5 ms·

...duh? They just had WeWork blow up in their face and naturally they're going to pump the brakes. There were probably a lot of in-process deals going on. Com

...duh? They just had WeWork blow up in their face and naturally they're going to pump the brakes. There were probably a lot of in-process deals going on. Coming from someone who worked in a company that received Softbank investment, it's a huge hassle. The ONLY reason to take Softbank money is to get a huge sum of money at a huge valuation and reduce your "cost" of said money. But for me personally, the costs aren't worth it. First, there's the inflated valuation. It's a great MO for Softbank - they get you by stroking your ego and flashing big (exaggerated) valuations. But does anyone ever think about the next round? No one else after is going to invest at that valuation + extra, unless you really knocked it out of the park, so you are stuck with them for future rounds. Or IPO (Hello Uber). Startups are hard - why are you making it more difficult for yourself to succeed? Second, the ongoing effort. You don't have one or two guys at a VC firm you are working with, you have a bureaucracy you are working with, in a completely opposite timezone, with a very different working culture. Maybe it makes sense for a company who is on their last round of funding before IPO, just needs one last cash push to get everything there, and can pay a bunch of people to deal with the BS. But that's not most startups.

rossdavidh 7y ago
It is an interesting point about the timezone/culture difference. I wonder if Softbank's VC investments in Japan have done any better?
streetcat1 7y ago
So if I have two VC approaching, once offered me 1M for 20% and the other one offered 10M for 20%, I should take the first one?
- xapata 7y ago
  Depends. Sometimes growth rate matters more than purchase price.
- andreilys 7y ago
  Depends on the VC. $10M from someone who built their wealth via blood diamonds is very different from $1M from a well-connected VC that can help your business in a tangible way
  - Tostino 7y ago
    A lot of companies could really use a reality check as to their true valuation, and understand that the market cap shouldn't be sky high, but there's plenty of room to play with in the space that they have.
  - streetcat1 7y ago
    How can you tell which is which. Does the LP tell the VC where did they get the money from?
    - andreilys 7y ago
      If you’re giving a sizeable chunk of your company to an investor you better do your due diligence. Whether it’s contacting founders who previously received money from the VC, or plain old web research. It’s really dumb to take money from someone who can make life difficult for you down the road
  - heavyset_go 7y ago
    Don't bet on a VC to help your business in tangible way outside of funding.
- irjustin 7y ago
  I know this is a thought exercise, but those are some very weird numbers there. If these ever existed as two legitimate offers, we're looking at a 5M cap vs a 50M cap. Who is offering these numbers? Diligence has to be able to 'back into' the cap with traction or revenue. If the 5M cap feels "real", then the 50M cap is hiding something. Extreme red flags should be going up (outsized voting, extreme terms, weird clawbacks, etc). If the 50M cap is more real for the business, then the 5M cap is a joke and generally should be ignored unless there's a very specific reason to take it (but what could that be?). Either way, a 10x evaluation difference is so off base something does not make sense.
- Barrin92 7y ago
  Depends on how much money you need / how much sensible things you have to spend it on. If you think you can do something tangible with the 10 million right now sure, if it results in a lot of PR people, over-expensive office space and a bloated workforce then the money can be a resource curse. Doesn't exactly seem to be a popular attitude these days but I've always been a fan of seeing how far you can go with as little as possible. Keeps the bs out.
- teclordphrack2 7y ago
  You need to work out what your valuation is now and what it is predicted to be when you take your next round of investment. If you take the 10M for 20% and then sell the next 20% for less than 10M you are telling your investors that the investment has devalued. You would think that you want to claw as much money from their hands but that comes back on you if you don't think you can grow or maintain the value your company is currently at.
duelingjello 7y ago
Never get into bed with a VC unless you’re comfortable waking up next to them for the next 3-10 or more years.

rossdavidh 7y ago

It is an interesting point about the timezone/culture difference. I wonder if Softbank's VC investments in Japan have done any better?

streetcat1 7y ago

So if I have two VC approaching, once offered me 1M for 20% and the other one offered 10M for 20%, I should take the first one?

xapata 7y ago
Depends. Sometimes growth rate matters more than purchase price.
andreilys 7y ago
Depends on the VC. $10M from someone who built their wealth via blood diamonds is very different from $1M from a well-connected VC that can help your business in a tangible way
- Tostino 7y ago
  A lot of companies could really use a reality check as to their true valuation, and understand that the market cap shouldn't be sky high, but there's plenty of room to play with in the space that they have.
- streetcat1 7y ago
  How can you tell which is which. Does the LP tell the VC where did they get the money from?
  - andreilys 7y ago
    If you’re giving a sizeable chunk of your company to an investor you better do your due diligence. Whether it’s contacting founders who previously received money from the VC, or plain old web research. It’s really dumb to take money from someone who can make life difficult for you down the road
- heavyset_go 7y ago
  Don't bet on a VC to help your business in tangible way outside of funding.
irjustin 7y ago
I know this is a thought exercise, but those are some very weird numbers there. If these ever existed as two legitimate offers, we're looking at a 5M cap vs a 50M cap. Who is offering these numbers? Diligence has to be able to 'back into' the cap with traction or revenue. If the 5M cap feels "real", then the 50M cap is hiding something. Extreme red flags should be going up (outsized voting, extreme terms, weird clawbacks, etc). If the 50M cap is more real for the business, then the 5M cap is a joke and generally should be ignored unless there's a very specific reason to take it (but what could that be?). Either way, a 10x evaluation difference is so off base something does not make sense.
Barrin92 7y ago
Depends on how much money you need / how much sensible things you have to spend it on. If you think you can do something tangible with the 10 million right now sure, if it results in a lot of PR people, over-expensive office space and a bloated workforce then the money can be a resource curse. Doesn't exactly seem to be a popular attitude these days but I've always been a fan of seeing how far you can go with as little as possible. Keeps the bs out.
teclordphrack2 7y ago
You need to work out what your valuation is now and what it is predicted to be when you take your next round of investment. If you take the 10M for 20% and then sell the next 20% for less than 10M you are telling your investors that the investment has devalued. You would think that you want to claw as much money from their hands but that comes back on you if you don't think you can grow or maintain the value your company is currently at.

duelingjello 7y ago

Never get into bed with a VC unless you’re comfortable waking up next to them for the next 3-10 or more years.