The State of Venture Capital

DOSS 🔥 🔥 

Full disclaimer, we are not investors in Doss at Habitat Partners and I allocate a lot of my time to helping B2B SaaS companies in the Habitat portfolio. But when a founder in our portfolio voluntarily comes to me ecstatic about the value a new partner is driving, I listen.

With explosive revenue growth, Mezcla’s lean ops team needed a smarter way to manage rising order complexity. Orders were streaming in from D2C, wholesale, and retail channels—but Mezcla’s homegrown system of Airtable, Owlery, spreadsheets, and manual invoicing couldn’t keep up.

ACTION:

Replacing Airtable and Owlery, DOSS gave Mezcla a fully composable, unified platform that automates everything with an accurate view of the full order-to-cash process.

1. Order & sample management: Centralizes all records in tables that instantly track every step of the journey, with automated workflows triggered by sample request forms.

2. Freight & fulfillment: Syncs all order, shipment, and inventory data with EDI and 3PL partners, while streamlining shipment quoting and broker selection.

3. Finance & accounting: POs and invoices are generated automatically. No more manually entering invoices from email. Just one click to send to EDI or Quickbooks.  

RESULT: 

DOSS doubled Mezcla’s PO processing speed and saved the team over 12 hours per week, while contributing to continuous improvements in on-time, in-full deliveries (OTIF). Most importantly, DOSS gave them the capacity to scale without increasing headcount.

To get set up with DOSS today, reply “intro to Doss.”

After two posts on corporate governance, let’s get away from the legal stuff for a second. We are already ¾ of the way done with 2025 (insane!). As someone who invests in both technology and consumer, it has been one of the most exciting years to invest in venture to date - at the same time it feels eerily sketchy... a vintage in which a lot of money will be made and a lot of funds will tarnish their reputations in my opinion due to “chasing.”

Sums it up nicely:

Below is my (Daniel’s) best attempt to capture two of the most relevant truths in the current venture climate that I’ve observed through my experience on-the-job and through actual data. I’ll do my best to juggle tech & consumer. I also deliberately bounce from the state of funding to the state of liquidity, which together make the state of VC 💸 

1️⃣ The goal posts have moved again - and there’s no signs of turning back

Early rapid ARR acceleration from AI startups is fundamentally recalibrating what VCs consider fundable traction and growth. Series A funding standards have risen sharply. A solid team in technology approaching or surpassing $1M in ARR with reasonable customer/dollar retention metrics, CAC payback, and burn ratio could typically get term sheets from a solid slate of VCs.

The goal posts have moved. 

Cursor hit $100M in ARR in 12 months, Midjourney hit $200M in ARR in 3 years, and ElevenLabs hit $100M ARR in 20 months and $200M ARR in August (and Gamma, Replit, Lovable, Perplexity, etc).

Such companies that live in a league of their own are what Bessemer has deemed ‘supernovas.’

We’ve seen a few similar examples in CPG like Rhode, the difference being that CPG brands can sometimes actually approach profitability somewhat early in the hypergrowth journey, a feat that is quite rare for hypergrowth (especially infra) AI companies due to compute costs, pricing focused on acquisition instead of gross margin maximization, etc.

Many VCs are now viewing these high-growth AI and CPG companies as the new (or close to the new) baseline, not outliers, and are picking from a position of great strength due to the surplus of seed-stage startups seeking A rounds. In CPG the ‘position of great stength’ as an investor is even more extreme as way fewer consumer firms exist generally. As seed rounds and A rounds get blurred, many startups are also facing a similar dynamic when seeking seed capital.

If you are one of the lucky companies that surpasses this new goal post, capital is abundant and almost endless. With such abundance for the lucky ones, valuation is largely in the power of the founder. As such, median Series A pre-money valuations and round sizes have increased markedly especially in tech (this holds true with nearly all round types).

