It seems to me that some of these points essentially suggest, 'hey, don't worry about the details of your funding, they aren't that important to whether you succeed. Just don't totally screw up on funding, focus on what you do with it'.<p>And, hey, that might be true.<p>But it also seems to me that there is a conflict of interest here in several of the main points.<p>> Founders who quibble over selling 18% or 20% of their company in a round have lost sight of what actually matters.<p>If each VC is getting that extra 2% of the company for free each round, that adds up.<p>So maybe we should take these points with a grain of salt. They don't seem obviously wrong to me (but I'm not an expert), but there <i>does</i> seem to be a conflict of interest in what they say and where it comes from.
This article seems to be in some conflict to how YC operates, which is designed around the demo day auction frenzy, where you might see valuation caps rise overnight on a rolling basis (I've seen some almost comical leaps in valuation in this regard), not to mention starting at prices in the $10-15M range. The ones that clear at those prices, on average, don't have the traction to justify it, which means the capital they get is often either second tier or first-tier call options. The net result is the best companies in the batch do just fine and because their prices, on average, were higher, YC and the company benefit from reduced dilution. The rest of the batch is then left with an inflated effective post-money that makes it harder for new capital to finance, especially if it follows an average growth curve.<p>New money doesn't particularly care you raised post demo-day at $15M if they think you're worth for example, at best, $12M now. It's a difficult conversation to have with founders and it can result in completely unnecessary pain around morale and optics. The worst loss is perversely invisible, as smart money might de-prioritize pursuing these companies knowing they have to work around the earlier mis-price. This is an opportunity cost that might not be apparent to most.<p>This is all complicated by the fact that demo day is in fact, not the first shot investors get at the companies in a batch. You might find that some of the most exciting companies in a given batch have been almost fully subscribed by the time demo day rolls around, as top tier firms don't wait till the actual demo day. Obviously, YC can't nor should they proscribe meeting with investors ahead of demo day, but this simply means access isn't as equally distributed as the notion of demo day might suggest. It looks to some degree like a second pass for folks without the network or access of a top-tier firm.<p>All this works great for YC, which, like every other fund in this world, makes money off power law returns, but it comes at a cost.<p>[edited]
Don't over-optimize for the investor. If your startup lands in trouble, no investor is going to dig you out of it.<p>What should you over-optimize for? Flexibility.
Over-optimize for the ability for your business to become a cashflow positive lifestyle business that is not a 100M+ exit. That's actually what many many startups become.<p>YC won't tell you that because they over-optimize for world-changing binary results.
TL;DR: optimize only for monotonically increasing, vanilla terms for 24 months runway at a time.<p>As a VC and an entrepreneur, various times over the last 19 years, I will say this to entrepreneurs in good faith:<p>1. Your core competency is company building, not fundraising. (There are exceptions, but you're not one of them.) Just get enough money to company-build for the next 18-24 months on plan.<p>2. The primary (only?) thing to optimize for in valuation is "monotonically increasing over time." All of the pain (for founders, early investors, et al.) is when you have flat-to-down rounds. That's when you REALLY get diluted, and I don't mean like "geez 30% sucks" I mean like "let's build in a new 20% option pool because then founders are now down to 5% each" kind of dilution.<p>3. The other thing to optimize for is keep your overhang (liquidation preferences) manageable. The bigger the prefs, and the bigger the post, the worse your options are for an earlier founder-friendly exit.<p>4. Finally, as a sandpaper-the-edges kind of thing, remember that terms tend to get more investor-friendly over time, even for good (but not phenomenal) performers. So all in all, choose smaller rounds and lower valuations <i>provided you get vanilla terms</i> (meaning no multiple prefs or strange dividends etc.) because subsequent investors will insist on same-or-better sweeteners, which can bite everyone down the stack.<p>5. Really finally -- remember that for all of the seeming insider sharkiness of VCs, they all have to see each other in polite company again. Meaning, they're the devil you know. The real rapacious problem terms come from non-VC participants who don't mind slashing and burning -- be most cautious of those.