Startup Fundraising 101: The Pros and Cons of Different Sources of Funding by Matt Ward

TL;DR - VCs can bring many benefits table, but also have many demands.

Helpfulness - 5 (also beginner-friendly)

Topic Tags - Fundraising options, VC pros & cons, VC terms and conditions, VC incentives

Questions answered:

  • How are VC investments different from other fundraising options?
  • How do VCs make money?
  • How do VCs help develop a company?
  • What interactions can take place between founders and GPs?
  • What are some common problems in VC?

Summary:

  • VC are incentivized to increase their Assets Under Management (AUM).
  • VCs aren’t the speediest when it comes to writing checks, but they can provide the most funding, industry expertise, and outside help.
  • VCs also have a strong ability to follow up on investments but often demand board positions and are stingy with liquidation preferences, often demanding multiples and participation rights.
  • VC incentives fit with founder’s incentives but don’t perfectly align, therefore it can be said that “Venture funding is fuel — you either take off or get burned.”

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