Honestly, a lot of times a VC will turn you down and cite metrics, but in reality it's not the reason they're not investing. It's just a much easier and less offensive thing to use as a reason for passing (definitely easier than something like "we don't think you're impressive enough to pull this off" or "your product is crappy").
So they'll say "oh your unit economics aren't attractive" to you... But other companies have raised tons of money and maybe even made it all the way to IPO without attractive unit economics.
I noticed this back when I watched Shark Tank. Cuban in particular was wildly inconsistent in his focus on metrics, demanding much more of some companies.
It was pretty clear that it was just convenient, easy to explain shorthand for not wanting to invest. But, it was plausible in isolation. It's only when you have the ability to see his process over multiple deals that the inconsistency emerges. Obviously founders wouldn't have that view in the typical VC scenario. They'd only have their own experiencen with the investor.
So I think this is mostly true. But I do think in a minority of cases they're willing to ignore metrics because they think they know how to fix whatever issue is causing underpeormance and/or have resources they can apply (including synergistic portfolio companies).
Citing metrics is a good catch all excuse for not investing. If a product truly sucks you’ll be able to easily point to some metric or the lack of data as a reason why.
Rarely will a product suck yet also have solid metrics.
Is it only emotionally easier, or do they expose themselves to any sort of legal risk by saying your product sucks or they just don't like that you have bad breath?
There is no legal risk.... they would rather maintain a relatively cordial relationship with you or with the person who referred you to them on the off chance you do successfully pull it off (since venture is a small world relationship based industry).
> There are varying opinions when it comes to how to handle VC associates — one of the strongest coming from Paul Graham, who in sum suggests you never take a call with one. It’s an opinion I often hear repeated by other founders.
Is that still relevant today ?
What PG said was :
> But an associate is not a VC. They have no decision-making power. And while they may introduce startups they like to partners at their firm, the partners discriminate against deals that come to them this way. I don't know of a single VC investment that began with an associate cold-emailing a startup.
The "in my experience" sounds suspiciously like "in my experience of being extremely well networked with the partners and them being interested in startups my friends and I work with based on our recommendations alone". Yeah, I'm sure partners are more likely to invest in a YC startup or one with a warm intro from a PG-level figure than one their associate stumbled across, but that's not much help if you're not in YC, and you're going to be even more discriminated against if the partners don't know who you are.
I have a hard time believing VCs pay associates to approach founders if their partners never do any deals based on those introductions.
I agree with you but it's worth noting that associates are mostly paid to do research. A big component of that is reaching out to startups as "an investor" to learn more about their businesses, even if there is no intention to invest ever in them.
This right here. We've spoken to many dozens of Angel, Seed, and later-Stage investors. Principals and Associates are market researchers, not investors. If you're interested in being part of uncompensated market research and you have time on your hands, then take their meetings. If you're trying to raise money? Take meetings with General Partners or Managing Partners, and if you can't do that, then figure out how to do that. It's also very good practice for figuring out how to navigate the political, social, and marketplace incentives of a weird unresponsive system if your business happens to also be positioned to sell to "enterprise", but I digress.
Insofar as identifying great investors that a founder should treat as more than a check in the bank, I've learned through scar tissue that there's a very good qualifying criteria. Every VC talks a lot about being part of the team and how much they'll help you. The great ones don't bother with all the talk. They just start helping.
The Seed-stage ecosystem is also a really weird one. There's a lot of "tech celebrity" investing that distorts the lens of how the machine really works for everyone else, what's misaligned between how Seed is positioned vs. what Seed funds can actually do based on their constraints and incentives. It was quite the learning process for me and my co-founder.
Sounds like you have the experience and the writing skills to describe the (real) struggle for 98% of Seed founders. I’d encourage you to write about it, even if anonymously.
PG has a perspective that is fairly unique in this, both in quantity and in quality. But it is somewhat limited to the SV investment scene which is unique on the planet.
Elsewhere, associates do a lot of the legwork making sure that a VC can cope with the deluge of investment proposals. If you have access to a partner, by all means, use it. But if you're going around cap-in-hand looking for investment get used to dealing with associates. We see about 40 deals per year and the bulk of those have significant contributions from the VC associates.
Some of these are great and effective, some not so great, some downright terrible. It all depends on the firm and even on that particular associate. There are even firms where it is probably more effective to go through an associate because they can effectively become your champion inside the VC.
In the middle of fund raising right now and talking to many associates, as well as some partners. So an informed discussion would be very helpful. For example, what should we say to VC associates so they can pitch the deal favorably to the partner.
For context, all the funds we're talking to is from warm intro from a fund that's already going to fill the round.
If you already have the round filled with someone then I would just prioritize specific individuals to add to the round. It’s not necessarily worth talking to other vcs since most of them would like to have a larger % of the round.
But for associates you would likely say the same things as you would say to the partner. Associates can’t make any decisions so they have to make a compelling case to the partner, and the partner has to make a compelling case to the whole partnership. Also talking associates means the partner is not interested enough yet, if they were they would probably want to talk to you themselves.
Depends on the fund and your stage but in early stages investors looks at the team, product and market. Each vc has a different order of preference for those 3. If the big enough market exists and team is the right team to build the right product. More proof or traction you can show the better. Also growth month over month is generally more important than absolute numbers. Flat or slow growth can look worse than no growth.
Personally I think timing makes all difference. Fundraising when you have your story together and have some good traction but not too far along for the stage or getting to a point with where many vcs are already somewhat interested and hammering your email and at least one of them is close to give you a term sheet or given you a term sheet. Then you can round up the interested ones by saying that there is term sheet or a term sheet incoming.
This article is on point. Been through seed and A series in the last ~2 years. The metrics (CAC, LTV) are interesting but do not mean a lot yet. Having customers that live you (make them part of your pitch deck) and seeing great adoption are key though.
> Our angel, pre-seed and seed rounds came virtually one after the next,
Have the definitions changed lately?
Angels are individual investors who typically invest in seed rounds. VCs can also invest in seed rounds. So, what’s the difference between an angel round and a seed round??
For many startups, there's an early round that's friends, families, and angel investors. It tends to be a small enough round that VCs (aka "institutional investors") can't or won't participate. Individuals can write smaller check sizes, and can invest with less friction especially if they know the founders well and/or are really passionate about the space the startup is in and the problem it's solving.
That said, yes, angels will invest along side VCs in seed rounds and even further along. But when someone says "angel round" they're usually talking about a very early, small round composed mostly or entirely of individuals.
How much equity is one expected to be giving up in these early rounds (angel, pre-seed, seed)? I was speaking to someone yesterday and they had mentioned 20% per round is a rule of thumb. This in Asia so not sure if the rule of thumb is correct and or whether it's different in other geos.
Depends, but generally for proper seed or A rounds 20% dilution is common but for pre-seed I would do less, 5-15%. Also to note that it doesn’t mean you give out 20% ownership each round but each round dilutes existing shareholders by 20%.
All depends how much you actually need to raise and what kind of valuation you are able to get.
Honestly, a lot of times a VC will turn you down and cite metrics, but in reality it's not the reason they're not investing. It's just a much easier and less offensive thing to use as a reason for passing (definitely easier than something like "we don't think you're impressive enough to pull this off" or "your product is crappy").
So they'll say "oh your unit economics aren't attractive" to you... But other companies have raised tons of money and maybe even made it all the way to IPO without attractive unit economics.