The Art of Strategy[1] is a good layperson level game theory book that will put you in the right mindset. It's not about fundraising at all, but that doesn't matter -- it's the mindset that's important IMO.
Ha, I like the way you think! The truth is, most VCs are fairly undifferentiated. We provide value in a number of ways, but then again, it's hard to say why we're better than any other decent seed fund.
Another why many of our investments come through referrals. People who know how we operate as a fund and as value-add investors recommend us to companies just as much as they recommend companies to us.
Thinking of it in the other direction: our LPs invested into us based on our access and ability to get into good deals that match our fund thesis. We are able to find companies that match that thesis, and able to get founders to accept an investment. Rarely do these deals end up being the same ones that cold email us.
If you're a hedge fund with a specific strategy, you go out and specifically pick stocks, it isn't the stocks coming to you to pitch you. VC investing isn't that different. We are strategically positioned such that we hear about companies as they're fundraising and find a way to invest in the ones we like that match our thesis.
Hi certainstartup. Please reach out to me if you want to have a deeper discussion. Notes:
1. Be certain that you want to raise capital. By raising you're irrecoverably giving up leverage to investors. You will always be beholden to investor expectations going forward. If you're a mission-motivated founder, you will inevitably reach a point where investor motivations will be at odds with your motivations. This isn't necessarily a bad thing, but it's important for you to go into this eyes wide open.
2. If this is your first round, this will likely be the point where CEO, board, shareholder rights get defined (e.g. what needs to happen to approve an acquisition? fire the CEO? issue more shares?). Make sure you have a good legal team that can help walk you through all of the minor consequences of the structure.
3. Make sure you're educated regarding share classes and different treatment for classes. Make sure you understand "preference" and "participation". Make sure you're getting favorable terms on these points. Having a good legal team helps a ton here.
4. The best way to create leverage is to increase demand. Optimize your process so that it culminates in an auction dynamic - where multiple interested parties are bidding to win. This requires intentionally shepherding parties through a gated process, pulling back people who are trying to move too fast and pulling forward laggards.
Having been through this several times, I've been bitten by all of the above. I'm happy to have a deeper discussion if you would like. Please reach out to me at advait at goguardian dot com.
This is one of the least asked questions that I learned today. If you are raising a seed round from VC, please check the size of fund. If you can make a case of return 20% of their fund during the exit after series A, go for it. e.g. you have raised $1m from $10m fund for 10% equity and your company gets an acquisition offer for $20m. The VC would favour your acquisition because you would contribute 20% to his fund. However if you raise $1m from a $100m fund, the $20m exit wouldn’t excite your VC and instead he would ask you to raise a bridge round and push you to aim for $100m exit in the future. A 20m in hand is better than $100m in bush.
P.S: I am not suggesting you to become short sighted at series A but it was a context to help you understand my point. Just wanted to remain grounded and help you understand with achievable targets.
>>> there are still huge differences in how people deal in messy situations in terms of morale and ethics.
so true. Problem is that in my small business experience, those in power are there because they have very flexible views on morale and ethics (i.e. they think they have morale/ethics, but they actually forget it when their company is at stakes). Being the ethical guy I'm of course totally biased. But the parent post is so right : having ethics/morale can be extremely damaging for you because you'll have to work with people who absolutely don't get how you think and that'll be super exhausting. Know yourself before going into that game.
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[ 3.6 ms ] story [ 49.6 ms ] thread[1] https://www.amazon.com/Art-Strategy-Theorists-Success-Busine...
#4 looks reasonable if you remove the first sentence (“treat investors as shit”).
Another why many of our investments come through referrals. People who know how we operate as a fund and as value-add investors recommend us to companies just as much as they recommend companies to us.
Thinking of it in the other direction: our LPs invested into us based on our access and ability to get into good deals that match our fund thesis. We are able to find companies that match that thesis, and able to get founders to accept an investment. Rarely do these deals end up being the same ones that cold email us.
If you're a hedge fund with a specific strategy, you go out and specifically pick stocks, it isn't the stocks coming to you to pitch you. VC investing isn't that different. We are strategically positioned such that we hear about companies as they're fundraising and find a way to invest in the ones we like that match our thesis.
Next do everything @coffeemug said :-)
[1] https://www.amazon.com/Pitch-Anything-Innovative-Presenting-...
1. Be certain that you want to raise capital. By raising you're irrecoverably giving up leverage to investors. You will always be beholden to investor expectations going forward. If you're a mission-motivated founder, you will inevitably reach a point where investor motivations will be at odds with your motivations. This isn't necessarily a bad thing, but it's important for you to go into this eyes wide open.
2. If this is your first round, this will likely be the point where CEO, board, shareholder rights get defined (e.g. what needs to happen to approve an acquisition? fire the CEO? issue more shares?). Make sure you have a good legal team that can help walk you through all of the minor consequences of the structure.
3. Make sure you're educated regarding share classes and different treatment for classes. Make sure you understand "preference" and "participation". Make sure you're getting favorable terms on these points. Having a good legal team helps a ton here.
4. The best way to create leverage is to increase demand. Optimize your process so that it culminates in an auction dynamic - where multiple interested parties are bidding to win. This requires intentionally shepherding parties through a gated process, pulling back people who are trying to move too fast and pulling forward laggards.
Having been through this several times, I've been bitten by all of the above. I'm happy to have a deeper discussion if you would like. Please reach out to me at advait at goguardian dot com.
P.S: I am not suggesting you to become short sighted at series A but it was a context to help you understand my point. Just wanted to remain grounded and help you understand with achievable targets.
1. Do you really need an investment.
2. GOTO step 1.
so true. Problem is that in my small business experience, those in power are there because they have very flexible views on morale and ethics (i.e. they think they have morale/ethics, but they actually forget it when their company is at stakes). Being the ethical guy I'm of course totally biased. But the parent post is so right : having ethics/morale can be extremely damaging for you because you'll have to work with people who absolutely don't get how you think and that'll be super exhausting. Know yourself before going into that game.