Funding the Valley

0:00 So you want to know when the best time to fundraise is. I actually have given this a lot of thought. Let's go to the whiteboard. So here's how I think about it. This is your company, time, and the value that you create. Generally, most startups follow a trajectory that looks something like this. They start out and everybody's really excited about them. And then they start to execute. And during execution,

0:30 they realize how hard it is hopefully they actually start to execute effectively come out of

0:35 the valley and then scale so if this is what your trajectory looks like there are two great times

0:43 to fundraise the first is on the idea before you start executing everybody is excited about the up

0:49 and to the right trajectory and the second place is once you actually do start scaling and get past

0:55 that valley of despair but there's a key thing to think about here if you're gonna fundraise

1:01 in this beginning section you need to make sure that you've raised enough money to get across that

1:07 valley because it's really hard to fundraise in the valley and i know that because of what

1:14 happened to us in sure payroll so true story sure payroll we were in the early stages and we raised

1:21 a bunch of money our series a was actually eight million dollars which seemed like a ridiculous

1:25 amount of money at the time i couldn't fathom how we'd ever go through eight million dollars

1:29 and we executed and it got harder than we thought and it took longer than we thought

1:35 and ultimately we needed some additional capital fortunately our existing investors were great and

1:42 stepped up and were supportive and were supportive of investing additional capital but because the

1:48 the perceived value of the company was less than what it was when they invested the first time.

1:53 They did so at a lower valuation or what we'd call a down round.

1:58 In those days, the standard terms was a full ratchet, which means there was anti-dilution protection.

2:04 And when we did that, we had to give them, the original investors, a bunch of shares to make them whole.

2:10 That transaction, while it saved the company and ultimately we did great and came out on the other side,

2:15 that transaction cost me about half of my personal equity.

2:19 All the common holders got diluted by about 50% more than they should have.

2:23 So I felt that pain.

2:25 And my suggestion to you is that if you're going to raise early,

2:27 make sure you absolutely have enough money to get across there

2:30 because it always takes longer and it always costs more.

2:35 I hope this was helpful.