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Flat is the new up. Or you can fire a bunch of people (it's just way less cool.)

FundraisingStartupTechnologyVenture CapitalEntrepreneurship

Phil Haslett   November 10, 2016

"We're gonna bring in some entry-level graduates, farm some work out to Singapore, standard operating procedure."

Kudos to Postmates. Raising a $140M round in a crowded space (food delivery) right now is no easy task. Even at a flat price to last year's valuation, I still applaud CEO Bastian Lehmann's ability to get fresh capital (from a returning VC investor, no less) in the current fundraising environment.

“Flat is the new up,” co-founder and CEO Bastian Lehmann jokes in an interview with Fortune. 

But I think Postmates' flat round is a symbol of what's happening elsewhere in Startupland. There's a lot of cost-cutting going on. Hear me out.


Unicorns, Dinosaurs & the Elephant in the Room - An Update on the Tech Animal Kingdom

FundraisingShareholderVenture CapitalInvestorIPO

Vedant Suri   August 19, 2015

Source: Pacific Standard

Unicorns are the Kings of the new Jungle age and are being actively hunted [in this case by Venture Capitalists and not dentists]. In this post we’ll run through an update on the ‘Tech Animal Kingdom’ with new developments for Unicorns ($1Bn+ private companies), Dinosaurs (older public companies) and the Elephant in the room.


Though Unicorns are considered elusive creatures, they seem to be breeding more like rabbits lately. Out of the 124 Unicorn companies today, 47 of them joined the famed “three comma club” in 2015, according to CB Insights. This represents a 61% increase in the number of companies and a 20% increase in valuation from the previous year, bringing the aggregate valuation of all unicorns to $407Bn. Note: we’re only 8 months into 2015 – sound more like rabbits now eh?

What seems to be driving Unicorn valuations to such unprecedented growth? One answer is the increase in the size of late stage investments or the “quasi-IPO” driven largely by hedge funds and mutual funds that typically spurn venture-style investments. As Hedge Fund heavyweights like Tiger Global Management and Mutual Fund giants like T. Rowe Price Group Inc., Fidelity Investments & Wellington Management Co. become more active tech investors, the availability of capital seems infinite and is encouraging founders to delay IPOs. As Danielle Morrill (CEO of Mattermark) stated to the New York Times: “If you can get $200 million from private sources, then yeah, I don’t want my company under the scrutiny of the unwashed masses who don’t understand my business”.

The advantages to staying private are many. We've previously covered why VC-backed companies are punting on IPOs here and recently profiled the typical company at IPO here. Private companies are shielded from the scrutiny of public investors, allowing them to raise capital at their discretion and ensure shareholder and company interests are directly aligned. Although staying private may benefit founders as they can focus on building their business instead of fretting about quarterly earnings, this poses as a huge loss of opportunity for public investors. As companies stay private longer (3.1 years in 2000 to 7.9 years in 2014), returns are shifting rapidly from public markets to private markets.

Source: Andreessen Horowitz


The public markets have been volatile lately with China’s stock market swoon, Greece’s market collapse and several large tech companies reporting lower earnings in the past month. Through the mist of volatility, there are still returns to be made in the public markets as shown by the 1-month performance of a select few tech stocks below. The S&P IT Index is up 2.4% YTD as well. 

Source: Google Finance

However, this does not tell the whole story. As these dinosaurs came to be, they took different paths and created value in different markets. Microsoft went public in 1986 at a Market Cap of $500M and is now at $374B, which represents an appreciation of ~511x in their stock price from IPO. On the other hand, Facebook went public in 2012 at a Market Cap of $100Bn. To match Microsoft’s public returns, Facebook’s market cap must amount to $51.1T, which is roughly the value of all publicly traded companies in the world. This exemplifies how public value creation is being dwarfed by its counterpart and represents the fundamental change in private vs. public returns. 

Though there are many investors that believe this alludes to a bubble and impending doom, there are many that argue against one (or at least don't expect as severe a correction as the Dotcom Era). The arguments against overvaluation are supported by the idea that technology is no longer a vertical industry, with the number of users on the Internet growing rapidly and the vast differences in the performance of these companies at IPO. This sentiment is captured well in an article by the Economist comparing both eras here.


The Elephant in the room lies in the fact that the changing landscape of venture capital doesn’t only affect private and public investors – it also deeply affects employees of these companies (you know, those people who play a key role in creating all this value). As the trend continues, employees' liquidity timelines begin to diverge from that of the companies. In response, liquidity alternatives, like ours, have started to emerge. These should help CEOs make public/private decisions without the pressures of employee liquidity.

