This Week in Startups Understanding capital calls, one-off SAFEs + Transaera CTO Ross Bonner | E1605
Nov 6, 2022
Ross Bonner, CTO of Transaera, is on a mission to revolutionize cooling systems with energy-efficient technologies to combat climate change. He dives into the innovative use of heat pump technology and the challenges of traditional air conditioning. The conversation also touches on the rising demand for sustainable solutions and the effects of outdated refrigerants. Before Ross joins, the hosts discuss capital calls and the new trend of one-off SAFEs in startup funding, emphasizing the need for flexibility in today’s challenging economic landscape.
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Capital Calls Explained
- VCs use capital calls to draw down LP commitments over time, typically 3-5 years.
- This benefits both the VC (GP) and the limited partner (LP) by aligning capital deployment with performance measurement and allowing LPs to manage their liquidity.
Capital Calls in Down Markets
- During recessions, VCs may delay capital calls to avoid pressuring LPs who have likely experienced portfolio losses.
- This can create a cash crunch for startups who are relying on those funds, even if the VC has announced a large fund.
Using SAFEs in Difficult Markets
- Founders facing difficulty raising priced rounds should consider using SAFEs (Simple Agreement for Future Equity) as a bridge.
- This allows them to raise smaller amounts at previous valuations or create party rounds with multiple smaller investors.