Secrets of Sand Hill Road

set aside “reserves,” expected monies that they anticipate they might invest in a startup over the course of its next several financing rounds.

to raise as much money as you can that enables you to safely achieve the key milestones you will need for the next fund-raising. In other words, the advice

Well, what gives is that your next round valuation is not a function of your last round valuation. Rather, it reflects the current state of business as valued within the current state of the financing world.

Bonds—In general, interest rates fall with deflation and, because the value of a bond is

but the product-first company really speaks to the organic nature of company formation. A real-world problem experienced by the founder becomes the inspiration to build a product (and ultimately a company); this organic pull is often very attractive to VCs.

Option pricing model—The newest (at least to VC firms) tool in the valuation tool set is what’s called an “option pricing model” (OPM).

Hedge funds—Funds that invest mostly in publicly traded equities but have the ability to take both long (i.e., buy a stock) and short (i.e., bet that a stock will decline in price) positions.

how do you think about the costs of such activities relative to the lifetime value of a customer?

Network effects of course don’t exist in every market, but this line of reasoning could be (and has been) applied to lots of pitches to VCs.