With the quasi-IPO movement, public value creation in a slump, and VC capital returns
beating the stock market in 2014, it’s both interesting and increasingly difficult to predict how things will play out in the next 5 – 10 years. Here at EquityZen, we’re working hard to solve this three-sided problem, ensuring shareholders unlock the value of their equity compensation, providing investors access to a burgeoning market, all while accounting for the interests of the company, a key stakeholder in all of this.

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Is Buffer's Series A a Paradigm Shift in Fundraising?

FundraisingBufferVenture Capital

Shriram Bhashyam   October 30, 2014

Buffer made a splash announcing its Series A fundraise and opening up the kimono on valuation and metrics on October 27. Joel and Leo, co-founders, have taken an unorthodox approach from the beginning, and naturally there are many interesting facets to their capital raise. While I'm skeptical that many startups will follow suit, what they've done is nonetheless worth exploring and even celebrating.

With a blog post, Buffer, the popular social media manager, announced it's raising $3.5 million in its Series A funding round. To the uninitiated, Buffer is singular among startups for its open embrace bear hug of transparency.  The company makes all employee salaries, company metrics, and  equity composition open to the public. Heck, every email sent in the company can be seen by everyone else in the company. While this is a reflection of the company's values, it has no doubt proved to be a marketing boon. In this context, it's no surprise that Buffer would not only announce that it's raising but also make public how much ($3.5 million), at what valuation ($60 million post-money), and its key metrics. While it's progressive, doing this is not revolutionary. It's actually just general solicitation, which has been permitted for over a year in startup capital formation.

Thinking Progressively about Liquidity

What is revolutionary is the use of proceeds. While there has been a steady drumbeat,  which has grown stronger, of founders taking chips off the table in funding rounds (see Snapchat last year), what Buffer is doing is unprecedented. $2.5 million of the $3.5 million round (71%) will be used to provide liquidity for founders and early employees. The balance will be used towards growth and operations. It's no small feat to convince venture investors to do this (they typically want a substantial majority of the proceeds to be used to fund aggressive growth). Kudos to Collaborative Fund, Vegas Tech Fund, Red Swan and the various angels for investing in an unorthodox deal.

Buffer has been profitable for the last six months and has $1 million in the bank; so there's no clear urgency for the raise. This raise is not being done for the usual reasons. The founders have stated they are in this for the long haul. Having rejected acquisition offers, they want to keep doing things their way for years to come. One way to ease pressure towards a premature exit is through liquidity. Joel and Leo feel that taking some chips off the table is the way to stay committed to their vision, team, and values.

What is also revolutionary is that Buffer is using this round to set a precedent for regular, periodic liquidity events for investors and employees. Typically, it's the Unicorns of the world that do secondary deals via tender offers for their employees. They do it out of necessity, after employee liquidity issues have built up to a point where they can't be ignored. The tides are slowly starting to change with the later-stage companies (hat tip to Kevin at Kabam), but seeing a progressive embrace of liquidity at such a young company is noteworthy. While the home run mentality might suit institutional VCs, it may not suit all risk profiles across the shareholder base of a company. Buffer gets this. Different investors may have different investment horizons and IRR targets, and employees may want liquidity for everyday life needs, such as buying a house or paying for tuition. These varying risk profiles and liquidity needs can be met through periodic liquidity. And by the way, it allows the people who play a big role in creating the value--the employees--to share in the value they create.

Retaining Control

Another factor in the nature of Buffer's Series A is the desire to retain control.  With this raise, Buffer has eschewed the tried-and-true VC-backed fundraising model. They don't want to raise a lot of money (the mean Series A size in California is $6.8 million and the "Jumbo A" of $10 million is increasingly popular) in pursuit of hypergrowth (whose goal is that really? the founders' or the VC's?) because of the strings attached. Buffer does not want to cede 20-30% of the company (what VCs require) or give up a board seat (also what VCs require).

*     *     *     *     *

Buffer is certainly unique among startups in how it approaches business-building. I don't expect many post-seed companies to follow suit and think independently and irreverently about fundraising. But I certainly hope that founders don't reflexively choose the institutional VC approach, but do it because it makes the most sense for their vision as founders. Importantly, I hope that all stakeholders in the ecosystem will think progressively about liquidity as a way to reward hard work, ease personal financial pressure, and ease company-level pressure to pursue a premature exit.