
Revisiting Paul Graham’s “High Resolution” Financing - thiele
http://www.bothsidesofthetable.com/2010/09/25/revisiting-paul-grahams-high-resolution-financing/
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trevelyan
I enjoy Mark's blog. But there is something strange in his proposal to carve
out $10,000 for five early investors and offer them an immediate 10x ROI on
paper just for jumping first.

First of all, $10,000 is not enough money to justify giving away equity in any
company with reasonable prospects, especially since issuing the equity costs
money over time. This is the same problem with the Twilio fund (they should
just offer free service to pre-revenue start-ups).

Second, assuming the major value of social proof is the assurance it provides
later investors that people they respect see the risk-return ratio as
favorable enough to risk their own capital, this will accomplish nothing but
shift the equilibrium towards smaller rounds for entrepreneurs while demands
for social proof will shift correspondingly ("But who else has invested
$50,000....").

I respect Mark's investing in small business. But as a single founder with a
bootstrapped business (outside SV), I'd chalk up someone who even suggested
this as just trying to exploit me. I do think it's a good idea for investors
to get compensation for effort put into organizing rounds. But the founder-
friendly arrangement is performance based though, not "giving a good deal to
investors [who founders] expect to help them [sometime in the future]".

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huangm
I think you might be misunderstanding his proposal. He suggested raising $50k
from 5 investors at a $500k post-money valuation, implying that you're selling
10% of your company to the investors in return for $50k -- and not that you're
somehow giving them a free 10x.

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trevelyan
If you get five investors and have a product making zero in revenue then it
makes sense as a first round of sorts. If you already have revenue it's not a
good valuation. I guess it depends on what sort of people they expect to be
dealing with at this level.

