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Right. People often fail to recognize that without preferential shares startups would just raise at a lot worse valuations. If Sequoia is offering $10m at a $4
by tibbetts 9y ago
Right. People often fail to recognize that without preferential shares startups would just raise at a lot worse valuations.
If Sequoia is offering $10m at a $40m post money, how do you think that would change if they weren’t getting control and a guarantee they get paid first? Because without preference the founder incentive is a quick low risk liquidation at a price notably lower than $40m as soon as possible, because they’ve got 50% of the equity. This is another way in which financing valuations are an optimistic fiction.
- hugs 9y agoAnother option people fail to consider is not pursuing a term sheet from Sequoia in the first place. Go get money from customers, instead.
- mertd 9y agoSome products require a great deal of initial investment to even roll one unit out. Not everything is an app or a service.
- extrapickles 9y agoThe initial cost for unit 1 can be quite expensive (>500k) if its a non-consumer product. Outsourcing production is hard with lower volume products that require modifications to meet customer needs (eg: they need M6 screws holes instead of 1/4-20 or want it in a particular metal). Contract manufacturers are generally interested in making 10k+ of the same item, not 100.
- amarkov 9y agoThat's a great option for a founder to consider, but it means you won't have the resources to give compensation that's even competitive on paper.