Is raising too much money at early stage genuinely harmful to a company, or is warning against it mainly a VC-serving bias?

Adam Besvinick · May 29, 2023

Founders should raise at least twenty-four months of cash, and a team that can't find product-market fit disciplined over two years probably didn't deserve to raise more than $2.5M

Discipline over a two-year window is the real test of whether the company merits more capital

Scope: at the seed/pre-seed stage

0:00 20VC: Why Financial Models at Seed, $5M Seed Rounds & The Fear of Signalling Risk is all BS | Why Multi-Stage Firms Have Destroyed Seed & Who Wins and Who Loses in the Next 10 Years of Venture with Adam Besvinick, Founding Partner @ Looking Glass Capital

Adam Besvinick · May 29, 2023

A founder who cannot find product-market fit on a disciplined two-year runway probably did not deserve to raise more than $2.5M in the first place; funding $5M and four years of searching is a luxury only billion-dollar multi-stage funds can rationalise

For a multi-stage fund a $5M check does not move the needle and functions as an option to write a much larger Series A check and level up ownership

32:01 20VC: Why Financial Models at Seed, $5M Seed Rounds & The Fear of Signalling Risk is all BS | Why Multi-Stage Firms Have Destroyed Seed & Who Wins and Who Loses in the Next 10 Years of Venture with Adam Besvinick, Founding Partner @ Looking Glass Capital

Mike Maples · Sep 20, 2023

Raising too much money at too high a price distracts founders from the only first-order question, which is whether they have product-market fit

If you have product-market fit you can hire the best people at will; if you don't, hiring prestigious expensive people is answering the wrong question

43:28 20VC Roundtable: Is the VC Model Broken? The Biggest Disconnect Ever Between TVPI & DPI, Why Market Size is Dangerous, Why "Go Fast" is Terrible Advice, The Dangers of Raising Large Rounds at High Prices & Why Next Year Will See the Biggest Hiring Spree i

Adam Besvinick · May 29, 2023

Raising $5M at a $25M valuation before writing a line of code puts a target on the founder's back, whereas raising $1.5-2M at a sensible price preserves margin for error and makes future up rounds achievable even in a hard market

Nine of his 24 Fund I companies raised since the start of Q4, six as priced up rounds and three as safes at higher caps, all because their original rounds were priced sensibly; that is not achievable if you raised at $15-25M pre-product

Scope: pedigree founders who raise $5M are not his target founder profile; sensible pricing can still mean a high number like $12M post

30:46 20VC: Why Financial Models at Seed, $5M Seed Rounds & The Fear of Signalling Risk is all BS | Why Multi-Stage Firms Have Destroyed Seed & Who Wins and Who Loses in the Next 10 Years of Venture with Adam Besvinick, Founding Partner @ Looking Glass Capital

Adam Fisher · Jan 22, 2024

Whether raising a lot of money is right depends on stage: it can be justified at growth stage, but at seed it distorts everything

At seed, too much capital sets the go-to-market model, the hiring, the offices and the culture all wrong; at growth stage a fast-growing company may face genuinely large opportunity

Scope: growth stage: acceptable; pre-seed and seed: distorting

43:24 20VC: Why Small Markets are Better Than Big Markets, The Biggest Delusion of Early Stage VC, Why AI Investing is like a Horserace and Why The Most Ambitious Companies Growing the Fastest are not the Best Investments with Adam Fisher, Partner @ Bessemer

Harry Stebbings · Jul 14, 2023

The $5M-on-$25M seed round has been destructive to much of the ecosystem

People argue great founders will raise $5M and spend like they raised $2M, but that almost never happens in practice

33:14 The 5m on 25m seed round has been destructive to the startup ecosystem

Jake Gibson · Jul 14, 2023

It is essentially impossible for a company that raised $5M to operate with the same mentality as one that raised $2M

Bigger rounds reset salary expectations, so you attract people who belong at big companies rather than at a scrappy startup

33:33 Bigger seed rounds reset salary expectations making lean operation impossible

Adam Fisher · Jan 22, 2024

Valuation alone is rarely a reason to pass on a very early-stage deal; a high price is usually a symptom of the founder raising too much money, which is the actual problem

A $40M pre-money comes from asking for $25M in a first round; the real issue is that they don't yet know what they'd do with that much money

40:09 High valuation as pass reason is really a symptom of overraising the true problem

Harry Stebbings · Jan 22, 2024

The warning against raising too much is a VC-ism; the best founders know what to do with the money, and VCs push it to get smaller rounds and lower prices

42:44 Warning against overraising is a vc serving bias not founder serving advice

Jason Lemkin · Jan 13, 2023

If a company sells for 10x or more than it raised, the outcome works out well for everyone, which is why companies that raised massive amounts of money early have no viable exit path

Old model: raise $5-12M before $10M ARR, sell for $100M and everyone makes money; if you raised huge sums early, nobody is going to buy you for the required multiple

25:05 Companies that raised massive early capital lack a viable exit path since buyers wont pay the required multiple