

Raising Capital: Advice We Give Our Founders - pnr
https://a16z.com/2014/09/26/valuation-this-is-the-advice-we-give-our-founders/

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finkin1
Been running a software startup in the Midwest for about 3 years now and
raised multiple rounds. In my experience, the difficulty is finding
sophisticated investors, but maybe that's a problem unique to the Midwest.

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ilaksh
OK so this is a pretty basic question about something I don't understand. If
companies are making money, why do they need to keep getting more money from
investors? Don't they eventually have to actually make enough profit to pay
back the investors? Or is the assumption now that companies don't operate on
profit, and are mainly there to either eventually fold up in bankruptcy or
serve as winning lottery tickets for the investors when a bigger companies
buys them?

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finkin1
Capital makes things go faster. Bootstrapping with a 5 person team instead of
taking money so that you can expand to a 20 person team is a perfectly
reasonable strategy. There are just trade-offs.

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EGreg
I want to know what people will comment in response to this article.

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CurtMonash
I'll start by saying that investors have the advantage in negotiating
experience and negotiating skill, so in most cases it is to the company's
advantage to simplify the negotiation. Just as complex derivatives disfavor
the less sophisticated party to the transaction, so also do complex equity
instruments.

Liquidation seniority on preferred stock is fair, but I I've never been
persuaded of a good reason for all the other complexities that find their way
into term sheets and contracts. On the other hand, I've lost quite a bit of
money to those terms, because founders carelessly agreed to them.

