go through the fundraising process and rather work on the product.
Re: Raise Less Money
#9Aaron 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 think Aaron is talking about seed and stage A rounds more so than later rounds
Re: Raise Less Money
#10Aaron 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 think Aaron is talking about seed and stage A rounds more so than later rounds
I’m also referring to seed and A rounds.