Raise amount vs. valuation cap: What the data tells us | Mendel Chuang (GP at Acquired Wisdom Fund)
May 27, 2024
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Mendel Chuang from Acquired Wisdom Fund discusses changing valuation caps and raise amounts in seed rounds. The conversation covers founder updates, pre-seed VC mentality, and the importance of founder networks. Insights on trends in fundraising, AI impact, and advice for navigating the pre-seed VC market are shared.
Setting valuation caps based on trends and feedback is crucial for startup ownership distribution.
Embracing diverse roles and tasks can enhance founder learning and decision-making in early-stage startups.
Building a personal financial runway allows founders to focus on growth without immediate financial pressure.
Deep dives
Understanding the Valuation Cap in Funding Rounds
Valuation caps play a crucial role in funding rounds and can significantly impact a startup's ownership distribution. Founders should set valuation caps based on market trends and investor feedback to position themselves effectively within their peer group. Investors often assess startups' valuation within the broader landscape to determine the competitiveness and attractiveness of the investment.
The Significance of Being Scrappy and Learning Multiple Functions as a Founder
For early-stage founders, being scrappy and learning to handle multiple roles within the company can be essential. Embracing curiosity and taking on diverse responsibilities present valuable learning opportunities that contribute to a founder's growth. Handling tasks across different functions allows founders to better understand their business and make informed decisions as they navigate the startup landscape.
Navigating Early-Stage Funding and the Importance of Building Runway
Building a personal runway is crucial for founders venturing into the startup world, as it provides financial stability while working on the business without taking a salary. This runway allows founders to be scrappy, experiment, and develop their startup before seeking external investments. Having a financial buffer enables founders to focus on the business's growth and product development without immediate financial pressure.
Embracing Nimbleness and Flexibility with a Small Team Structure
Operating with a small team offers startups the advantage of nimbleness and quick decision-making. With a compact team, founders can swiftly pivot, adjust strategies, and make decisions without the complexities of larger organizational structures. This agility allows startups to adapt to market changes, test ideas efficiently, and remain responsive to evolving business needs.
Benefiting from the Peer Community and Learning from Diverse Experiences
Engaging with peers and leveraging their experiences and insights can be invaluable for founders navigating the startup landscape. Seeking advice, sharing knowledge, and learning from others who have gone through similar challenges can provide founders with a broader perspective and promote collective growth. Building a supportive community of founders can foster collaboration, ideation, and shared learnings that contribute to entrepreneurial success.
In this episode of The Data Minute podcast, Peter Walker (Head of Insights at Carta) is joined by Mendel Chuang (GP at Acquired Wisdom Fund) for a wide-ranging discussion around two interesting trends in Carta’s data:
• How valuation caps have been changing over time since Q1 2022
• The percentage of seed rounds that are priced, by raise amount
Along the way, Peter and Mendel share insights and perspectives on countless issues in venture — from how often founders should update their investors, to what Mendel looks for in a company valuation-wise, the mentality of pre-seed VCs, and more.
Subscribe to Carta’s weekly Data Minute newsletter: https://carta.com/subscribe/data-newsletter-sign-up/
Explore interactive startup and VC data, with Carta’s Data Desk: https://carta.com/data-desk/
Chapters: 00:24 Intro 01:15 Mendel Chuang and Acquired Wisdom Fund 06:22 Differences between pre-seed and seed rounds 09:02 Chart: Median raise for a priced seed round 14:30 SAFEs, side letters, and investor updates 17:58 The importance of having a founder network 21:18 On founders and accelerators 23:22 SAFEs and convertible notes 27:26 Raising capital, AI, and being a leader in a space 29:40 Chart: How valuation caps have been trending lately 35:18 Advice for founders on the pre-seed VC market
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