This higher risk level in health/pharma companies shows up in the way VCs structure their investments. In an early-stage round of financing for a software company, all the investors may dilute the founders by around 15 to 30 percent of the company’s stock. For a typical early-stage pharma or biotech company, investors may dilute the founders at a h

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Graduation Rate Assumptions: Individual company dilution needs to be factored into fund performance. One way to do this is to make some assumptions around the percentage of total companies raising subsequent financing rounds, as well as assumptions on the size and pre-money valuations of those rounds. Some funds may assume that of all the seed inv

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Valuations are a big mystery to many entrepreneurs. And for good reason. In the early stages, valuation is not a factor of revenue or much else. According to research done by Ilya Strebulaev, a professor of venture capital at Stanford Graduate School of Business, and his collaborators, most VCs, especially early-stage VCs, don’t use techniques such

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There’s a broad spectrum of VCs and founders, the latter of whom possess differing levels of capability to maintain high growth and continually raise equity dollars at inflated valuations. For example, there are many companies who raise an angel/seed round, then a Series A, spend most of it on customer acquisition which flows right into FB and Goog... See more

Due to the fund economics of early stage investing it may not make sense to do a pro-rata, or follow-on investment with a $5M Series A in order to maintain our 20 percent. As the entrepreneur continues to raise capital, the early stage investors will continue to experience a valuation dilution or divergence in their investor shares, effectively cha

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But I thought a better way of thinking about how we manage our portfolios is to think about it as a funnel. If we do 36–40 deals in a Seed Fund, somewhere between 25–40% would likely see big up-rounds within the first 12–24 months. This translates to about 12–15 investments.