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There's fear of missing out for the investors...every investor in Silicon Valley wants to get in on the next Facebook or Google, and the investing environment t

There's fear of missing out for the investors...every investor in Silicon Valley wants to get in on the next Facebook or Google, and the investing environment there is intensely competitive. For the entrepreneurs though, I am left scratching my head as to why they would accept this money, given the massive amount of risk and responsibility you take on when you accept this money. If you don't need the money, why would you accept it when it has such a high price?

jewel 12y ago
I imagine that Slack's founder, who was formerly co-founder of Flickr, is experienced enough that he could avoid a lot of the pitfalls of raising too much money such as losing control of the board. Since this isn't to add runway, it doesn't make much sense unless he's not planning on selling to another company anytime soon. By my estimation, Slack is not too far from being profitable (or able to get that way), with ARR somewhere between $15M - $30M and only 125 employees. With this big war chest Slack could buy or build a few other collaboration tools. It'd be great to have a competitor to Google Apps at a similar price point.
ghshephard 12y ago
Why do you think there is any more risk/responsibility in raising money in an E-Round versus an IPO?
- bsbechtel 12y ago
  Well, first it depends on the valuation, but that goes for any equity financing round. But also, it depends on the type of investor you are taking on, and their expectations for returns to fit in their profile. Private investors tend to invest in higher risk/reward equities, meaning you need to achieve higher growth rates to satisfy them. I am guessing many of the companies raising massive private rounds now need to still grow significantly before a liquidity event could justify the investor's investment (once you go public, the pressure isn't as high to achieve 2-3x growth year over year). Publicly traded technology stocks are expected to grow at most 20-30%/year, without further diluting the equity pool. Every new private financing round makes the pool a little smaller, meaning you still need to grow even faster to achieve the returns required by your investors. In addition, once you IPO, you have access to many other forms of financing that are significantly cheaper than selling equity.

jewel 12y ago

I imagine that Slack's founder, who was formerly co-founder of Flickr, is experienced enough that he could avoid a lot of the pitfalls of raising too much money such as losing control of the board. Since this isn't to add runway, it doesn't make much sense unless he's not planning on selling to another company anytime soon. By my estimation, Slack is not too far from being profitable (or able to get that way), with ARR somewhere between $15M - $30M and only 125 employees. With this big war chest Slack could buy or build a few other collaboration tools. It'd be great to have a competitor to Google Apps at a similar price point.

ghshephard 12y ago

Why do you think there is any more risk/responsibility in raising money in an E-Round versus an IPO?

bsbechtel 12y ago
Well, first it depends on the valuation, but that goes for any equity financing round. But also, it depends on the type of investor you are taking on, and their expectations for returns to fit in their profile. Private investors tend to invest in higher risk/reward equities, meaning you need to achieve higher growth rates to satisfy them. I am guessing many of the companies raising massive private rounds now need to still grow significantly before a liquidity event could justify the investor's investment (once you go public, the pressure isn't as high to achieve 2-3x growth year over year). Publicly traded technology stocks are expected to grow at most 20-30%/year, without further diluting the equity pool. Every new private financing round makes the pool a little smaller, meaning you still need to grow even faster to achieve the returns required by your investors. In addition, once you IPO, you have access to many other forms of financing that are significantly cheaper than selling equity.