Here is a fascinating and detailed post by Scott Kupor (Managing Partner of Andreesen Howowitz, one of the most prominent VC firms in Silicon Valley). In the post, Kupor analyzes the boom-and-bust cycle inherent with startups and venture capital.
In particular, Kupor offers the following 3 pieces of advice for entrepreneurs:
"1. Be aware of the competing incentives that investors may have and ensure that investors can’t each act unilaterally and block important corporate actions through the voting mechanisms you create. In good times we tend not to think about the nonfinancial terms of financing deals. If the business prospects are still sound and recapitalizing the business is the only way to bring in needed capital to affect your business plan, it’s a lot easier to do these things when investors are forced to work together, rather than each threatening to hold out until all of his demands are met.
2. Raising money at the absolute highest price may not always be the optimal strategy. Think about the implications of anti-dilution for you and your employees in the event of a down round and whether you are giving the last investor too much control of your own destiny relative to the risk capital they are investing. Sometimes a willingness to accept a small decrease in valuation can eliminate the need for these other unpalatable financial bells and whistles.
3. Raise the right amount of money required to achieve the milestones you need to control your own financial destiny and to have a chance to raise additional capital in the future at a higher price. Stretching on valuation in the current round simply raises the bar for future financing; if you are going to take that sky-high valuation, you better raise more than enough capital to enable your business to catch up to your valuation."
Click here to read the full post: