- Description
- Venture capitalists have a crucial decision to make about how best to allocate time when managing their portfolio. One option that a VC can consider is a “Help-Until-Next-Round” model. This involves aiding a company’s founder in reaching their goals for a subsequent round of funding thereby providing time-limited direct support.
- Benefits
- A Clear Goal: The Help Until Next Round model provides both a natural endpoint for a VC’s involvement as well as a tangible goal that both parties can work toward.
- Comfortable Exit: A financing round usually changes the makeup of a board. So if you are on a company’s board, this is a moment where a VC can step off, reshuffle the board, and effectively pass the baton to another VC.
- A Good Investment Cycle: Early stage funding cycles tend to fall between 12-24 months apart. If a VC is pursuing one investment each quarter or each month, then the VC can expect to be involved in an average of 6 to 20 companies, assuming some startups will be unsuccessful. And a VC need not be active in each of these companies.
- Trade-Offs:
- What If No Next Round? It is possible that it will be more difficult for companies to raise subsequent rounds or the company may choose not to raise money. As a VC, you may need to set a time limit after which you plan to exit.
- Less Learning: By leaving a board, a VC may not see the impacts of the decisions they were involved in. This may limit opportunities to learn from previous experiences.
- Less Investor Connections: INVESTOR CONNECTIONS: If a VC leaves the board, they may miss the valuable chance to connect with other insightful investors.
- Less Prestige: Involvement in a rising company can be appealing simply because of the prestige associated with that role, even if a VC is not directly helping.
By: Miles Lasater with Julian Jacobs