Raising money is less stressful than bootstrapping
posthog.com
posthog.com
* It's not clear if they'll be able to raise another round without losing control. What do you plan to do if you run out of your current money without being profitable yet?
* "investors want growth" isn't a problem as long as you're growing quickly, which posthog probably does at the moment. But once growths slows you'll probably get to know that side of them.
* If you raise money at a higher valuation, the required exit size grows proportionally. Once it becomes apparent that you're not on track to reach the target size investors may push for strategies riskier than you'd prefer.
Very few founders have problems with VCs prior to serious equity raises
Once you're raising 100M is when investors get the froth of IPO around their mouths and around when you start having issues
Fast forward 5 years into being an IPO company and now all those "Myths" are what you are spending 50% of your time as a CEO dealing with - that is unless you have Zuckerburged ownership (so rare as to be basically impossible), in which case you really only bought yourself time
God help you if you miss more than a quarter of revenues or have a down round. Kiss your ownership goodbye immediately
So yes, the author is right and the first few years of VC money are great! You pay the price with interest (literally) on the back end
> What do you plan to do if you run out of your current money without being profitable yet?
We maintain default alive status (there's a good Paul Graham essay on this), and visit our growth assumptions every couple of months so that we can track to profitability. We give ourselves a $4M cushion - ie our expected low point in capital before hitting profitability (last round was $15M to give a sense), which is a fairly conservative. Worst case scenario is that if this fails, our revenue has already grown a ton since our last fundraise.
> But once growths slows you'll probably get to know that side of them
Fair point. I guess it's less important but still not great though if you are able to get to default alive/profitable and if you've got good terms through the first couple of rounds.
What, more precisely, is that?
> not on track to reach the target size investors may push for strategies riskier than you'd prefer
It'd be interesting with examples :-)
Could that be e.g. Neo4j bringing their Enterprise Edition closed source? Hoping to maximize revenue ... But risking that customers jump to an OSS alternative
As long as the founder has voting majority, can't s/he just ignore the investors? What happens then? Hmm, maybe there'll be no C round?
So after the series B, you’re already down to 60% control with your investors holding 40%… sounds like this isn’t a myth.
You may receive a buy-out offer you find very interesting but your board is against it and then you find out very quickly how much control you actually gave up and how aligned you really were.
Congrats on maintaining board control after two rounds - that's rare. However, you're probably misguided if you think you ultimately have control in all scenarios.
In the vast majority of VC deals, the VC gets veto power over acquisitions and buyout offers, regardless of board control. VC's have a fiduciary duty to their LP's to maximize returns. So, if you find yourself in a situation where you receive an acquisition offer that is clearly sub-optimal for your VC's (albeit life changing for yourself and other team members), you will likely be out of luck.
This, in my opinion, is the largest downside of raising at an inflated valuation (not the commonly quoted reason of making the next round harder to raise).
I actually see a fair amount of VC-backed founders who have unsuccessful companies pivot into seed investing with other people's money. So they still "win" per-say.
There's probably someone out there who wrote a blog with the opposite premise and they are both relative.
Oh? Is that all? I’ll just ask Sergei, musk, and gates if they have time to become partners
Fundraising really does sound easy when out that way!