Pricey SaaStr: How necessary is it to have a premier VC fund backing you vs angels at the next valuation?
I feel generally, it largely boils all the way down to Subsequent Spherical Danger.
For those who increase cash from high and even top-ish model VCs at an affordable valuation, you often get no less than 3 advantages:
- High Companions at High VC Companies are Normally Good for a Second Examine in case you are doing OK / respectable however not nice but. For those who do OK, high VCs will usually write a smaller second examine in case you want it down the street. For those who do terribly and/or fail, that’s one thing else. However in case you make some progress, high VCs save a bit of further money that will help you get to the following stage. Angels virtually by no means do until you might be doing extremely properly, during which case you don’t want them once more anyway.
- High VCs simply recruit the following spherical VCs for you, or no less than assist quite a bit, so long as you might be doing moderately properly. The subsequent spherical VCs all need to “observe” the highest VCs a stage earlier. That alone means you’ll have a a lot simpler time elevating, all issues being equal, with a high VC already in. Notice this actually solely holds for seed funds with a powerful model. Funds that lack manufacturers might have bother serving to you with the following spherical. Ask who they’ve completed this for, and discover out if it’s true.
- Social proof total. Some new potential hires will all these being even considerably equal, choose a startup to work at that’s funded by a high identify model VC. It simply is sensible. There may be solely a lot diligence you are able to do as an worker. Identify manufacturers matter, even when they’re imperfect proxies for high quality.
And keep in mind:
- A “too excessive” valuation from angels might discourage VCs from investing afterwards. For those who persuade angels to boost at a a lot, a lot greater value than VCs would make investments, that may be nice. However until you’re a rocket ship, it may be an actual situation within the subsequent spherical. Once more although in case you 5x-10x your valuation in a 12 months and you’re the subsequent Datadog or Snowflake or Slack, it received’t matter.
The underside line is in case you don’t want capital once more, or no less than not for two+ years, perhaps take the angel cash if it’s at a a lot greater value. As a result of if nothing else, then you’ll be able to increase more cash for a similar dilution. In SaaS particularly, that’s beneficial.
However in case you’ll want more cash quickly, and suppose it might take some time to grow to be a rocketship, then this technique is dangerous.
