The Ledger
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Paley: High seed valuations lower a startup's chances of ultimate success
“So I just think there's another problem outside of, it's a different form of risk, which is the likelihood of success, in my opinion, goes way down for those companies, which is super counterintuitive because you're like, well, but they have more money at a hi…”
Paley: VC obsession with ownership targets hurts founder alignment and returns
“We do not focus on ownership. We actually think that's a very problematic mindset. There's a whole bunch of downstream issues, including, first of all, our missions about alignment with the founder, and the whole ownership mentality. You can twist yourself in …”
Exercising pro rata rights repeatedly dilutes seed fund returns
“The other thing you're doing when you're exercising parada over and over again is Is your dollar averaging down your returns, or otherwise you could say your dollar averaging up your cost basis?”
Paley: High seed valuations make Series A fundraising significantly harder
“I actually think being overpriced at seed is actually a bigger problem than most entrepreneurs realize, particularly as the market's adjusting, right? It's a very hard time To raise Series A in general, and it's a harder time if you're already priced where som…”
Paley: Easy access to early capital usually destroys startup value
“The easy access to money at a accelerated stage that the company is not ready for usually will destroy the company's value.”
Paley: Overcapitalization Is the Biggest Risk to Startups Beside Lacking PMF
“Besides product market fit, the biggest risk to a venture-backed company is bad capitalization. And we don't mean undercapitalization. We mean overcapitalization”
Paley: High valuations turn off good investors and increase next-round risk
“I don't think the founders often appreciate two things is how much they're turning off investors that might've been good investors for them, but even bigger, how much risk they're actually taking on their next round. What this round does in terms of creating r…”
Paley: Investors won't recapitalize overvalued startups with low revenue
“If you're recapping a hundred million dollar revenue company at a billion dollar valuation, but it really should be recapped. People will do that work, but if you're recapping a three million dollar run rate revenue company with a billion dollar valuation, the…”
Paley: Struggling founders should return unspent capital to investors
“I actually think that if you want to maintain your integrity, you want to maintain your integrity, and you don't have product market fit, and you raise money at a crazy valuation, and you don't want to have this burden on your back for possibly years, and by t…”
Paley: Private companies are actually more volatile than public companies
“Private companies are more volatile than public companies, in truth, we, like, pretend they're not at all volatile, and somehow their valuations are whatever happened in the last round some months ago.”
Paley: True Startup Dilution Comes From Burn Rate, Not Financing
“Valuation is all the sideshow. The dilution isn't even your financing. The dilution is how you use your burn rate. That is where all the dilution lives.”
Paley says startup exits smaller than total fund size are immaterial
“You have to put that alongside the fact that venture funds have been growing, and the rule of thumb we use there is we say any exit that isn't at least equivalent to the size of the fund is not really material to a fund.”
Breakout portfolio companies rarely need VC help, says Eric Paley
“Struggling through how hard it is to build companies in 90% of our portfolio. And then there's the 10% that just does amazingly well, and it's really fun to help those companies, and we do get involved, and we do contribute to those, too, but they don't really…”
Paley: Truly strong companies can go public in almost any market environment
“I think if you're a strong company, you can go public in almost any period of time, as long as the market volatility is not insane, like the great financial crisis. If you are strong, if you're really ready, you probably can go out in almost any environment, r…”
Customers validate startups, not venture capital, says Eric Paley
“Ultimately, your customers validate your business. Venture capital doesn't.”
Eric Paley says capital efficiency gives founders more control and lowers risk
“So, so at Founder Collective, we've been actively talking about what we call efficient entrepreneurship, the efficient use of capital, which ultimately leads to much more founder ownership, much more founder control, and actually, believe it or not, much less …”
Paley says early-stage startups must triple their valuation every two years
“I think at the early stage, rough rule of thumb, there's no perfect definition here. You should at least be tripling every two years. Some people would argue you should be doubling every year, which would mean Forex in two years. But just to sort of put a more…”
Founders drive inflated valuation expectations just as much as VCs, says Paley
“Actually, the expectations come as a result of a tough negotiation where, Not just VCs, but founders typically want more capital and higher price. And so it's on both sides, the intention of the VC to get more capital in and incentives to do so, and the desire…”
Paley says the 'go big or go home' mentality is not required
“I've never believed that go big or go home is a requirement to building a big company.”
Paley: Startup Execs Should Compare Real Financials Against Valuation Hype
“If you're coming into a company as a senior executive and you have a CEO is bragging to you about how big their last round was in dollars and how big the post money was, ask to see the financials and compare those financials to what they're claiming in the van…”