What Every Founder Should Know About Venture Capital, Organizing Your Team For Innovation- Tactician #0039

19/01/2024

WHAT EVERY FOUNDER SHOULD KNOW ABOUT VENTURE CAPITAL

Jason M. Lemkin, SaaStr Founder, sheds light on the potential misalignments between startup founders and venture capitalists in “Dear SaaStr: What Are The Most “Evil” Things That VCs Do?”

• Understanding Incentives:

  • "I think what founders get wrong is not understanding incentives. VCs really do want you to be a big success. They can’t make money otherwise. No one is out to get you."

• Big Silicon Valley Firms Focus on Unicorns and Decacorns:

  • "Big […] firms can only make money off Unicorns and Decacorns. If you want to do anything else, you get misaligned, at least partially. If you raise money from a Big Fund and don’t really want to build a Unicorn, you’ll always be looking over your shoulder."

• Funds Pushing for More Rounds for Personal ROI:

  • "Funds may push you to raise more rounds than you want. Because they get big personal ROI from 'mark-ups' (i.e., higher prices in the next round)."

• Smaller Funds Being Dilution-Sensitive:

  • "Smaller funds may also tell you not to raise more because they are more dilution-sensitive. Some small funds want mark-ups, but others are more ownership-focused."

• Big Funds Encouraging Large Raises:

  • "Big funds may also push you to raise more than you want. Mark-ups matter here too, but also, they have a lot of capital to deploy in their winners."

• Very Big Funds and CEO Replacement:

  • "Very big funds may be less sensitive to who the CEO is (founder or not)... But big funds are better prepared to do so when they see growth stall or other significant issues creep up."

• B-Tier Funds' Focus on Smaller Details:

  • "B-tier funds (and B-tier partners) worry more about small stuff... The B-tier folks may micromanage you (annoying), but the A-tier folks may push you to swing hard when you aren’t ready."

• The Financial Outcome of Selling the Company:

  • "If you don’t sell for >3x what you raise, it never ends well... VC money is not a gift. You have to make your investors money first to make money yourself."

ORGANIZING YOUR COMPANY FOR INNOVATION

Lenny Rachitsky, Author of Lenny’s Newsletter, interviews Heidi Helfand, Principal Consultant at DynamicReTeaming.com, to explore reteaming and reorganisation in companies, uncovering practical strategies and patterns for successful team changes in “The art and wisdom of changing teams | Heidi Helfand (author of Dynamic Reteaming”

• Embrace Change and Reteaming as Natural Parts of Company Evolution:

  • "Change and growth are natural parts of company evolution. Don’t fear reteaming or reorgs; instead, embrace these changes, actively plan for them, and leverage the five reteaming patterns to create a dynamic and adaptive organizational culture."

• On Using the Five Patterns of Reteaming:

  • "The five patterns of reteaming are one by one, grow and split, merging, isolation, and switching. Tailor your approach to reteaming based on the specific needs of your organization. For example, one by one refers to individuals joining or leaving the company; grow and split is about a team growing in size and then dividing; merging involves combining teams; isolation is about creating a team that works separately on innovation; and switching pertains to team members moving between teams."

• On Leveraging Isolation for Innovation:

  • "Isolation can be a powerful driver of innovation. Maximize the impact of these teams by placing them somewhere separate, giving them process freedom, and outlining clear decision-making structures. Isolated teams, or what we might call 'beneficial silos,' can be instrumental in catalyzing new products or solving critical problems."

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