1/9 I spoke to some founders yesterday building an amazing company with some good revenue and has raised some significant capital early on. The only problem is their early investors hit them with some crazy terms and valuation.
#VC #Founders #Funding #Startups
#VC #Founders #Funding #Startups
2/9 Now the founders combined own less than 50% of the company pre-series B. That& #39;s terrible, and heartbreaking considering these were underrepresented founders.
#VC #Founders #Funding #Startups
#VC #Founders #Funding #Startups
3/9 You may be wondering why is this terrible when VC& #39;s take equity from founders and are sharks anyway. Yes and No. Yes, VC& #39;s take equity but not that much and not that early. The fact that each founder owns so little will actually hurt them.
#VC #Founders #Funding #Startups
#VC #Founders #Funding #Startups
4/9 As this team goes on to raise more money VC& #39;s will not like that the founders own so little because it is less of an incentive to keep busting their butts to build this amazing company. This will cause many to not invest.
#VC #Founders #Funding #Startups
#VC #Founders #Funding #Startups
5/9 So how do they fix this? There are 2 option (and neither is easy to accomplish)
Option 1- Raise their valuations so the dilution makes sense
Option 2- Refresh the cap table
#VC #Founders #Funding #Startups
Option 1- Raise their valuations so the dilution makes sense
Option 2- Refresh the cap table
#VC #Founders #Funding #Startups
6/9 Option 1 can be done in 2 ways. Raise smaller money at higher valuations until the valuation catches up with the dilution. Or, grow the company in traction/revenue until they can command a valuation that fits (hard to do without more capital)
#VC #Founders #Funding #Startups
#VC #Founders #Funding #Startups
7/9 Option 2 happens when a later stage investor comes in and basically tells the earlier investors that in order to help the company keep growing with funding, the earlier investors will need to give the founders back some equity.
#VC #Founders #Funding #Startups
#VC #Founders #Funding #Startups