So one thing that has changed partially in venture with the explosion of unicorns and VC investing, and also, watching many stall out .. is a little more flexibility from VCs on selling.
One example: Loom sold to Atlassian for a stunning $975 million!! But the last round price was at $1.53 Billion, led by Andreesen.
Andreesen got their money back (1x), but that was it as far as I know, and they agreed to it and there were no issues.
It used to be harder. You used to just have to assume VCs might block a deal where they didn’t make at least 2x-3x their money. And everyone who’s been around has stories like this, even recent stories.
But it is less common today, especially if no one is losing their job on the deal.
I remember the first time I saw this was during lockdown. An early investment from SaaStr Fund had seen growth slow, and sold for about $100 million during peak lockdown. Pretty good, although they were at eight figures in ARR, so the multiple wasn’t that high. I was happy for the founder either way. But I thought the Big VC Fund that led the last round at about that price would block it. They had the right to. But nope. They got their money back (1x) via their legal docs, and that was it. They were fine with it, and just moved on. It was an investment out of a $2 Billion+ fund, so it was immaterial either way at that scale.
Now this doesn’t happen every time. High drama deals, with massive investments, can be more stressful. When Coreweave raised a late stage round just before its IPO, it had to guarantee a 70% or so return in the two years post IPO — or the investors could get their investment back!
So it’s context-sensitive, for sure. I just think the learning is if the business really needs the capital, and you can get it, and it’s not a massive amount of capital, just take it. Even if you aren’t 100% sure you can exit for 10x that price.
I made that mistake back in the day. We had tons of offers to invest in EchoSign at $100m with our growth ($10m ARR, growitn 100%, 110% NRR), but I was scared we’d be forced to IPO and lose all our other options. So I said No. Looking back, I should have said Yes. That fear was fair, but overblown.
What matters most here is you sell for materially more than you raise. Then it can work out. If you sell for less than you raise — it’s always a mess at some level.
It’s still an issue, your VCs potentially blocking a sales where they don’t make at least 2x-3x their money. But it’s just less of a big deal today if you don’t raise massive amounts of capital at massive valuations, that’s all.
Big Funds may be fine getting 1x their money back down the road if that’s as good as it gets. Not happy with it, but OK with it if that’s the best outcome. And not always, but more often than you might think.
And a related convo on how this works as part of our deep dive with Dave Kellogg here:
