It’s Monday and that means – yup – that Fred Wilson (USV) once again claims the VC Post of the Day due to his excellent MBA Mondays series titled Pricing A Follow-On Venture Investment. In it, Fred walks through an example, with real numbers, of how USV thinks about valuing an inside-led round for a company that is doing well.
Historically, many VC firms wouldn’t lead internal rounds at increased valuations except in extraordinary cases. When we started Foundry Group in 2007, we decided that was nonsense. It never made any sense to us why a firm wouldn’t pay a higher price than the last round for a company that it was already an investor in, especially if the companies in the portfolio were relatively capital efficient.
In our case, as in Fred’s, we try to offer a fair price, but expect to get some level of discount since we enable the company to bypass the fundraising process which is often incredibly distracting, time consuming, and often not much fun. Fred does a really nice job of explaining – both qualitatively and quantitatively, how he thinks about this. While our math is somewhat different, it’s super useful to get inside the head of an actual VC as he thinks this through.