Category Archives: Capital

The Seed Slump – AVC

This is a good post pointing to a few of the other threads and posts talking about the Seed Slump.

The Seed Slump – AVC

I think this tweet is good as well:

These are the takeaways:

  • seed to A graduation % obviously will go down
  • seed funds which stay small & generate smallcap exits can make

Bootstrap or not.

Lots of chatter about this recently. 

Maybe it all kicked off with this article :: https://www.nytimes.com/2019/01/11/technology/start-ups-rejecting-venture-capital.html

I co-taught a class the other day at Insead and the subject was around boot strapping versus raising money. It really is an easy answer to be honest. If you can bootstrap then my advice, as a VC, is you should. Why take money if you don’t need to?

However people need to properly call out stuff – meaning bootstrapping typically means funding the company from operations or revenue. If you borrow money, have an angel investor or pumped in a bunch of your own money – you still took or made an investment. You now have investors and frankly this bit that VC money is bad but other money is good is silly. All money comes with terms and all of it expects to be paid back.

The only caveat to this is your own money could potentially be treated differently since you are the founder and you own the company. You could potentially never pay yourself back and settle yourself with an exit or profits.

I see so many silly deals in startup land where the founder stayed away from professional investors, say a VC, but took silly angel money and signed bad terms. I am quite sure those companies are worse off than another startup who took a round from a VC. Keep in mind angels can be evil, your rich uncle can be evil – obviously so can a VC. The point is know the terms of your money and its impact on you and your company.

The core difference in bootstrapping and not is really about growth. This does not mean that VC money encourages or forces growth – the VC can’t really force anything. It is your company but if you take VC money than you are expected to grow more or faster than if you didn’t. That is not some sinister plot by VC’s BTW – it is simply the notion that the capital is easier to get and more expensive therefore you need to use it accordingly. If you don’t like that grand bargain, then don’t take the money.

It is not like VC’s sit around and are desperate to throw money at someone in hopes of forcing them to do something they didn’t plan on doing. This is silly. Everyone knows what the deal is and believe me, we never write a check to any founder that isn’t on that same page.

That would be a waste of capital.

If you can build a solid business without VC money then do it. However don’t raise money from less than professional sources or with crappy terms and pretend this is better. Truly bootstrapping is generally from revenue. Most folks have a hard time doing that. If you can then great, you own more of the company and the outcome is generally better. That is the other myth to dispel – if you raise lots of money and don’t have a huge exit then you will take home less than someone who didn’t raise any money with a smaller exit. It’s just math.

If you have a method for using capital to grow much bigger and faster than if you didn’t take capital, plus you are comfortable with the terms and your investors then take the money. The decision rests with the founders, and VC’s only work with founders who already have arrived at making this decision for themselves.

Munchery: What Happens When a Startup Goes Bust | Fortune

Interesting read.

On one hand I guess the vendors could argue that supposedly the VC’s have money and therefore they should make them whole.

But we all know the people responsible for this are the founders and the people running the company.

The VC’s don’t control them and apart from firing people or trying to influence the people running the place to do the right thing – in most cases the VC’s cannot force the outcome.

Messy stuff. Sounds like the Munchery crew are bunch of asshats.

Munchery: What Happens When a Startup Goes Bust | Fortune

What Is Going To Happen In 2019 – AVC

I am sure you caught Fred’s 2018 review?

Now comes prediction time.

What Is Going To Happen In 2019 – AVC

I have always felt that as the noose tightens around Trump that he would quit before any impeachment process ever kicks off. Let’s see.

I agree if this happens it will project an air of USA instability and that will be enough to take down global markets a notch or two.

I think in VC startup land we are looking at something different but still need to be pragmatic.

I love how Fred describes the long-term view:

But all of that is going to happen at the margin. I expect 2019 to be another solid year for the tech/startup sector as we are in a possibly century-long conversion from an industrial economy to an information economy and the tailwinds for tech/startup vs the rest of the economy remain in place and strong.

Just started reading Homo Dues – A Brief History of Tomorrow. The time it will take for the total digital transformation of practically everything is longer than people think so we have a long ways to go.

Happy New Year!

Whither the Australian tech scene

Sad state of affairs down under in tech land these days.

First: https://www.afr.com/technology/tech-firms-including-airtasker-hit-by-rd-incentive-crackdown-that-threatens-software-sector-20181129-h18j51

This one seems pretty damaging – not a body blow but isn’t good sign.

Now this: https://www.bloomberg.com/news/articles/2018-12-06/australia-moves-toward-passing-law-targeting-whatsapp-signal

But the fundamental fact remains that the powers being sought by law enforcement are ill-informed, badly drafted and a gross overreach,” Digital Rights Watch said in a statement. “This bill is still deeply flawed, and has the likely impact of weakening Australia’s overall cyber-security, lowering confidence in e-commerce, reducing standards of safety for data storage and reducing civil right protections.”

RMIT University’s Gregory said the effect of the laws would likely spread beyond terrorist or criminal activities and into private-sector investigations.

“It’s too rushed, too broad, not well-defined and ultimately will be misused,” he added. “People will also be able to use this not just for criminal law matters but also corporation law matters.”

Feels pretty dangerous and I wouldn’t want to be working in security down under.

Maybe this will all blow over but to me it doesn’t bode well for the Australian tech scene.

How do you DD a VC who issues a term sheet? – grayscale_vc

Interesting list. I won’t say I don’t agree with the list but I think it is missing one big section.

#4 hints at it a little but not directly enough.

Do you get along with your VC is one I would add.

You will be spending potentially years around your VC either in board meetings, in coffee chats or on WhatsApp. I always tell founders to spend some time with the VC over lunch or coffee – just to get to know each other more. 

I don’t think its only a financial transaction but there are lots of other elements involved.

How do you DD a VC who issues a term sheet? – grayscale_vc:

4. Operating Style Connected with value-add is the fund’s operating style. Are they hands-on or hands-off? If hands-on, how many times a month do they like to meet and what do they usually want to discuss. Will they get to know your whole management team or just the founders. And then choose which kind of VC you want for the next phase of growth. It’s preferable that you talk to companies regarding the specific manager within the fund team who’ll handle you post investment.