This dynamic has also made it harder for smaller funds to regularly find the best deals as getting priced out is more of a norm again. Except this time around unlike the ZIRP valuation era, it’s not macro-driven, it’s possibly the new long term reality unless this a bubble that is destined to pop… and the fact that funds > $100M are getting the vast majority of the new dry powder from LPs perpetuates this dynamic even futher as megafunds feel pressure to put large checks to work quickly and thus push up valuation.

So in conclusion, it’s not to say that you have to be a supernova to get funded or have a supernova idea to start something…. in fact, I’m sure there will be supernovas that go dark (fundraising your way out of negative gross margins won’t work for everyone right?) as well as newly minted future unicorns that build patiently with respectable capital efficiency. I’m personally still a believer in funding businesses that balance strong (not supernova) growth with great margins… but in many cases and for many investors, Series A readiness in 2025 requires traction, retention, and scale that once would have been viewed as appropriate for Series B or even later-stage funding (in tech that might look like $3M - $6M in ARR instead of $1M - $2M and in CPG that might look like $8M - $12M in ARR instead of $4M - $7M)—making the funding bar higher, and the investor mentality more exacting and frankly more unforgiving than ever before.

Then again… screw all my logic in some cases because there’s still the pre-revenue AI company raising tens of millions as well without a dime in ARR.

2️⃣ Secondaries are an ecosystem savior when used responsibly

Distribution yields to LPs from PE and VC funds have dropped to the lowest levels since the Global Financial Crisis, around 6-11% of NAV in 2023-2024 (depending on the source), versus a long-term median of about 20-25%.

➡️ We have a liquidity problem.

Why do we have a liquidity problem?

While M&A (Wiz, Poppi) and IPO (Klarna, Chime, Coreweave, Circle, Figma, Farmer’s Dog incoming) activity has picked up in 2025, it’s nowhere close to historical levels (down ~95% vs. highs).

Many companies that were deemed ‘unicorns on their way to exit’ from 2020 to 2022 have either raised down rounds or avoided the public markets due to uncertainty and volatility (or live on as zombies). Companies are also generally staying private longer when desired (Stripe, Databricks, etc).

Startups that remain private longer before exits (delaying IPO or liquidity events) also prevent employees from cashing out on vested shares. Carta data showing only about 32% of vested, in-the-money options were exercised in late 2024, a significant drop from earlier years. The liquidity problem extends beyond GPs/LPs but also impacts many startup founders/employees.

The Rise of Secondaries = A Glimpse of Hope

While distributions via IPOs/M&A are down versus historical levels, secondaries are surging. As startups continue to stay private longer, secondaries are a key liquidity solution for early investors and employees. In my opinion this isn’t a trend in response to current market conditions, this is the new norm even if IPO/M&A activity miraculously began to approach peak historical levels again.

Charles Hudson, who we had on Term Sheet Pitfalls earlier this year: “selling stock of private startups to other investors will be “75% to 80% of the dollars that [limited partners] get back in the next five years.”

Seed stage funds like Habitat Partners share a similar perspective. A fund with any sort of IRR pressure will have to rely on secondaries in some capacity to get cash flowing back within a reasonable timeline. We hear similar sentiment in Tomas Tunguz’s The Great Liquidity Shift: “With the target ARR required to achieve an IPO growing from $80m in 2008 to ~$250m today, secondaries will become a permanent fixture in venture capital markets. It’s not just a temporary anomaly, but a structural evolution in how venture capital will function and ultimately evolve to look a bit more like private equity.”

For the record, VC-specific secondary dry powder has more than doubled since 2022! Founders should view secondaries amicably (it does not mean an investor wants out of the cap table due to a lack of belief in the future of the business). It’s a GP’s fiduciary duty to their LPs. It’s also a great opportunity for founders if they sell responsibly (more below).

In the context of CPG companies specifically, pressure to ‘get profitable earlier’ (unlike AI companies) has enhanced the average capital efficiency quality of Series A+ businesses. They need less primary capital to get to the finish line because they are more focused on margin fundamentals up front (at least they should be unless they are amazing at raising capital). As a result, I am already seeing mid stage/growth equity funds making secondaries an even bigger part of their deployment strategies - it will be the only way the best growth-stage founders accept capital (and the only way for big consumer growth funds to deploy enough capital).

