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Sometimes it takes a few startups, raising several rounds of venture funding, and going through an acquisition process — before founders understand some of the *unwritten dynamics in venture capital.*
Go in prepared. Here are some guidelines. https://parul.substack.com/p/unwritten-rules-for-venture-savvy
Go in prepared. Here are some guidelines. https://parul.substack.com/p/unwritten-rules-for-venture-savvy
#1: Raising more money does not automatically translate into building a more valuable startup.
Y’all will debate me fiercely on this one, but historically, this is true. Please see @epaley’s definitive analysis on this here. https://techcrunch.com/2016/10/15/overdosing-on-vc-lessons-from-71-ipos/
Y’all will debate me fiercely on this one, but historically, this is true. Please see @epaley’s definitive analysis on this here. https://techcrunch.com/2016/10/15/overdosing-on-vc-lessons-from-71-ipos/
#2: Growing into a high valuation is highly binary.
Like accelerating into a curve and hoping you make it... t he key proof point will be at your next round of funding, not this one.
Like accelerating into a curve and hoping you make it... t he key proof point will be at your next round of funding, not this one.
#3: Beware of vanity metrics, including headcount.
How effective is your spending, not how much are you spending. Capital efficiency seems so quaint, but bc venture dollars are borrowed fuel, every dollar of spend is a dollar of dilution.
How effective is your spending, not how much are you spending. Capital efficiency seems so quaint, but bc venture dollars are borrowed fuel, every dollar of spend is a dollar of dilution.
#4: Momentum is the most straightforward way to game your raise.
This doesn’t need much explaining. Sometimes gimmicks work, but the basics work (better).
This doesn’t need much explaining. Sometimes gimmicks work, but the basics work (better).
#5: The yardstick is different in different rounds of funding.
You’ll go from being evaluated on Vision —> Team & Product —> PM fit & Traction —> Growth Economics (the economics of scaling)
Think through to the end.
You’ll go from being evaluated on Vision —> Team & Product —> PM fit & Traction —> Growth Economics (the economics of scaling)
Think through to the end.
#6: Derisk the toughest questions first.
This matters especially in pre-seed and seed rounds, and tbh some of these questions can be tested even before you raise money.
This matters especially in pre-seed and seed rounds, and tbh some of these questions can be tested even before you raise money.
#7: Not all investors are the same.
Who knows if value add exists, right @VCBrags? But seek alignment with your investors for a smoother path as you grow.
@micahjay on getting funded by potential acquirers: https://micahjay1.wordpress.com/2014/10/01/strategic-investors-youll-have-sold-your-company-you-just-wont-know-it/
Who knows if value add exists, right @VCBrags? But seek alignment with your investors for a smoother path as you grow.
@micahjay on getting funded by potential acquirers: https://micahjay1.wordpress.com/2014/10/01/strategic-investors-youll-have-sold-your-company-you-just-wont-know-it/
#8: Watch out for signaling risk.
If the fund with perfect information on you chooses not to invest in your next round, you have a problem.
These days, many early stage founders diversify their cap table with a dedicated seed fund, plus angels & life cycle funds.
If the fund with perfect information on you chooses not to invest in your next round, you have a problem.
These days, many early stage founders diversify their cap table with a dedicated seed fund, plus angels & life cycle funds.
#9: Fund size is fund strategy.
When you look at a fund’s size, you can immediately see what sort of outcomes they will drive towards. @dafrankel has more here on this. https://techcrunch.com/2015/04/08/securing-a-huge-growth-round/
When you look at a fund’s size, you can immediately see what sort of outcomes they will drive towards. @dafrankel has more here on this. https://techcrunch.com/2015/04/08/securing-a-huge-growth-round/
#10: Founders are gold.
Other founders are your accelerants, confidants, life raft, and more. No (successful) founder is an island. Stay connected!
Other founders are your accelerants, confidants, life raft, and more. No (successful) founder is an island. Stay connected!
The longer piece is here:
https://parul.substack.com/p/unwritten-rules-for-venture-savvy
For more of my writing for founders, you are invited to sign up for my newsletter—> https://parul.substack.com/
https://parul.substack.com/p/unwritten-rules-for-venture-savvy
For more of my writing for founders, you are invited to sign up for my newsletter—> https://parul.substack.com/
