Don't Push to the Limit
Altman: Where people get into trouble is when they overextend. They take the absolute highest price they can get, forgetting they have to beat that in the next round. Or they ramp burn up to the maximum possible number to keep 9 or 12 months of runway.
The margin of safety is a well-known investment concept. Everyone understands it — except startup CEOs when they're raising venture. Our general advice: don't push it to the limit.
Margin of safety — everyone understands it except startup CEOs raising venture.
The Headline Number Trap
Altman: Don't take an investor that's going to be difficult to work with just because they beat your highest offer by 3% or 10%. Don't have a plan where you run out of money 3 months before your next fundraising process.
Again and again we see founders just care about the headline number and nothing else. If you have very competitive people with a quantitative metric to compete on — they're going to compete. It's very hard to compare terms or quality of investor, but it's quite simple to compare top-line pre-money valuation. So people optimize for that.
Founders care about the headline number and nothing else. That's the trap.
Fundraising Doesn't Have to Be Hard
Altman: Fundraising does not have to be hard — if you build a company that is really great. If you build it so you're not dependent on gigantic amounts of outside capital to survive. And if you don't push the limits of every round. I don't think it has to be that hard.
Build a great company. Don't depend on outside capital. Don't push every round. It doesn't have to be hard.