IPO Health As Another Catalyst for Secondaries

Objectively, it’s also a very exciting time to invest in pre-IPO tech companies via secondaries (this applies less to CPG):

IPO performance so far in 2025 for those that have had the bravery to take the plunge has been solid.

Chart 1: FPX (which is focused on companies that recently IPO'ed in the U.S, mimicking IPOX) is outpeforming the S&P materially YTD.

Chart 2: a bit outdated but the average VC-backed IPO is up about 137% compared to its IPO price year-to-date in 2025, with a median gain of about 33% (as of Q2).

➡️ Thus, getting into pre-IPO companies (OpenAI? Anthropic? Ramp?) or companies that look to be on the IPO path (often through secondaries) is exciting as the IPO market opens up (even if the IPO market is still not what it once was). Further, irrespective of the current IPO environment, there’s plenty examples of successful pre-IPO investing.

A few sobering concluding comments on secondaries for TSP readers:

Secondaries Have a Modest Impact in the Grand Scheme of Venture

Secondaries by the numbers from Pitchbook:

• “Our current estimate of the US VC direct secondary market ranges from $48.1 billion to $71.5 billion, with a midpoint of $60 billion. However, the market size is modest compared with VC’s liquidity needs. $60 billion makes up less than 2% of total unicorn valuations (yikes!) and is comparable to Q2’s primary exit value of $67.7 billion.”

• “Just 20 startups accounted for 83.2% of trading volume in Q1, with the top five alone representing over half.”

The Importance of Secondaries Alignment

• Investors can get burned badly if motivations are unknowingly conflicting:

  • Investors selling because they know something negative about the future of the company and investors buying into what they think is the next best thing based off of the limited information assymetry and limited history they have with the company

  • Founders selling out in such a material way that they are no longer motivated (good piece on balancing this dynamic here)

• Hunter Walk outlines a few inherent beliefs surrounding the optimally structured secondary sale:

  • It occurs with the support/blessing of the founders (or investors if it is a founder selling)

  • Shares are sold to favored investors already on the cap table (or new investors whom the founders/board members want on the cap table)

  • Shares are sold at a “reasonable” price not materially higher or lower than where primary would trade today (which would be inconsistent with the company's own fundraising strategy)

  • Partially exited investors still provide support to the company

If you enjoyed this article, feel free to view recent prior articles:

• Corporate Governance 101: Part 2

• Corporate Governance 101: Part 1

• Anti-Dilution Provisions

• A Primer on QSBS

Ongoing Term Glossary

Anti-Dilution Rights: offer investors protection against dilution in unfavorable financing rounds. This term is usually not contentious from a negotiation perspective between founder and investor - in fact, studies have founds that 92-95% of preferred stock financings include some form of anti-dilution protection.

Authorized shares: the MAX number of shares of each class a company can issue without further shareholder approval.

Automatic Conversion: in the context of convertible notes (or SAFEs), a clause that triggers a convertible note to automatically convert into equity at maturity.

Board of directors: a group of individuals that represent sharesholders in major corporate decisions. A critical responsibility is the oversight of management - simply, the ability to fire of hire the CEO. Other board activities include assesing company performance, providing strategic guidance, developing corporate policy, approving budgets, options plans, mergers/IPOs, and fundraising.

Bridge Financing: when investors agree to provide temporary financing to secure a company’s cash balance before the company raises their next priced round - aka the bridge that gets you to your next priced round.

Capped Price: conversion price per share awarded to noteholder (or SAFE holder) if investor exercises valuation cap

Change in control: a significant shift in the ownership or control of a company, often triggering specific rights or obligations for investors (M&A most commonly)

Clawback provisions: provisions that give the company the right to buy back vested shares at the original issue price or at fair market value after dismissing an employee under defined circumstances (leaving for a competitor, severe misconduct, etc)

Co-Invest: triggered when a fund raises “one-off” new capital from LPs/investors (as opposed to pulling from existing permanent fund) to unlock ability to execute an investment; associated management fees and carry (if any) typically flow back to the fund or individual who raised the co-invest capital. Funds often give major LPs prioritized “co-invest“ rights, which gives such LPs the first rights to participate in the co-invest opportunity before others.

Comparable Company Analysis: a valuation methodology that entails identifying comparable companies and transactions to the company being valued as a means of deriving multiples that can be used to generate a landed valuation

Confidentiality: prevents the startup from disclosing the terms of a term sheet to outside parties (i.e., other investors, startups). This enables both parties to negotiate in good faith.

Convertible Note: a debt instrument that can be converted to equity based on the occurrence of certain events (most commonly during a priced equity financing round).

Conversion: convertible notes (and SAFEs) automatically convert into equity if certain triggers occur. The most common trigger that leads to the conversion of a convertible note (or SAFE) into equity is a priced equity financing round

Corporate governance: a set of principles and mechanisms that balances the interests of company stakeholders (not only shareholders but also employees, customers, suppliers, etc) and affects control over company decision-making

Co-Sale: the inverse of ROFR by nature; if a founder sells shares, the investors will have the opportunity to sell a proportional amount of their stock as well.

Debt repayment terms: in the context of convertible notes, defines specifics associated with principal, interest rate, maturity date, and default provisions.

Definitive documents:  the legal contracts between the investors and the company that detail the terms of the transaction and are drafted by a lawyer

Dilution (D): losing a portion of your ownership as the company sells equity to investors

Discounted Cash Flow Analysis (DCF): a valuation methodology that entails forecasting the future cash flows of a business and discounting the cash flows by a determined cost of capital to derive an enterprise value

Discount: a discount is a term awarded to the convertible noteholder (or SAFE holder) that drives a reduction in the conversion price per share that they are awarded during a qualified financing. Discounts typically range from 10-30% with 20% being the most common.

Down Round: when the pre-money valuation of a future financing is lower than the post-money valuation of the prior financing; often seen as a negative sign for the company

Double-trigger: requires two events to occur to accelerate the completion of your vesting. The first trigger is the acquisition, and the second trigger is the founder or employee getting terminated by the acquirer without cause or good reason in a specified period (typically one year)

Drag-Along Rights: in short, drag along rights enable majority shareholders often including VCs to force minority shareholders to participate in the sale of a company on the same terms. Minority shareholders are “dragged along” disabling them from holding out on a deal to try to get something better for themselves.

Employee Option Pool (EOP): stock that is reserved for existing and future employees to compensate, retain, and motivate workforce

Equity conversion terms: in the context of convertible notes, defines the specific event(s) that triggers conversion of debt to equity, the formula used during conversion (considering the impact of the valuation cap and/or discount – to be discussed), the type of equity received upon conversion by the note holder (common vs. preferred equity), and any associated rights the new equity holders will get after their convertible note is converted to equity (voting, dividends, etc).

Exclusivity: often referred to as a “no shop,” this provision locks parties into negotiating only with each other for a defined period (i.e., 30-60 days)

Exercise (options): buy options at the strike price

Full Ratchet Anti-Dilution Protection: adjusts the conversion price of the protected securities downward all the way the price of the shares issued in the new round. Full-Ratchet is the most investor friendly.

Fund Model: a forecasting exercise that a VC conducts to project what a successful fund will look like in terms of returns from each investment. VCs typically build a pathway to 3.0x net DPI

Indifference point: the price per share at which the noteholder or SAFE holder is indifferent between exercising the discount or valuation cap

Interest Rate & Payments: convertible notes often feature interest rates. Unlike a traditional loan, startups rarely pay the interest in cash to the convertible noteholder periodically. Instead, convertible notes accrue interest until the time of conversion.

