Wednesday, June 16, 2010

Can a VC transfer risk to a startup?

Awesome post by my buddy Healy Jones on startup funding risk. Couldn't have said it better myself. Especially the quote below. If you think may ever start a company or work at a startup, read his blog!  

"The biggest way a VC can increase a startup founder's risk is by not participating in a follow on round of financing. As herd animals, VCs look to each other for signals. An existing investor not investing in a subsequent round is a major red flag that something is wrong with the business. That's why I've always recommended syndicating your Series A Round - you decrease the likelihood that no existing investor steps up. (Note that I have ignored my own advice with OfficeDrop.) There are other reasons that a venture capital firm will not invest - such as the fund running out of moneyor the partner who made the original investment leaving the fund."