What happens when a venture capital fund invests in a startup?

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JASON LEMKIN

The clock starts ticking.

As soon as a VC invests, the follow calculation begins:

  • Can the company grow fast enough,
  • and accomplish enough,
  • before running out of money,
  • to raise the Next Round at >=2x the price just paid.

Usually, there is a runway, a period of time that money lasts, and a “Zero Cash Date.” More on that here: https://www.saastr.com/knowing-a…

Immediately, there’s a timeline now. Can you get 2x or more the price, in the next round, before the company runs out of cash.

If it’s a non-issue, if an “upround” will clearly happen (and thus, the company clearly will not run out of money) … stress will melt away quickly with your investors

If it’s super early, right after the investment, the stress will be there, but it’s still early. It’s the Honeymoon period.

But as soon as it looks like those criteria might not be met … Stress.

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Published on November 18, 2016
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