Issued Shares: those that the company has issues to shareholders; can’t be greater than the number of shares authorized to be issued for that class

Lead Investor: primary investor(s) (co-leads can exist) in a funding round that set terms and typically are writing the largest check(s); often take a board seat

Legally nonbinding: refers to the nature of term sheets. A signed term sheet does not legally mandate a deal be completed

Liquidation Preference: is one of the rights that makes preferred stock more valuable than common stock and a large part of why investors agree to purchase the right to preferred stock (i.e., SAFEs or convertible notes) or purchase preferred stock directly during financings. Liquidation preference is the legal entitlement to receive a pre-determined portion of a company’s value in the event of a sale or liquidity event before the holders of common stock (i.e. the right to get paid first in an exit).

Major Investor: refers to a participating investor in a financing that surpasses a certain check size threshold, unlocking certain rights. I.e., “all those who invest over $500k will be deemed major investors and shall receive information and pro rata rights”

Maturity: the date at which the debt (plus any accrued interest) is due for repayment. This is typically 12, 18, or 24 months from the issuance of the convertible note. We will talk about conversion momentarily but the norm for a convertible note is that it has converted into equity prior to the maturity date

Maturity Extension: in the context of convertible notes, this entails moving the maturity date back. A common alternative to repayment is for the company and noteholders to agree to an extension on the maturity date of the note

Multiple: a ratio that is calculated by dividing the valuation of an asset by a specific item on the financial statements

Multiplier (Liquidation Preferences): Multiplier refers to the multiple on the original price per share of a class or series of preferred stock an investor is entitled to receive before others get paid. A 1x preference means getting paid one times the original investment, a 3x preference would mean getting paid three times the original investment back before the next most senior preference is paid.

Multiple on Invested Capital (MOIC): compares the value of an investment on the exit date to the initial equity contribution

Non-priced financing: financing round in which founder and VC do not explicitly set a share price and thus do not set an associated pre-money valuation (i.e., convertible notes, SAFEs)

Option pool: an amount of common stock primarily reserved in the cap table for future employees (in certain cases, options can be pulled out of the option pool for existing employees/founders as well)

Optional conversion: in the context of convertible notes, entitles the noteholder to convert their note into equity if desired if the note is still outstanding on the maturity date.

Oustanding Shares: shares owned by shareholders such as investors or employees (could be in process of vesting).

Ownership (O): the % of a company a shareholder possesses prior to or post-closing of a financing.

Participation (Liquidation Preferences): is the right of a preferred stock to participate in remaining acquisition proceeds (on an as-converted to common stock basis, along with common stock) after the initial multiplier liquidation preference is satisfied. When preferred stockholders have a participation preference it’s called “double dipping” as preferred stockholder enjoys preferential return of capital in liquidation preference and then enjoys pro rata share of remaining proceeds. Participation can be capped (limited to a certain multiple) or uncapped.

Prepayment: in the context of convertible notes, payment of the principal and accrued interest by the startup before the note matures. This is generally only allowed if there is a majority of supermajority vote in favor of prepayment by the noteholders.

Post-Money Valuation (P_O): the valuation of the company after the round size is invested by the VC(s)

Pre-Money Valuation (P_M): what the investor is valuing the company at TODAY, prior to the investment

Priced round/financing: a round of financing in which the valuation and price per share of a unit of stock being sold is officially determined (as opposed to a SAFE or convertible note in which case the valuation is left officially undetermined)

Price Per Share (PPS): the cost of acquiring a share of company x, typically determined by pre-money valuation and fully diluted shares outstanding prior to close of financing

Principal: in the context of convertible notes, the amount of investment provided by the noteholder (investor) to the company through the convertible note. In an unfortunate scenario where the note never converts to equity (we will discuss this), the principal (plus any accrued interest) is what the company owes the noteholder (unless nuanced legal terms dictate otherwise). Assuming the note does convert to equity (the norm), the principal (plus any accrued interest) is the quantity used to calculate how many shares the note holder will receive upon conversion into equity.

