Comment by corry | Hacker News Reader

Comment by corry | Hacker News Reader

Perhaps I'm a minority, but I got A LOT of value from my investors (both pre-seed, seed, and series A). To the point where I'd consider them core partners in my journey of building the business.

I know Aaron isn't saying that the investors don't matter.

But when I think about why VCs hate going through an auction-like process, at least part of it is human nature. Like, we're about to work together for a long time. Let's not start off by commoditizing what we each bring to the table. I understand the POV that 99.999% of what VCs bring to the table is the literal commodity of cash... but if you have good ones, they really can help.

In our case, we had multiple term sheets for our Series A so I was able to optimize terms and get the partner/fund who I thought would add the most value but at "market" on the other terms. "Market" being what was on the other term sheets. That seemed to work OK as a softer way of actually doing the auction.

The real point in all of this is that if the VC's value-add is true, then you shouldn't NEED to discount things because of that. If it's real, then they should be happy to pay 'market rate' to invest in you, and the impact of their other value will be that together you build a better business, which is more valuable to them too.

Sure, but that's not how negotiation works; both parties are trying to get as much out of the deal as they can, assuming it beats both parties' BATNA.

Also, that you had multiple term sheets means you... ran an auction. It's wonderful that most of the terms were similar, but getting multiple term sheets is effectively generating a bidding war. You don't have to pick the one that is monetarily best (we didn't, because we preferred the partners), but that's why you're doing. :)

Well, if we're defining "auction" to mean anything with competing options -- rather than its typical usage, which is price-only competition of something rather commodity-ish -- then sure.

My process had elements of an auction - using competing options to determine "a market price" for various terms. BTW - the VCs also had that, in that they could have put that same capital to work in other companies vs mine.

But that's not a pure auction. i.e. there's still room for qualitative choice and optimization on both sides. This should be most obvious to you in the non-monetary terms and how difficult it would be to translate into $ terms (for instance - how many seats on the board? How much lower/higher of price makes sense for more/fewer board seats? Well, for starters, it would depend on which VC is asking and what stage the biz is in). Clearly these aren't pure auctions.

Because (back to my original point) this is possibly a 10+ year partnership you're getting into (longer than many marriages).

A good process is more equivalent to (1) speed dating, which leads to (2) a handful of non-exclusive longer dates, (3) a period of exclusivity (no-shop) and 'meeting the family' (diligence), and then possibly, finally, (4) marriage.

I do not think the OP intended to mean a 'pure auction' in the sense you're using it. I strongly suspect he meant run a competitive bidding / auction process. Non-tangibles are absolutely acceptable tools in such a process, including future relationships, intangible terms like fewer board seats, etc. An auction does not have to be solely monetary in nature.

> To the point where I'd consider them core partners in my journey of building the business.

The startup ecosystem in Brazil is probably in a time lag and perhaps this is why my experience might not be as insightful here. Still, I agree with your comment 100%. The majority of our early investors held some relevant experience in our field or offered tangibly valuable networking opportunities.

In fact, I think that the abundance of venture capital has the effect of flooding the ecosystem with "regular-value investors" (those that only have cash to contribute with), so these "extra-value investors" that actually partner with you are harder to find. And taking the authors suggestion of intentionally starting a bidding war further exacerbates the problem.

Instead of finding someone with experience and maturity in the field you're going to venture into, it increases the odds of picking investors that don't really know much exactly because they won't realize the bid was getting too high. By design you're trading knowledge for higher expectations.

It's hard to see the VCs as victims of commoditization because the VCs commoditize it themselves. They hunt for cash-starved startups by sending out tons of rubber-stamped emails without having any clue about what the recipients do and what makes them special.

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