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Had a VC friend ask, “What’s the pros and cons of leading vs not leading?” We have led 13 of our 21 deals, my take
1/ Pros of Leading
- Set the terms
- Get board seat priority, if want
- Typically get more founder time, not always
- Covered legal cost
- LP signal for fundraising
1/ Pros of Leading
- Set the terms
- Get board seat priority, if want
- Typically get more founder time, not always
- Covered legal cost
- LP signal for fundraising
2/ Cons of Leading
- Stepping up before others
- Time consuming: investor references and legal
- Need reserves for bridge rounds and pro rata
- Board meetings, if take
- Ultimately, the buck falls with you, can be pro if like more control
- Stepping up before others
- Time consuming: investor references and legal
- Need reserves for bridge rounds and pro rata
- Board meetings, if take
- Ultimately, the buck falls with you, can be pro if like more control
3/ Pros of co-investing
- Less work required
- Follow-on to other investors
- Often no board seat, pro and con
- Less platform and resources required for value add
- Less work required
- Follow-on to other investors
- Often no board seat, pro and con
- Less platform and resources required for value add
4/ Cons of co-investing
- Take terms of the lead
- Lower ownership requires larger outcomes or smaller funds for same returns
- Higher chance of losing rights in future rounds
- Other VCs needed to complete round
- Take terms of the lead
- Lower ownership requires larger outcomes or smaller funds for same returns
- Higher chance of losing rights in future rounds
- Other VCs needed to complete round
5/ The majority of the market are co-investors. You need scale to lead given it requires follow on, platform for value add, etc. Typically that’s $25M+ for seed stage and $125M+ for series A depending on strategy/geo. Multistage funds are pushing that up as rounds and prices rise
6/ The household VC names largely lead tho, ownership and moving capital. With the rise in fund sizes it’s likely that MOIC/IRR will decline for most. But at scale you return more dollars so LPs don’t care. Do you want 5x on $100M or 2x on $1B? Depends on LP
