[HN Gopher] Party rounds (2013)
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       Party rounds (2013)
        
       Author : doppp
       Score  : 11 points
       Date   : 2021-05-11 06:10 UTC (16 hours ago)
        
 (HTM) web link (blog.samaltman.com)
 (TXT) w3m dump (blog.samaltman.com)
        
       | awillen wrote:
       | I wish smart folks would do better in terms of pointing out these
       | generalized lessons as though they're universal.
       | 
       | The reality is that party rounds, like any form of funding, have
       | positives and negatives, and whether they're good depends on
       | who's funding and who's being funded.
       | 
       | If you're starting a company like Cameo, having a party round of
       | athletes/actors/celebrities is likely more valuable than a
       | regular round of traditional VCs.
        
       | throwaway789256 wrote:
       | I have experience with party rounds. There are tradeoffs between
       | them and rounds with a traditional lead. The problem is that the
       | advantage of the party round is early, while the advantage of the
       | traditional round comes later. (That dynamic leads to many
       | perverse outcomes in different situations, because we all
       | discount the future to some extent.)
       | 
       | The early advantage of a party round is that you can raise it at
       | all. If you go for a traditional round with a lead investor, then
       | everybody is waiting for a lead, twiddling their thumbs, hoping
       | someone else will do DD, but maybe that someone never comes...
       | The power is in the hand of the potential leads to say yes or no.
       | That's a bad position to be in as a founder, and can lead to
       | acute disappointments and wasted time during those periods when
       | your startup is hot.
       | 
       | With a party round, the founder can put pressure on investors and
       | create scarcity. A stream of checks comes in, and ironically, the
       | more you raise as the party round progresses, the more people
       | start offering you bigger and bigger, lead-size, checks. (This
       | tactic should be combined with "moving the goal posts", or
       | expanding the size of your round so there is always just enough
       | left to be desirable, but so much that it is daunting. No one
       | wants to the be the first money in, but many will compete to get
       | the last slice.)
       | 
       | That is: Party rounds are a very effective way to create momentum
       | in fund-raising and put the power in founders' hands.
       | 
       | But then you have the money, and you don't always have any single
       | investor who is highly committed to you. I have also experienced
       | this.
       | 
       | You should not underestimate the support that a skilled,
       | experienced and committed investor can bring you. The problem is,
       | most founders don't always know who those investors are, and
       | there are a limited number of boards that they will choose to sit
       | on.
        
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       (page generated 2021-05-11 23:02 UTC)