Wednesday, November 22, 2006

Survivor characteristics by Fred Wilson with updates

Update from Fred
If you take money at a valuation that is not sustainable and the market corrects and you need more, you will often be facing a cramdown/restructuring where everyone gets wiped out and the new money owns the company

I've lived through that too many times and I don't want to see it again

The problem with lofty exit expectations is that once they are dashed by new market realities, you will often lose your investors and employees who were sold on an outcome that is no longer possible

Hope this helps

He mentioned that New Money owns the company. From an entrepreneur point of view does it really matter as long as he holds a considerable equity. I cant comment on this. Of course market will always correct the valuation when its on the either side.

Yes the second one makes more sense. Exit expectations should be a a decision of all the major stake holders. No one can belittle sweat equity.

A VC: Building A Bust Proof Portfolio

So here are the things that those "survivor" companies had in common:

Lower burn rates

Business models, revenues, and customers

Good venture syndicates with real VC firms (as opposed to strategic investors, amateurs, new funds, etc)

* Realistic valuations (as opposed to valuations that could not be sustained when the market broke)

* Committed entrepreneurs who were in it for more than just money

* Long time horizons for everyone involved (entrepreneurs, investors, employees)

* Reasonable exit expectations

* Less capital raised and less preferences on top of the founders

Isnt it some thing which he says indirectly that dont have high ambitions.

Reasonable exit strategies,If the market is offering you one is there anything wrongs in taking it.?

Realistic valuations? Wht not ahigh valuation

Less capital raised, is it you are telling in terms of part with less equity