Week 5 recap: the logic behind the VC money

Venture Capital, and investment in general, operates on timelines that require you to move a certain speed. Generally speaking.

Week 5 scratched the surface of a deep topic, the business behind the venture capitalist. It is an important topic with so many interesting bits of information to explore. For a founder, the important stuff is:

1. Venture Capital investment has a clock associated with that determined by their agreements with their investors - usually 10 years but can be 7-15 years.

2. Funds allocate money from their fund for future investment rounds to maintain a position that helps them get the return they need to get. They assume 2-4+ rounds.

3. Only a few of the many investments a VC makes determine if they are successful.

You can use that information to a) understand that VCs are not making a judgement of the viability of your company and b) timing (and your momentum) is everything when it comes to how a VC responds to you.

Something to keep in mind as well.

VCs expect most of you to fail. That is ok. But they won’t always tell you that.

This is a big topic. Next week we will get into how you can use this information to align yourself with venture capital.

A bit about specifics: SAFE, debt, equity, etc

We did get into the weeds a bit around SAFE’s and strategy. There are many opinions but I think the important thing to consider is both the timelines and the commitment of the people investment. Also, keep an eye on terms that give investors ‘protection’ — like discounts, return multiples, etc.

This too is a huge topic and advice needs to be specific to the situation.

My observation: founders benefit A LOT over the long term when an investor is fully aligned with you.

The wisdom of candor of Jim Murphy

Our lunch guest was Jim Murphy who shared a lot of amazing wisdom about teams, funding, products, and being a human. The conversation was highly engaging and a big thanks to Jim for taking time out of his maple syrup boil to share.

What I walked away with from that conversation: the human part of the journey is unpredictable and amazing. Don’t lose sight of that.

Slides have been added to the course page.

Next week: Aligning with investors