Pro rata rights: give investors the right (but not obligation) to participate in future rounds of financing to maintain their initial level of percentage ownership in the company.

Pro rata on a dollar-for-dollar basis: gives the investor the right to invest an amount equal to or less than the amount invested in their first round à VC Z invested 200K in the seed round and has the right to invest 200k in the Series A

Pro rata on a fixed sum basis: least common, investors get the right to continue investing an amount as agreed upon that is decoupled from the investment amount. VC Z, who invested $1M in a seed, negotiates pro rata rights up to $700K - they will be able to invest up to $700K in each subsequent round of financing.

Pro Rata ROFR: gives particular investor(s) the right to another investors voluntarily waived pro rata in a future financing  

Protective provisions (negative controls) are contractual clauses that have the goal of preventing the company and its shareholders from taking actions without getting explicit consent of the investors protected by the provisions. They effectively are veto rights that investors (preferred shareholders) have on actions so that they are protected against expropriation.

Qualified financing: in the context of convertible notes/SAFEs, the round size of an equity financing typically must meet a certain dollar threshold to trigger conversion into equity.

QSBS: a tax benefit under Section 1202 that incentivizes investment into small businesses (often startups) with less than $50 million in aggregate gross asset value. Investors who purchase stock (common or preferred) directly (as opposed to via secondaries) from a c-corp business with less than $50 million in aggregate gross asset value and hold that investment for > 5 years, followed by a sale of the held stock, can avoid paying capital gains tax. The tax exclusion can be up to 100% of the gain, subject to limits: the greater of $10 million or 10x the original investment. Recently big beautiful bill updates: 1/ asset value threshold up to $75 million, 2/ cap limit extended to higher of $15 million or 10x investment, and 3/ exclusion starts to come into play after just three years (at 50% exclusion potential).

QSBS Gain Deferral: if you have to liquidate a position before the QSBS holding period requirement ends, you can defer the tax on capital gains, by reinvesting the gains into another QSBS qualified business within 60 days of liquidation. You also get to roll over the holding period of the original investment, continuing the clock (as opposed to starting over).

Redemption rights: allow the investor to sell their shares back to the company for a guaranteed return (often at the original puchase price), granting them a guaranteed exit/liquidity path no matter what.

Registration Rights: defines the circumstances in which investors can require the company to register its shares or piggyback on a registration of other classes of stock.

Repayment: in the context of convertible notes, the process of paying back the debt (plus any accrued interest) due to noteholders

Restricted Stock: company stock given to employees, usually as a bonus or additional compensation; does not have a strike price unlike options; usually awarded to company directors and executives and is subject to vesting

ROFR: gives existing shareholders the first chance to buy shares from an existing shareholder who is attempting to sell them to an outside third party. In simple terms, if I want to sell my shares in a startup as a founder or investor, I need to give existing company shareholders the right to purchase my stock at the agreed upon price with the third party first

Round Size or Investment Amount (R): how much capital the founder is raising for the financing or VC round

RSUs: refers to an agreement by a company to issue employees shares on a future date. One RSU is the right to get one common share. RSUs, like options, are also subject to a time-based vesting schedule and can be trigger based; however, RSUs don’t have a strike price and are instead released directly to the recipient after vesting without any need to “exercise” or buy them; typically awarded to lower level employees than restricted stock

SAFE: an agreement between an investor and a company that converts into equity in the next financing round if certain conditions are met

Seniority (Liquidation Preferences): refers to whether preference is senior, junior or even (pari passu) with other preferred stock. Senior preference means having a first-tier liquidation right, junior preference means having a liquidation right that is paid after the senior preferred and pari passu means preference amongst different preferred stock is the same time.

