Written By: Marc Halpin
Winter is ending, spring has sprung, and you’re ready to go for it!
You’ve got a cool startup, it’s a couple of years old, you’ve got traction, you’re very focused on your ‘go to market’, you’re thinking a lot about digitizing processes to scale… AND you’re looking at raising your company’s first round of institutional capital.
Congrats, let the games begin!
Let’s start with a multiple-choice question to get the ball rolling.
With regards to your Seed round, what would you rather? (pick one):
a) To work with a great venture partner
b) To have your round over-subscribed
c) To have fair and balanced terms regarding future control
d) To have strong confidence in your ability to raise the next round
e) To have no weird terms in the deal that seem well… weird!
“Now Marc”, I hear you cry, “Why would I only pick one?” That does not seem like a great deal to me at all. After all I’ve created value, where is the ‘all of the above’ option? I want a) through e) and I’ll not accept anything less!
I hear you; they are all really important.
So, here’s what I’ve figured out after nearly 20 years of working in/with venture backed companies: everyone sets out to get a) through e) but nearly everyone falls short and there’s one simple reason as to why…Curious? Read on dear friend!
One of the questions we ask at Kerosene when we first meet with a Founder going to market is this: what does your target list of VCs look like? What we get shown invariably looks something like this:
- Uncle John – Works in Private Equity
- Dave – Met at Steve’s party (made a lot of money with Google)
- Phil – Venture guy (cuts $100k checks I think???)
- Sequoia – Sister’s ex-husband’s brother worked there in the 90’s
- Mike S. – Raising a new fund will be ready to invest any day now
- Angel dude that I met at that venture summit
- Hubris Ventures – Invests Series B and beyond, “but for the right company…”
And the list goes on… you get it.
Let’s face it, getting access to VCs is difficult and here’s the reality. Let’s say you’re looking to raise $2-$5M in your seed round. Statistically to complete the raise you need to meet 20-30 VCs that are specifically targeting your check size, vertical, stage, geography, and a host of other ‘compatibilities’.
If you are not in that ballpark here’s what success looks like – ONE term sheet (if you’re lucky!)… And I promise you if you get that one term sheet, you’ll be making difficult choices a) through e). That is not the kind of multiple-choice game any Founder wants to play.
Conversely, IF you are in the 20-30 ballpark and your business is a good fit for venture, THEN you have a chance to check all the boxes a) through e). You’ll do that by virtue of multiple offers in the form of multiple term sheets and then YOU are making the choices.
That, as a Founder, is the only multiple-choice game you really want to play.