Thread by @jbrowder1 Get a top tier institutional investor from the Seed, even if it means a hit to valuation.
Shared by macOS · 19d ago · 7 comments

The most important fundraising advice I have for new founders:

- Get a top tier institutional investor from the Seed, even if it means a hit to valuation.

- In this climate, it can be tempting to raise endless rounds from angels. But institutions set the company up for success

- Stripe, Airbnb, Snapchat, Coinbase, Robinhood, Uber and Figma all had a top 15 institution lead the seed. Your company is not the exception.

- In fact, it is difficult to find a single successfully backed VC company that wasn’t institutionally backed at seed.

But how does one implement this in practice?

1. Every top VC firm should at least see your company until you find a lead.

2. Don’t price out top VC firms with price insensitive angels. Much better to get a Top 5 Fund at 10m valuation than a random angel at $40m.

- Top VC firms have ownership targets. Previously, it was closer to 20%, but these days it can be 10%.

- You may as well give away 10-20% of your company when it’s just an idea than when you have serious traction.

- Then you have them for your entire journey!

- Institutional investors also de-risk a company from a legal standpoint. For example, they will always make sure the company is properly incorporated, there is founder vesting and there is IP assignment.

- A small angel investing on a SAFE is not capable of doing that.

- Some founders may push back and say that “they are not interested. I can only raise from angels.”

- There are so many great firms that perhaps 1) find more institutions to pitch 2) you should change the plan/improve the metrics (tough pill) before giving up on firms

Important nuance:

- At pre-seed, it can be good to raise from angels, especially if they help package and introduce to institutions at seed.

- After an institution is involved, by all means include angels.

- YC Is great but doesn’t count as institutional. Nor “rolling/scout funds”

- Being a founder is hard enough. Don’t make it harder by going in a different direction to 75%+ of successful startups!

manojranaweera · 18d ago

Getting a top-tier investor as your first investor could easily kill your tech startup if you could not deliver the high expectations they have.

Secondly you should not touch institutional investors first.

So much wrong with above advice, I stopped reading it

macOS · 18d ago

Yes, maybe that's correct /or wrong. IDK, but my perspective is different. To me it's all about validation and who endorses that. Being able to deliver the expectations of high achievers is fun.

manojranaweera · 18d ago

Just be careful taking what's said on Internet as the holy grail. Even what I say, should be questioned. All the best!

macOS · 17d ago

Thanks, Manoj! You seem to be a very chill guy. Also I like your approach, it seems to be working. All the best!

manojranaweera · 17d ago

I'm 53 so have been around the block a few times. Plus founded my first tech startup in 2004.

macOS · 16d ago

Well done! Your case reminds me of the kind of result you get by a proper nurture of nature thing. You are lucky to have got both right and in place.

AndyDent-Touchgram · 13d ago

You may as well give away 10-20% of your company when it’s just an idea than when you have serious traction.

Oh seriously ???!

When was the last time anyone other than a deep SV insider could get funding on just an idea?