Single-trigger: states that only one event must occur to accelerate the vesting of your equity. If the company is acquired, you gain complete ownership over all your options

Stock options: incentive mechanisms granted to employees, advisors, and consultants. Employees joining a VC-backed startup typically receive an option grant, which allows them to acquire company common shares in the future at a certain price by “exercising vested options”

Strike Price: the predetermined price an employee pays to exercise (aka purchase) their stock options and turn their stock options into actual shares of the company owned outright. Tax regulations (IRS Section 409a) require options grants to have a strike price equal to or above the fair market value of the underlying company stock on the date that the option is granted

‘Success disaster’: employees run the risk of being harmed financially for building a succeeding business that has grown in value significantly

Supermajority: require votes in excess of the majority; frequenty established in the charter and typically only apply to certain scenarios / investor classes. Supermajority thresholds are often set to give a minority investor veto power.

Supervoting: Supervoting shares entails one class of shares having more votes than another voting class of shares. It distances cash flow and voting rights from each other. In the VC industry supervoting has been heavily debated as companies with supervoting like Theranos, Uber, and WeWork have encountered governance controversies. Founders are typically the beneficiaries (for better or worse) as their voting power becomes a multiple (like 10x) of their share count.

Tag-Along Rights: tag-along rights are triggered when the majority shareholders decide to sell the company. In a similar but opposite nature to Drag-Along, Tag-Along protects minority shareholder’s right to exit alongside the majority. While drag-along “forces” the minority to sell, tag-along allows the minority to sell on the same terms as the majority so they are not left behind

Uncapped Note/SAFE: a convertible note (or SAFE) that lacks a valuation cap

Up Round: when the pre-money valuation of a future financing is higher than the post-money valuation of the prior financing; often seen as a positive sign for the company

Valuation: the process of deriving an enterprise value for a company

Valuation Cap: a valuation cap is an investor favorable terms that puts a ceiling on the conversion price at which a convertible note or SAFE would convert into the equity security sold at the qualified financing.

VC Valuation Method: a valuation methodology that entails projecting a company’s exit value in the future and a VC’s required MOIC in order to back into an implied valuation and ownership level at time of investment (starting with the future and backing into the present)

Vesting: the process of gaining ownership over granted stock options

Voluntary conversion: in the context of convertible notes, gives the investor (noteholder) the power to convert into equity whenever desired (even before maturity) under specified details, negating any prepayment potential

Warrants: when issued/contracted, give the warrant holder the right to buy a certain number of shares of the company’s common or preferred stock at a predefined price over a specified period

Weighted Average Anti-Dilution Protection: adjusts the conversion price of the protected securities downward to a value between the price originally paid by the protected investor and the price paid by the investors in the current (down) round.

P_M + R = P_O ➡️ the pre-money valuation plus the round size = the post-money valuation

P_O – R = P_M ➡️ the post-money valuation minus the round size = the pre-money valuation

P_M / FDSO = PPS ➡️ the pre-money valuation divided by shares outstanding = price per share

R / P_O = O ➡️ round size divided by the post-money valuation is the amount of ownership acquired in a financing by participating investors

D / P_O = Daniel’s O ➡️ Daniel’s investment divided by the post-money valuation is the amount of ownership Daniel is acquiring in a financing

Fundraising

Rule #1: Communicate early and consistently. Goal: build long term relationships with a roster of investors before you kick off a process.

Rule #2: Ask for help. The only way to get maximal value out of your cap table is by asking for help. Especially when times are tough, great investors can potentially be the difference between make or break.

Rule #3: Keep knocking. As hard as it is, keep communicating with rejectors and make them aware of your progress.

Dont #1: OVER-FOMOing

Don’t #2: Focusing on who instead of what

Don’t #3: Exaggerating objectively “auditable” traction

Don’t #4: Asking for follow up intros from rejectors

Is there a topic you’d like us to cover? Don’t be a stranger! Ever want to dive deeper on a topic in VC Investing or Law?

We can be reached here:

Daniel Faierman ➡️ [email protected] 

Chuck Cotter ➡️ [email protected]

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✍️ Written by Daniel Faierman and Chuck Cotter 

Disclaimer: The information provided in this entry does not, and is not intended to, constitute legal or investment advice; instead, all information, content, and materials available in this entry are for general informational purposes only.