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I've wondered how many announced fundraising rounds were like this. It's in everyone's interest (VCs and entrepreneurs) if the message to the outside world is "

I've wondered how many announced fundraising rounds were like this. It's in everyone's interest (VCs and entrepreneurs) if the message to the outside world is "this company is amazing so they've raised a boatload of cash". But VCs might not want to give it all up front, or unconditionally. It makes it hard to say what the valuation of a company is. If the milestones are unlikely to be hit, then it's anyone's guess.

Aurornis 7mo ago
This is a common structure. It's confusing to people who don't know finance or startups when they first see it. Even VCs don't get all of their fund money delivered into their bank account when they raise a funding round. It's inefficient and undesirable for everyone involved to have to move all of the money up-front, at once. If you talk to anyone in startup funding or finance they'll be familiar with the term "capital call" which describes how committed capital obligations are delivered at a later date than the initial deal: https://en.wikipedia.org/wiki/Capital_call https://en.wikipedia.org/wiki/Capital_call
- johnebgd 7mo ago
  Gotta hit that high IRR as a fund manager and the clock starts when the cash comes in so capital calls are appreciated by fund managers. Unless they are emerging managers (the startup equivalent in finance) and their LP’s are less than institutional and ghost them when the capital call hits.
  - munk-a 7mo ago
    IRR is so trivial to manipulate - it'd be wonderful if more investors began demanding actual metrics on capital performance. If you're parking cash with an investment firm you want to know about how much of a return you can expect when it is withdrawn, and while history is a guide and not a guarantee, there are much better ways to inform that expected return than IRR. "My million got a return of 2% during a year when your reported IRR was 10% - where's the other 8%!" is a common cry from those who haven't just rolled over their investment, unaware of how little it has functionally appreciated.
- apparent 7mo ago
  I think more people are aware that VCs raise commitments for a fund that they can pull in via capital calls than are aware that startup funding from VCs come with hurdles to clear. This is perhaps because the most common round to raise is a small/early one, and these tend not to have hurdles. Founders that only ever raised these rounds wouldn't necessarily know what happens in later/bigger rounds. Also, I wonder if capital calls come with hurdles as well? That is, can an LP refuse to put in more money if the VC's recent investments have not done well? I would think not, since it typically takes many years to determine whether investments were good or not.
- pimlottc 7mo ago
  It’s confusing because it’s meant to be confusing. Bigger numbers are more impressive.
- hn_throwaway_99 7mo ago
  I've been involved in many startups, and this type of fundraising is not common, or at least it wasn't common before a few years or so ago The whole concept of talking about "runway" is basically calculating how much cash in the bank, that is actually in your bank account, will last. And this arrangement is different, as there are contingencies. In the past, VCs would just give you money in a particular series, and then if your business did well, they'd eventually give you more money in a later series. But it wasn't like they announced it all up front in, say, a Series A, but a big chunk of the money would only be delivered if you met milestones.
  - ewhanley 7mo ago
    Sure for like $5-10MM, but no one is landing $100B cash in a startup's bank account
    - prasadjoglekar 7mo ago
      $100B isn't a startup. And if there's a $100B deal, you better believe the cash is there. Case in point - Netflix/Paramount wanting to buy WB. Or the $44B that Musk had to raise to buy out Twitter shareholders.
      - akerl_ 7mo ago
        Both your examples are purchases. Musk had to raise actual capital to buy Twitter because the people getting the money were taking it and walking away. Funding doesn't work like that. Investors are giving you money as part of a longer-term deal where they stick around.
  - renewiltord 7mo ago
    Same. I know $100m+ range arrives in the bank account. Don’t know more than that. But for that sum, I know it routinely just arrives. Obviously this is 1000x as large so I make no claims to knowing that sum. But it’s routine for startup funding to arrive in bank account.
- danielmarkbruce 7mo ago
  No, it's not common for the startup itself to make capital calls. The phrase (and your link) refers to capital calls made by VC firms to their limited partners. Same thing in PE.
- deleted 7mo ago
  [deleted]
- Nevermark 7mo ago
  > Amazon agreed to invest up to $50 billion in the startup > Nvidia invested $30 billion > Microsoft, one of OpenAI’s longtime partners, also participated There is a lot of non-cash, never-will-be cash, investment here. Credits for compute.
- ifwinterco 7mo ago
  I think both things are true at once: 1) For a $100bn round, you won't get a single transfer of $100bn into your checking account, this is normal 2) Sam Altman is a liar and people (correctly) don't really believe him when he starts throwing numbers around
komali2 7mo ago
There's an accelerator here in Taiwan with a model I truly don't understand: 100k usd for 10%. 10%!! You've just valued the company at only 1 million! And taken a HUGE chunk of equity, not much left on the table! Maybe it makes sustainable sense but in the world of venture capital it seems the most profitable thing to do is lie through a Cheshire grin, every day.
- Saline9515 7mo ago
  This is very standard, Ycombinator, which hosts this board, does the same: https://www.ycombinator.com/about https://www.ycombinator.com/about
  - komali2 7mo ago
    Not exactly the same... > YC invests $500,000 in every company on standard terms. Our $500K investment is made on 2 separate safes: > We invest $125,000 on a post-money safe in return for 7% of your company (the "$125k safe") > We invest $375,000 on an uncapped safe with a Most Favored Nation ("MFN") provision (the "MFN safe")
    - harmonic18374 7mo ago
      So YC values the company at $1.8 million. I don't think that's so different.

