VC-style financing is not the only way

In my last post, I enthusiastically recommended Tim O’Reilly’s piece in Quartz, critiquing the prevailing winner-take-all ethos of Silicon Valley investing.

In this post, I want to recommend a piece animated by a similar spirit: an interview with Bryce Roberts, founder of (and one of O’Reilly’s partners in the O’Reilly AlphaTech Ventures fund) on the Recode Media podcast.

The over-use of VC investment structures

Having represented startups for many years now, I can observe that the standard investment structures used for nearly all startups are those used by VCs for the specific kinds of companies that VCs hope that they are investing in – companies that will achieve extremely rapid growth (what they call “hockey stick” growth) and, the VCs sincerely hope, become “unicorns.” These structures – based on a progression from convertible notes (and their close cousin, SAFEs) to convertible preferred stock – have become dominant, mirroring the way in which the Bay-area hypergrowth ethos has dominated the way we think and talk about startups generally.

Do these structures make sense for the majority of startup companies? Roberts does not think so, and I largely agree. As he puts it, “because we don’t have any other models to fund high-growth startups, what ends up happening is everybody kind of shoehorns themselves into what it is VCs think they’re looking for.” Taking funding based on VC structures can lead to regret and disappointment for entrepreneurs whose business models or personal goals are not compatible with the growth expectations wired into these structures. (It’s ironic: one often hears private investment described as “patient equity” that relieves entrepreneurs from the unrelenting quarterly profit demands of public company reporting. Not surprisingly, however, private investment comes with its own set of assumptions and requirements.)

Roberts offers a range of interesting observations on this topic, which I am not going to list here because you would do better to listen to the full podcast or read the summary or edited transcript over at Vox.

Emerging investment concepts for steady-growth companies

Ultimately Roberts founded to provide entrepreneurs with financing options between pure bootstrapping and a hyper-growth predicated VC model. You can find a description of’s v3 investment terms here. Essentially, it is a convertible note with an “exit ramp” if the company determines that venture-type financing is not the right path.

We are inspired by’s decision to promote startup financing alternatives, and sense that momentum is building for sustainable, non-VC models of startup financing and growth. (Just today I stumbled across a startup investment group that publicizes a revenue-based investment structure of its own.) In the months ahead, we at goodcounsel will be exploring this area in greater depth, so that we can bring a greater range of structuring options to the attention of our clients. More to come.

Categorised as: Fundraising, Seed Financing

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