Ben Horowitz warns startups: You’re worth less today, and you need to be OK with that
Andreessen Horowitz Partner Ben Horowitz says the fundraising environment for startups is particularly tough today. He says investors are increasingly pushing for more equity for less capital, and founders need to be OK with that.
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Legendary venture capitalist Ben Horowitz (who makes up the second half of Andreessen Horowitz) has a particularly bleak message for entrepreneurs raising money in the Valley right now: You’re probably worth less to investors today than you were the last time you raised money.
“If you are burning cash and running out of money, you are going to have to swallow your pride, face reality and raise money even if it hurts,” Horowitz wrote in a blog entry Tuesday. “Hoping that the fundraising climate will change before you die is a bad strategy because a dwindling cash balance will make it even more difficult to raise money than it already is, so even in a steady climate, your prospects will dim. You need to figure out how to stop the bleeding, as it is too late to prevent it from starting. Eating s— is horrible, but is far better than suicide.”
He’s partly talking to founders raising an A or B round—entrepreneurs who’ve been to the table at least once before, and raised earlier rounds at a particularly high valuation. The fundraising climate is tougher now, he says. Investors have more leverage and they’re increasingly pushing founders to accept “down rounds,” defined as funding that values their company for less than they were worth in a previous round.
“After, God willing, you successfully raise your round and it’s a down round or a disappointing round, you will need to explain things to your company,” Horowitz writes. “The best thing to do is to tell the truth. Yes, we did a down round. Yes, that kind of sucks. But no, it’s not the end of the world.”
Horowitz knows the feeling.
Twelve years ago, he and Marc Andreessen were entrepreneurs themselves, running a red-hot startup called Loudcloud. In June 2000, they raised $120 million from investors, at an $820 million valuation. By the end of the year, the dot-com bubble was popping fast, and they couldn’t raise another round. To stay afloat, they were forced to take the company public in 2001, at a $560 million valuation.
Describing that experience, Horowitz writes, “In some sense, you are like the captain of the Titanic. Had he not had the experience of being a ship captain for 25 years and never hit an iceberg, he would have seen the iceberg. Had you not had the experience of raising your last round so easily, you might have seen this round coming. But now is not the time to worry about that. Now is the time to make sure that your lifeboats are in order.”
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