Aurornis 7mo ago

This is a common structure. It's confusing to people who don't know finance or startups when they first see it. Even VCs don't get all of their fund money delivered into their bank account when they raise a funding round. It's inefficient and undesirable for everyone involved to have to move all of the money up-front, at once. If you talk to anyone in startup funding or finance they'll be familiar with the term "capital call" which describes how committed capital obligations are delivered at a later date than the initial deal: https://en.wikipedia.org/wiki/Capital_call https://en.wikipedia.org/wiki/Capital_call

johnebgd 7mo ago
Gotta hit that high IRR as a fund manager and the clock starts when the cash comes in so capital calls are appreciated by fund managers. Unless they are emerging managers (the startup equivalent in finance) and their LP’s are less than institutional and ghost them when the capital call hits.
- munk-a 7mo ago
  IRR is so trivial to manipulate - it'd be wonderful if more investors began demanding actual metrics on capital performance. If you're parking cash with an investment firm you want to know about how much of a return you can expect when it is withdrawn, and while history is a guide and not a guarantee, there are much better ways to inform that expected return than IRR. "My million got a return of 2% during a year when your reported IRR was 10% - where's the other 8%!" is a common cry from those who haven't just rolled over their investment, unaware of how little it has functionally appreciated.
apparent 7mo ago
I think more people are aware that VCs raise commitments for a fund that they can pull in via capital calls than are aware that startup funding from VCs come with hurdles to clear. This is perhaps because the most common round to raise is a small/early one, and these tend not to have hurdles. Founders that only ever raised these rounds wouldn't necessarily know what happens in later/bigger rounds. Also, I wonder if capital calls come with hurdles as well? That is, can an LP refuse to put in more money if the VC's recent investments have not done well? I would think not, since it typically takes many years to determine whether investments were good or not.
pimlottc 7mo ago
It’s confusing because it’s meant to be confusing. Bigger numbers are more impressive.
hn_throwaway_99 7mo ago
I've been involved in many startups, and this type of fundraising is not common, or at least it wasn't common before a few years or so ago The whole concept of talking about "runway" is basically calculating how much cash in the bank, that is actually in your bank account, will last. And this arrangement is different, as there are contingencies. In the past, VCs would just give you money in a particular series, and then if your business did well, they'd eventually give you more money in a later series. But it wasn't like they announced it all up front in, say, a Series A, but a big chunk of the money would only be delivered if you met milestones.
- ewhanley 7mo ago
  Sure for like $5-10MM, but no one is landing $100B cash in a startup's bank account
  - prasadjoglekar 7mo ago
    $100B isn't a startup. And if there's a $100B deal, you better believe the cash is there. Case in point - Netflix/Paramount wanting to buy WB. Or the $44B that Musk had to raise to buy out Twitter shareholders.
    - akerl_ 7mo ago
      Both your examples are purchases. Musk had to raise actual capital to buy Twitter because the people getting the money were taking it and walking away. Funding doesn't work like that. Investors are giving you money as part of a longer-term deal where they stick around.
- renewiltord 7mo ago
  Same. I know $100m+ range arrives in the bank account. Don’t know more than that. But for that sum, I know it routinely just arrives. Obviously this is 1000x as large so I make no claims to knowing that sum. But it’s routine for startup funding to arrive in bank account.
danielmarkbruce 7mo ago
No, it's not common for the startup itself to make capital calls. The phrase (and your link) refers to capital calls made by VC firms to their limited partners. Same thing in PE.
deleted 7mo ago
[deleted]
Nevermark 7mo ago
> Amazon agreed to invest up to $50 billion in the startup > Nvidia invested $30 billion > Microsoft, one of OpenAI’s longtime partners, also participated There is a lot of non-cash, never-will-be cash, investment here. Credits for compute.
ifwinterco 7mo ago
I think both things are true at once: 1) For a $100bn round, you won't get a single transfer of $100bn into your checking account, this is normal 2) Sam Altman is a liar and people (correctly) don't really believe him when he starts throwing numbers around

komali2 7mo ago

There's an accelerator here in Taiwan with a model I truly don't understand: 100k usd for 10%. 10%!! You've just valued the company at only 1 million! And taken a HUGE chunk of equity, not much left on the table! Maybe it makes sustainable sense but in the world of venture capital it seems the most profitable thing to do is lie through a Cheshire grin, every day.

Saline9515 7mo ago
This is very standard, Ycombinator, which hosts this board, does the same: https://www.ycombinator.com/about https://www.ycombinator.com/about
- komali2 7mo ago
  Not exactly the same... > YC invests $500,000 in every company on standard terms. Our $500K investment is made on 2 separate safes: > We invest $125,000 on a post-money safe in return for 7% of your company (the "$125k safe") > We invest $375,000 on an uncapped safe with a Most Favored Nation ("MFN") provision (the "MFN safe")
  - harmonic18374 7mo ago
    So YC values the company at $1.8 million. I don't think that's so different.