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Comment by artemonster | Hacker News Reader

I dont understand how an apparently billion dollar company still requires to raise 45 million. Can someone ELI5 the economics of this?

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We actually didn't need the money (we're cashflow-positive). In fact, we haven't touched the money from our Series B (in 2020) nor our Series C (in 2021). But raising money is helpful because a) it gets prospective customers interested in the product (oh, X company raised, let me check out what their product does), b) it gets prospective employees interested, c) it allows people externally to see that the company is making progress rapidly (I wish we could post revenue metrics here, but I... think that's a bad idea?), and d) we sold very little in this round (1.4%, so there is minimal dilution to employees), for those advantages.

TBH, fundraising is kind of like charades: it's a way to signal you are doing well, without telling people your private company metrics. I wish we never needed to fundraise, and could just focus on building great products and working with customers instead. :)

Wouldn't saying "we're actually profitable" be better? a) you still get into news (though for a different reason), b) gives prospective employees sense of stability, c) being profitable seems like good progress in my book, and d) no dilution for existing employees, not even a little.

Not especially so. Profitable could mean many things and doesn't carry scale or risk. Doing a funding round means you were externally assessed at a value, and that investors are willing to take a certain level of risk on your company. Nothing the company says can carry that weight or detail while still keeping their metrics private.

Profitable companies that grow 2% y/y are not very attractive for employees.

> TBH, fundraising is kind of like charades: it's a way to signal you are doing well, without telling people your private company metrics.

I hate that this is the answer.

Edit, for clarification. I don't hate that this is Retool's answer, I hate that this is how the world actually works.

These days, companies mostly seem to be raising money from gatekeepers to protect them from their own gatekeeping.

I think fundraising is more about setting a price on the company. I mean, now we know retool is valued at 3.2 billion, it is probably 20-40x revenue, may be more.

Welcome to the real world

Human bias at its finest - e.g. social proof. It's the classic "you don't get fired for hiring IBM" notion. If you were a CIO and chose Retool but it flopped, no one could say "what the hell was the CIO thinking by choosing a company that could go under tomorrow".

With names like the Stripe founders and the GitHub founder on the list, perhaps fundraising is also a way to get those well-connected people's skin in the game? They might be good routes to new customers or other connections good for growing the business.

> All are previous investors in the company.

They already were investors from previous rounds.

Are you using this opportunity to let employees sell stock to investors as secondary? Because giving employees liquidity for their ESOP would be a great reason, other than marketing and feel-good.

Rare to see such a frank response from a founder about something like this. I love it.

Couldn't a $ 3 billion valuation cut both ways as far as recruiting is concerned? If the companies current ARR is extremely disconnected from the valuation (say the valuation is 100x ARR), then I would think most experience prospective employees would be running for the hills based on what is going on in public markets right now. Lots of stories going around of employees working many years and left with no upside for those years of work after joining a company post a big raise like this. The upside was baked in before they joined.

Why would it be a bad idea to post revenue metrics? Most public companies do exactly that thing right?

I think it’s hilarious that the reasoning for fundraising is ‘free publicity’ here though :)

So you have $125M in your bank account, you're fcf+ and don't need capital but decided to give up your equity for another $45M. so now you have $170M in your bank account yielding 0%, for which you paid the cost of your equity, which I can assure you is in the triple digits... because you wanted a techcrunch article for prospective customers and employees, which you could have spent <$10m of the cash that you didn't need for? And 1.4% might seem like little dilution, but might be worth doing the math of the cost on a $$ basis? If y’all do well, which I’m sure you will, the cost will not be trivial.

A suggestion: if you want to really show progress and get a lot of press, do a buyback from employees/early investors instead. Signals to the world the level of confidence you have in your own stock.

tbh, this is the way to go (as someone who is currently a CEO of a venture funded company). great job there! well done. lesson definitely learned.

Well, this headline is a great summary of what these valuations mean: you are worth 3.2 billion on paper, but have only 0.05 billion. That's a 70x magnifying glass for your wealth. To be a millionaire on paper, register a corp, ask a friend to invest 15k for 3% of the company, and you're officially worth a million. You'll still need a second job, though - rent isn't free.

Based on the founder comment they now have north of $115 million, which is still 30x.

Because "human capital" (no matter how dehumanizing it sounds) is the best one, people with money want to invest in people with great minds. Otherwise investors's money will evaporate because of for example inflation. Also, throwing couple of millions into a growing company means "i want to be part of it and take back some revenue hoping it'll be huge".

It's a 'billion dollar valuation'. That can mean a range of things.

In this case, small by rapidly growing.

In the case of a thin margin retailer, cash constraints, working capital etc. imply need for funding.

its advertising, and access to a network

and the people that bought in wanted some exposure, like really wanted some exposure

Likely because they are over-valued.

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