Agreed – a very good option. Starting to see that a lot right now.
— Doug Pepper (@dougpepper) May 14, 2022
So there’s a lot of panic from VCs now. The markets, at least for now, for SaaS and Cloud stocks have fallen dramatically from their post-Covid peaks. Many aggressive late stage funds like Tiger and Softbank are, for now at least, sitting on massive losses. And no one knows when revenue multiples, now at multi-year lows, will rebound — if at all.
So fundraising is harder now. It has to be.
- If you have years of cash, you can ignore it all. In fact, you can invest when your competitors might be pulling back. Go forth and conquer!
- If you are growing slowly, and have limited runway, times are tough. That’s beyond this post for now.
- If your growth is insane, you can always raise from VCs. At least, so long as the last round price wasn’t insane.
But there will be a fourth group of you, at least the ones with existing VCs and angel investors:
- The ones doing pretty well, with plenty of cash, but < 18-24 months. Growing 80%-100% or more a year, with a reasonable burn, and good prospects.
The ones in this fourth category will be very attractive investments to their existing investors — especially if you keep it simple, and just raise a little more capital at the last round price.
- Most VC funds carry reserves for their winners, extra cash to put into them.
- Most VC funds are a bit more nervous about new investments now.
- Almost all VC funds want to invest more in their winners to increase their ownership.
- And, many VC funds that invested early can dollar-cost average a bit when they write another check.
Now, if you raise the price from the last round, you make it all so, so much more complicated. That made sense in 2021 and The Best of Times. But today, even if you grew 100% since last year, the market also fell 50%. So you are where you were last year, net net, from a valuation perspective, 🙂
So just ask if things are going pretty well. Just ask your existing investors if they want to invest more at the last round price, even just a smidge more. This keeps it very simple. And the beauty of existing investors is they are often happy buying 1%, 2%, 5% more, They don’t need to buy as much, since they already have a significant stake.
Just ask. See what happens. You may get a quick top-off of the fuel tank.
Seconds image from here