This article discusses the potential risks and considerations for seed-stage founders when deciding whether or not to accept funding from a multistage venture capital (VC) firm. The author, Masha Bucher, founder of Day One Ventures, highlights several key points that seed-stage founders should consider before making a decision.
Key Points:
- Dilution: The article suggests pushing for 15% dilution in a seed round and having the lead(s) take 50-60% of the round to leave room for follow-on investors.
- Competition: Creating competition by involving multiple multistage VCs can increase optionality and independence in future rounds.
- Active Engagement: The author emphasizes the importance of evaluating the partner’s ability to champion your company for a Series A round and their success in securing lead positions for other portfolio companies.
- De-risking the Round: De-risking the round by creating competition can make it easier to secure a Series A term sheet.
Risks:
- Signaling Risks: Accepting funding from a multistage VC may send a signal to potential future investors that your company is struggling or not innovative.
- Ownership/Dilution Concerns: Multistage VCs often take a large stake in companies, which can lead to ownership and dilution concerns.
Conclusion:
The article concludes by emphasizing the importance of careful consideration when deciding whether to accept funding from a multistage VC firm. Seed-stage founders must weigh their options carefully, considering the potential risks and benefits, to make an informed decision that aligns with their startup’s unique needs and creates optionality for future rounds.
- Prioritize: Prioritize the founder’s vision and goals when evaluating potential partners.
- Evaluate Potential Partners: Evaluate potential partners on the basis of their ability to champion your company for a Series A round, their success in securing lead positions for other portfolio companies, and their influence within the multistage VC firm.
- Negotiate Terms: Negotiate terms that provide ample room for follow-on investors, such as having the lead(s) take 50-60% of the round.
- Create Competition: Create competition by involving multiple multistage VCs to increase optionality and independence in future rounds.