Anyone who takes Softbank money probably didn't do their due dilligence on what they are like as an investor. I worked at one such company.
It sounds good - they come in and offer a huge investment at a high valuation, higher than anyone else. About time someone recognizes how valuable your company actually is!
So you take it. You make an announcement, everyone oos and aahs over your new valuation. Talent flocks to you, fuck yea. Things are going great!
Fast forward some time. You need some more investment to go chase opp X. Or maybe you burned thru cash, who knows. So you start fundraising. investors look at your numbers and say...umm...you've shown some good growth but we dont agree with Softbank's valuation. We will invest in a downround, or come back when you've posted even more growth.
Crap. You need money NOW not later. You did NOT realize that high valuation was a double edged sword. And a downround is totally out of question.
Also working with them is...challenging. Gotta love those 8am calls (latest they can do Tokyo time). They ask for metrics that kind of make sense but are different than how you run things so it is a complete waste of time. On the phone they are oh so polite, but you're never sure what they're actually thinking.
You're asking yourself why you took their money again? They have had zero strategic impact (they're a Japanese telco) and now it's making fundraising more difficult.
Fun times. If I see a company take SB money I assume they are declining (or soon will) or greedy / short sighted. Or there is the rare actual strategic benefit sure. But most times there is none.
So why did we work take the money? Sounds like they wanted to avoid going public. But I wonder if they did their homework on this one.
but you're never sure what they're actually thinking.
You remind me of an anecdote about an American working in Asia. They were constantly frustrated with communication difficulties. One day, they felt they finally were on the same page with a coworker and they said "We are thinking along parallel lines." to express this. Coworker agrees.
Later, the problems came back. They referred back to that conversation. Their Asian coworker says "Yes. Parallel lines never meet."
As someone who lives in Germany for quite some time, believe me, Americans are a problem here too. Smile in your face and drown you in over-politeness while stabbing you in the back.
For the record, it was an anecdote about people from different cultures not understanding each other. It was not intended to be a criticism of Asians. It absolutely wasn't intended to blame Asians for the misunderstanding.
It is the routine norm with social issues to look to pin the blame on one party. That seems to be the default mental model for any social problem.
It is usually not the best explanation and it actively causes all kinds of problems. I like to give push back against this common assumption wherever possible.
Yes but “parellel thinking” is actually a term of art. It generally means that we want to get to the same place but have different ideas on how to get there.
> It generally means that we want to get to the same place but have different ideas on how to get there.
Is it? The description on that page is just about having multiple conversations at once, not having them all start in the same place.
Also, starting in one place and going different directions is basically the opposite of parallel lines, so this makes zero sense as a justification of the punchline.
If you don’t foresee a downround risk and huge pressure to grow as part of a high valuation raise, you’re way out of your depth. My impression is that SoftBank is very effective at hedging entire markets and using (gullible? desperate?) founders as a stalking horse to push stronger competitors that they’ve also invested in. I think it’s a solid investment strategy when you’re placing a lot of capital.
While each funding round typically results in the dilution of ownership percentages for existing investors, the need to sell a higher number of shares to meet financing requirements in a down round increases the dilutive effect. Due to the potential for drastically lower ownership percentages, raising capital in a down round is often a company’s last resort, but the new funding may represent the company’s only chance of staying in business.
If you would have been happy selling shares at X valuation, if only that high-valuation deal had never happened, then the level of dilution is acceptable to you.
"This down round is bad because it's undervaluing and over-diluting" is an easy to understand argument.
"This down round is bad because a previous round overvalued the company, even though the down round is the correct valuation and the correct dilution" is an argument that needs more justification.
If the valuation is flat-out too low, then the fact that it would be a down round has nothing to do with the problem. A too-low valuation is a problem even if it's higher than your last valuation.
The implication of your post is that Softbank do this on purpose for some reason but it might be that companies often fail to meet Softbank's growth projections.
When you take a high-valuation (compared to market) from any VC you set the expectation for the next round.
Whenever you raise you should always consider the valuation you'll be aiming for at the following round and the metrics needed to achieve it and whether they're achievable.
Newbie question: what's preventing the downround? SB's (and other investors') terms ("others shouldn't pay less to get more!") or founder ego ("I'm not a successful unicorn shepherd if we take a downround"), or something else?
The big problem with a down round is existing investors generally have protection against their shares being diluted, so the non-prefered holders get completely hosed since their shares have to get diluted even more to make up for the fact that some shares won't get diluted at all.
Guess who the guys who gets hosed are? Founders and employees of the company who have options. Suddenly you and your co-workers have almost worthless shares in a company that isn't doing well. If you're at the start up for the potential upside it's at that point you really need to look at moving on. So suddenly a down-round isn't just a down-round it's also a "lose all the good employees" round.
A downround wrecks the cap table. Earlier investors and employees get diluted like crazy. So now your investors hate you and your employees are pissed. The options of recently hired employees go underwater - so they start getting poached. It wreaks havoc on a company and should really be avoided at all costs.
It sounds good - they come in and offer a huge investment at a high valuation, higher than anyone else. About time someone recognizes how valuable your company actually is!
So you take it. You make an announcement, everyone oos and aahs over your new valuation. Talent flocks to you, fuck yea. Things are going great!
Fast forward some time. You need some more investment to go chase opp X. Or maybe you burned thru cash, who knows. So you start fundraising. investors look at your numbers and say...umm...you've shown some good growth but we dont agree with Softbank's valuation. We will invest in a downround, or come back when you've posted even more growth.
Crap. You need money NOW not later. You did NOT realize that high valuation was a double edged sword. And a downround is totally out of question.
Also working with them is...challenging. Gotta love those 8am calls (latest they can do Tokyo time). They ask for metrics that kind of make sense but are different than how you run things so it is a complete waste of time. On the phone they are oh so polite, but you're never sure what they're actually thinking.
You're asking yourself why you took their money again? They have had zero strategic impact (they're a Japanese telco) and now it's making fundraising more difficult.
Fun times. If I see a company take SB money I assume they are declining (or soon will) or greedy / short sighted. Or there is the rare actual strategic benefit sure. But most times there is none.
So why did we work take the money? Sounds like they wanted to avoid going public. But I wonder if they did their homework on this one.