Another common reason venture funds say "no" is because they don't see a path to returning the entire fund from that one investment. Wondering what that means? Here's more...
About SpringTime Ventures
SpringTime Ventures seeds high-growth startups in healthcare, fintech, logistics, and marketplace businesses. We look for founders with domain expertise, forging a path with a truly transformative technology. We only invest in software-based businesses in the USA. We bring a people-focused approach, work quickly, and reach conviction independently. Our initial check size is $400k to $600k. You can learn more about us and our approach.
About Rich Maloy
Rich's mission is to rebuild the American dream through entrepreneurship. He works with early stage startups transforming the world, giving all people the opportunity to grow, learn and earn. With prior careers in finance and sales, he's now focused on startups investing through SpringTime Ventures where he is a Managing Partner. He's a father of two young children and loves sci-fi, skiing, and video games.
Rich:
Another reason that funds might be saying no to investing in you, but also not sharing this feedback with you, is the thinking of,"can I return the fund with this investment?" What we're looking for with a venture investment are venture-scale returns. What does that mean? I'm going to give you the high level, gloss over a lot of things, but let's just say I've got a$25 million fund, and my initial investment gets me 4% ownership in your company at the seed stage. If your company goes really big I expect that I'm going to get diluted by half. So now I've got 2% ownership at exit. I need that exit to be$1.25 billion to return my entire fund. This is the type of investment that most VCs are looking for in every single investment. How do I return the fund, with this one check? Because here's the thing. Out of that$1.25 billion exit, by the way, you did great in that, so congratulations. How much do you think that I paid myself as a general partner from my fund out of that investment? Zero. The only thing that that huge exit does for me is I pay back all of my capital to my investors. And then everything after I pay back my investors is when I start to make money on my carry. Even with a unicorn scale exit paying back my investors entirely, I have not even paid myself anything other than salary. And I know what you're thinking here,"oh, boo hoo. Poor VC only paid himself as salary. Didn't make his bonus." But if I want to stay in business, I need to return multiples of capital to my investors. To stay competitive as a venture capitalist, you need to at least triple the money that the investors put in. It keeps coming back to, how do I return the entire fund from this one investment? And if a venture fund doesn't see the path for them to return the fund from that investment, then they're out. And they may not share that with you. But here's the irony. I also don't think that you should be talking about an exit. Especially, not at the seed stage. But we'll cover that next week.