Pre-emptive Rounds: A Shift In VC Behavior In The Last 6-12 Months: blog.eladgil.com/2018/06/preemp… 
2/ A big shift in last 6 months in VC world is more pre-emptive rounds getting done.
In a pre-emptive round, a VC pays up for the next round of funding before the company has hit a new milestone or new data exists to de-risk the company.
In a pre-emptive round, a VC pays up for the next round of funding before the company has hit a new milestone or new data exists to de-risk the company.
3/ A prime example of this is Bird, which is rumored to be raising a $2B valuation round just a few weeks after raising at $1B w Sequoia. Nothing material has changed, so an investor either thinks the company is mispriced or has FOMO. If Bird ends up worth $20B its a smart move
4/ One seed company I am involved with had a VC pre-empt their series A recently. The VC told them they would also want to do their series B when the time was right.
5/ Why more pre-emptive rounds? 4 core reasons:
1. Funds have gotten bigger - for some VCs 1% of the fund is now $10M instead of $3M. Checks to buy an option have gotten larger.
1. Funds have gotten bigger - for some VCs 1% of the fund is now $10M instead of $3M. Checks to buy an option have gotten larger.
6/ 2. Fewer high quality companies. Early stage investors all complain to me that the average company quality has been dropping. VCs pre-empt with higher quality teams or companies early to get pole position.
7/ 3. "Greed" has worked in the past. Sequoia and Whatsapp or A16Z and Github are good examples where doubling down has created outsized returns.
8/ 4. Outcomes are bigger then ever. The multiples in later stage rounds are higher then before if you pick the right winner. More investors are willing to pay ahead in case the company will be a megacorn.
9/ For some investors, pre-emption will backfire. Investing in late stage companies is hard. Investing with little data is incredibly hard.
A few will hit it big by preempting the next Uber or Airbnb or Stripe.
A few will hit it big by preempting the next Uber or Airbnb or Stripe.
10/ For founders, pre-emption has plusses and minuses. Plusses include ability to raise money cheaply and early and to work with investors you respect and trust.
11/ For founders, minuses of pre-emption include no competition on the round.
If you let the same firm pre-empt over & over, you also have fewer people around the table to help you build a business. This can either be good to help you focus, or bad if need diversity of thought.
If you let the same firm pre-empt over & over, you also have fewer people around the table to help you build a business. This can either be good to help you focus, or bad if need diversity of thought.
