Thread by @harryhurst

Let’s talk about a new ratio CS:H

(Check-Size:Helpfulness)

Let’s assume your lead/largest investor is going to be motivated to help you win. What’s often underestimated though, is just how uncorrelated check size & helpfulness can be across your cap table... a thread 1/

2/ In the past, I’ve taken some large checks early on from funds where our company was a very small bet relative to their AUM. You always have to take this into account as a factor when considering how much someone is likely to contribute to making their investment in you work.

3/ I think taking an early check from a large fund tends to work better when they’re a) investing out of their inaugural fund and they *have* to make it work and/or b) the partner is super passionate and knowledgable about what you’re working on (don’t always assume this).

4/ For us @pipe we got very lucky in our first round to have a lead in @DavidSacks that ticked both of those boxes. Investing out of @craft_ventures first, but large $500M fund and having experienced first-hand the problem we’re solving while building @Yammer. The CS:H ratio = 📈

5/ The rise of the micro-fund.
@naval made it possible for almost anyone to raise and manage a fund via @AngelList. Amazing operators can leverage their networks to raise funds with awesome LPs. They write smaller checks, but have an incredibly favorable CS:H ratio. They hustle.

6/ Some of the best I’ve worked with are @briannekimmel @rrhoover and @jmj. They won’t be your biggest check but they’ll likely have the most impressive CS:H ratio on your cap table. There are many examples of these funds, we’re just lucky to have these few working with @pipe

7/ In my experience there’s a multiplier on CS:H ratio based on geographical proximity. Having investors based nearby can benefit you with friendship and support e.g. I’ve worked with @MarlonCNichols on 3 co’s now and being in LA has increased his CS:H ratio for me, personally.

8/ Some of the most extreme CS:H ratios can come from operator angels investing their own cold hard cash. While they may be distracted running their own companies, there’s potential for a $10-25k check to yield significant CS:H returns for founders.

9/ The best cap tables IMO, are filled with as many investors with healthy CS:H ratios as possible. This construction (usually) leads to more favorable terms for the founders and team members too as lower check size = less dictation of terms but ≠ less helpfulness, necessarily.

10/ This isn’t canonical, it’s my experience and I wanted to share it for anyone thinking about round composition. Don’t get caught up in the ‘Silicon Valley beauty pageant’ and tripped up by ownership targets. Optimize for CS:H and you’ll be in a stronger position all around.