Silicon Valley Review S2, Ep1: Runaway Valuations
The first episode of season two of Silicon Valley cleverly hid the main theme of runaway valuations by initially focusing on the Pied Piper guys getting bigger and more outrageous term sheets from VCs the more snarky and outrageous the PP guys were in the VC meetings.
The first mention of a runaway valuation came from Monica, the associate partner for Raviga Capital. She seeks out Richard to tell him not to take the $20M at $100M post offer, and in fact, to take the lowest offer Pied Piper received. This was after Pied Piper has received a half-dozen or so term sheets in the range of $5M-$20M and at valuations between $25 and $100M.
An unlikely situation, but amid the funny quips and venture vernacular, there were some real gems for startups raising money. Founders have to realize that the money isn’t free, and the more money a company takes in, the more strings attached – tangible and intangible.
Javeed was particularly insightful at the bar with Richard: “If I would have taken less money I could have hit realistic benchmarks and reached cash flow break even….”
There’s some real truth to those words, as down rounds (or even flat rounds – and like many like to say, a flat round is a down round) can be a real problem for a company who raises money at too high of a valuation too early. On top of the benchmarks and cash flow issues discussed in the episode, bigger rounds mean more management, more VC oversight, and more reporting. No matter the scale.
So I’ll go back to what we wrote back in December – keep your early rounds small, your valuation reasonable, and close quickly.
Another note, if Javeed really did have a reverse vest with no triggers (like he laments early in the episode when he tells Richard at AT&T Park that his company was forced into an exit and he made nothing), then 1), he had horrible counsel, and 2) HBO left out the part about his company buying back his shares (hence the “reverse” vest) but it did make for good dialogue.