Fireside Chat, Interview
David Tisch: The 3 Most Important Variables When Raising Your Seed Round | 20VC #983
- Plans to continue deploying capital over a 10-year-plus fund life with a focus on pre-seed and seed stages, expecting to work through a downturn starting in 2021 that may see $25 million valuations persist while the market bifurcates.
- Strategy involves writing checks of $100,000 for exceptional opportunities, $500,000 to $1 million for the majority of portfolio companies, and being comfortable as the second or largest check in traditional seed rounds or leading pre-seed rounds.
- Anticipates the need for companies to optimize fundraising variables (money, price, source) by raising $12.5 million to $15 million rather than $25 million, noting that down rounds are likely but rare, with shutdowns expected to increase over the next 18 to 36 months due to runway exhaustion and a lack of M&A activity for small acquisitions.
- Expects a shift in market dynamics where multi-stage firms continue writing $5 million seed checks at $20 to $30 million valuations, while non-multi-stage rounds shrink to $2 to $4 million at $10 to $15 million valuations, alongside a reduction in opportunistic "tourist" investors.
- Maintains a long-term orientation to back founders through bad times, aiming for outlier returns from a portfolio of amazing companies rather than a uniform 100% exit target, acknowledging that some companies will require more cash and time to reach $1 billion to $2 billion outcomes.
- Focuses on consumer social businesses targeting the 12 to 25-year-old demographic, expecting a renaissance of new fun content and a rejection of native products built by previous generations.
- Commits to protecting founders from predatory behavior by bad actor VCs, particularly in Tier 3 funds, while emphasizing honest advice, customized service, and the importance of relationship building over the transactional speed of the past few years.
- Seeks to align with investors who can make independent decisions and expects to deploy follow-on capital into the best portfolio companies, recognizing that valuation control lies with the market rather than the investor.
- Acknowledges risks of spin-outs from large companies being slower investments, potential signaling risks at Series A to B stages if leads do not follow on, and the high cost of founder mistakes compared to VC losses.
- Operates with a goal to maintain agility and flexibility, expecting to deploy capital quarterly with a potential slowing of opportunities in the near future, while aiming to return capital to investors and achieve life-changing outcomes for founders.