Leveraging your cap table

Get 10x more from every investor

Author

Michael Morgenstern
September 26, 2023

Hey y’all, Michael reporting for duty! With the fundraising market making a comeback (Go $ARM $CART $KVYO go!), I want to address an area where seed startups can improve. During the ZIRP (zero interest rate policy) years of '20 - '22, startups had access to ample capital. However, founders quickly realized not all money is equal. 

Every investor you bring on board should bring, at a minimum, 10x the value of their investment. It’s ambitious, but given the competitive environment and the expectation of a structured future Series A, it's pragmatic.

A rise in founder-investor disputes can be traced back to hasty decisions made during the ZIRP era, highlighting misaligned interests and insufficient due diligence by both parties. Investors know this, so, it's time for a paradigm shift, for founders.

Time to leverage your cap table strategically. Fundraising should be a strategic marathon, not a sprint for the highest valuation. Vet your investors thoroughly, prioritize well-structured capital, and ensure each investor brings tangible 10x value to your journey.

Specifically, keep an eye out for sector-specific firms that can offer substantial value. A renowned cybersecurity fund, which backed Wiz.io (*Brex Customer), connects investment prospects with a minimum of 50+ CISOs during the due diligence phase. This approach generates significant new revenue for their portfolio. Many investors claim to ‘add value’; as a founder, your responsibility is to verify whether this is significant and accurate.

No disrespect to operator-investors; they can play a crucial role in the initial stages. However, they might not have the right network of later-stage investors for the Series A, B, C funding. Raising large sums of money is similar to enterprise sales. Look to partner with experienced professional investors who more likely have a stellar network of later-stage capital, that can jumpstart fundraising processes.

To sum it up: Assemble your cap table not just as a financial tool, but as a strategic asset.

*Appreciate you reading my take, see you IRL soon, and write me if you disagree!

  • Brex Supper Club: Boulder 9/26
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Emerging Manager Spotlight 🤩 

Jack Greco, Far Out Ventures

Jack Greco is the Co-Founder and General Partner of Far Out Ventures. 

Far Out Ventures invests at the pre-seed and seed stages, targeting 5% ownership at entry, strong early momentum, and the potential to become a market leader with a large exit. They focus on investments that leverage the GPs past success and experience: marketplaces, financial technology, and enterprise platforms in traditionally overlooked markets. Jack is a former unicorn founder (NSDQ: ACVA), an experienced investor (120 direct investments 2017-2021), and LP (50 funds). He serves as Advisor at Impellent Ventures.

Far Our Ventures invests ​​$250K-$500K (Pre-Seed); $500K-$1M (Seed)

Third tier VC 😉 (Nichole Wischoff) ignites a debate about sourcing strategies. Do data-rich VCs perform better actively sourcing deals vs awaiting warm introductions?

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