Rolling Closes in Venture Rounds

I’ve had a couple conversations recently with founders about rolling closes and thought I would share my thoughts on what I’ve been observing in both the US and Europe. Many of the later stage companies I am aware of have instituted a rolling close when closing a large growth round. This is probably more a sign of the current fundraising environment at the later stage (ie $100m+ raises) than a new norm. Snapchat apparently had a rolling close with their last raise as one example.

At the earlier stages, this has also been a phenomena in the Valley for seed stage co’s. I’ve personally invested into several startups in their first angel round where they’ve kept the round open and used a convertible note to raise over a period of 2-5 months. It’s faster, has lower legal costs and allows you to bring value-add folks in that you meet as your building your company. As long as you can keep building the company without getting hugely distracted by having the occasional investor meeting, I don’t see anything wrong with this approach. Continue reading →

The 4 Steps to Compare Venture Debt

This post is not about the pro’s and con’s of raising venture debt for startups, it is about how to go through the process of deciding whether to take venture debt at all – and how to do it.

Each company is unique and I have seen venture debt extend a company’s runway enabling them to get to cash flow b/e without founders taking any more dilution; and I have seen companies not hit their plans and the ramifications this means when the note is then called. But it is a pretty common instrument and even Facebook took venture debt early on before the cloud existed when they needed to buy servers. And in my experiences with the lenders that we have worked with, they are always much more flexible when covenants are close to being breached or when there is a workout situation than your typical risk averse banker. They also tend to work quickly and will be ready to give you a termsheet in under two weeks after your first meeting. Continue reading →