Serious question here for people who know about this.
"I have recently seen several examples of companies doing pretty well and going out to raise B rounds with investors already owning 50-60% of the company. In all cases, they are having a tough time."
I know a company in this position. Not quite going out to raise a Series B, but lots of interest from current Series A investors in doubling down (doing an internal growth round).
What's special about this scenario is that the company is profitable and has millions in revenue and grew 1,200% since the Series A investment round just a couple years ago. But because the pre-Series-A financing was at depressed valuations, there is only 30% of stock for the common, and the founders/employees are (rightfully) worried about dilution. The cap table is clean, but the distribution is unfavorable.
In this case, could founders make a reasonable argument that Series A investors should buy out seed investors and angels rather than diluting the common stock holders further? It seems like secondary liquidity for the angels would be attractive to them, and I heard that when offering secondary liquidity for those seed-stage investors, one could do some sort of "stock-cash swap" that avoids dilution of the common. Anyone heard of something like this or have good reading material about it? It seems like an esoteric "third way" between Series A and exit.
"I have recently seen several examples of companies doing pretty well and going out to raise B rounds with investors already owning 50-60% of the company. In all cases, they are having a tough time."
I know a company in this position. Not quite going out to raise a Series B, but lots of interest from current Series A investors in doubling down (doing an internal growth round).
What's special about this scenario is that the company is profitable and has millions in revenue and grew 1,200% since the Series A investment round just a couple years ago. But because the pre-Series-A financing was at depressed valuations, there is only 30% of stock for the common, and the founders/employees are (rightfully) worried about dilution. The cap table is clean, but the distribution is unfavorable.
In this case, could founders make a reasonable argument that Series A investors should buy out seed investors and angels rather than diluting the common stock holders further? It seems like secondary liquidity for the angels would be attractive to them, and I heard that when offering secondary liquidity for those seed-stage investors, one could do some sort of "stock-cash swap" that avoids dilution of the common. Anyone heard of something like this or have good reading material about it? It seems like an esoteric "third way" between Series A and exit.