1/ If you are a growth stage founder raising $$$, this thread is for you…
2/ At the growth stage – the types of investors you can access are much broader than VCs (e.g., crossover, PE, Sovereign Wealth Funds)
3/ As a result the rules of the game are different 1. Term sheets are not final — valuations can drop and/or investors can pull TS’s last minute and your entire round can fall apart
4/ Having been at YC and seen a spectrum of fundraises I do realize this happens across the board (international, non- Silicon Valley investor) but to a *large extent* Silicon Valley investors work very hard to keep their word and reputation intact.
5/ But in this new trend of crossover and PE funds investing in the late stages.. we see this happening more than ever
6/ What can you do as a founder? (A) If you have decided to take a TS close ASAP Why? In the last week when markets crashed we had few investors message founders asking if they can drop the valuation by 30% from their original offer since the market has corrected.
(B) If you have just started the process — finish your process to understand the range of valuations and who the *real* long term partner is.. Why? You need to have a plan B if your lead pulls the TS and it is good to get market feedback.
Examples of why investors have pulled TermSheets — * Market correction, * Entered COVID lockdown (In March 2020 there were several that pulled TS’s) * Did not finish our work in time and we gave a TS prematurely to win the deal!
(C) If your fundraise does fall apart because the lead pulled the TS then pause the process if you can If you have enough runway, go back to building your business and go back to market in two quarters
(D) If you have only reasonable runway then try raising a SAFE /Bridge to buy you time before you go back to market
7/ Pulling last minute TS’s are not common but when it happens it can be quite damaging in terms of morale to both the founders and the broader team. Therefore as PG would famously say — it is not done until the money is wired in the bank!
8/ Many founders have experienced this and gone on to build really successful companies. At YC most of our successful companies have had at least 1 or 2 rounds of fundraising that were extremely hard. Don’t let the short term pain get to you. You will come back stronger!
9/ Last but not the least you should reference check investors even in the late stage.
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