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What's the benefit of doing it this way, as opposed to selling some of their own shares from a previous round to the funding VC, or on the secondary market? Is
by bcherny 10y ago
What's the benefit of doing it this way, as opposed to selling some of their own shares from a previous round to the funding VC, or on the secondary market? Is it just a cleaner deal this way?
- mikemac 10y agoI don't think it's actually that common, and typically used with really hot companies. A few reasons: it makes the new investor more competitive to the founders if there are others vying for the investment, but it also prevents selling too early. If you have $5M in the bank, you'll be more likely to try to go for the home run rather than sell to facebook for $3B (which was rebuffed by the founders of snapchat).
- bcherny 10y agoMakes sense - it's sort of a psychological exploit to make the deal more enticing. Of course founders can always sell their shares on a secondary market, but it's much harder to turn down $5M cash.