Rotman: VCs prefer no-bids over down rounds for overvalued seed startups
Frank Rotman · DEBATE: State of Seed Investing w/ Jason Lemkin, Sam Lessin, Frank Rotman & Harry Stebbings | E1047 · 20VC with Harry Stebbings · Aug 11, 2023 · at 11:18
Frank Rotman, founding partner at QED Investors, warns founders about the hidden danger of overfunding at high seed valuations during a market correction.
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“And if pricing doesn't correct at the earliest stage you're going to have a lot of no bids, you know, at the Series A because they wouldn't have gone far enough, fast enough for a Series A investor to come in and say they've earned their way into a significant increase in valuation. And what a lot of founders don't realize is that venture capitalists, a lot of them, would prefer to give a no bid Than to deliver the bad news that we like your company, but guess what? It probably needs to be a flat round or a down round to the last round because you haven't earned your way in. So you're reducing the aperture of downstream capital if you've overfunded yourself at the wrong valuation early on.”
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