$700 Million Exit. Zero Dollars for Founders.
Spencer Rascoff sold his company for $700 million. Sounds like a dream outcome.
It wasn't. A down round wiped everybody out. The ratchets. The liquidation preferences. All that fine print nobody reads when times are good? It ate everything.
When things go great, none of the terms matter. When things go sideways, they matter more than anything.
Not All Money Is Created Equal
Rascoff says the biggest fundraising mistake is optimizing for valuation. Higher valuation sounds better. It's often worse.
Trade valuation for an investor who will teach you. Someone who shows up when things get ugly. That trade-off is worth more than a bigger number on a press release.
Choose partners, not price tags. The right investor at a lower valuation beats the wrong one at a higher one.
The Valuation Trap
Raise $10M at a $60M valuation. Sounds great. But you just killed every exit under $100 million.
An M&A exit for $100M where you own 10% would be life-changing for a founder. But your VCs won't let it happen. The math doesn't work for them at that valuation.
High valuations don't just set expectations. They eliminate options.
Pay Attention to the Fine Print
Ratchets. Liquidation preferences. Anti-dilution clauses. These are the things VCs understand and founders don't.
When everything goes up and to the right, nobody cares. But most startups don't go up and to the right forever. When they dip, the fine print decides who gets paid.
If you're raising money in the next six months, learn what liquidation preferences actually mean.