00:39:32 · Immad Akhund
[00:39:32] S0: Yeah. So I think it's kinda funny because like VCs especially love saying this, they're like, you know, don't raise too high, like... And it's like, I think it comes from a reasonable place, but it's also obviously self serving. Right? Like, you wanna, you know, if someone is on like 2,000,000 revenue and they're raising at like a 200,000,000 valuation, like, you know, if you're VC, you're like, actually, you should raise at my 100,000,000 valuation term sheet. And here's like a set of reasons why you should, etcetera. I think that's all reasonable. But the reality is, you know, when a founder goes out, they go to the market. Right? And like, you go pitch like 10 people, and two of them... And like, normally it's the good VCs. Like, good VCs give you like high term sheet, high prices. Right? At least my experience has been, actually good VCs tend to have more conviction. So you've got good VC with good terms, and then maybe also good VC with worse terms. You're just not gonna take those worst terms. Like, at least I have never seen a founder go do that. Like, maybe they take slightly worse terms, but they're not gonna take two x worse terms. So so then it comes down to, like, in this market, same thing in 2021. You know, we had a... I was making 12,000,000 in revenue, and we raised at a 1,600,000,000 valuation from Coatue, which honestly was a little crazy, but that was the market. Right? It was 120 x, and that's what everyone was doing. So I think the... I think instead of, like, going... You know, all these other people on X was like, oh, raise less money, blah blah blah, like, lower valuations. I think it's better to say, okay, you know, if you're gonna if you're gonna do it no matter what, how should you handle it? My mental model, and, like, I would say we raised too much for our series a, too much for our series b, and then we were profitable. So, like, actually, we also raised too much for our seed. So we raised 6,000,000 for our seed, 20,000,000 for our a, and 120 for the b. So I've tried to hold this mental model and think we've stuck to it. It's just like, just assume you raised how much you would raise in a down market. So to me, that was like... My seed round was like a 3,000,000 raise, my series a was a 10,000,000 raise, and my series b was more like a 30,000,000 raise. So that's my mental model. I'm like Wait.
00:41:48 · Joubin Mirzadegan
[00:41:48] S1: Sorry. Explain that again. But you didn't end up raising those amount.
00:41:51 · Immad Akhund
[00:41:51] S0: Raised the full amount. Yeah. I'm just saying I... In my mental model, I was like, this is how much we would have raised if the market was not so good. Yes. Right? So not like completely shitty market, maybe we wouldn't. But like if it wasn't like a frothy market, like... Or like if I wasn't like good at raising, I would have raised less. And then I try to allocate my costs against that versus how much I actually raised. So I will try to do... And mostly, like for us at least, is hiring. You know, for token companies, it's probably slightly different. But you know, for us, it's mostly like, what does the hiring plan mean if I had raised, you know, half as much or whatever it was? And then I'll only unlock the rest of the money if I think I'm doing like, you know, if I have grown enough to justify spending more money. Like, if it's like, you know, I'm so sure that I've grown way beyond what the next round would look like, that I'm like, okay, know, now I can unlock the rest of the money. So basically, think it's fine to raise a lot of money, just don't spend it. But it does require discipline. But at least my observation hasn't been VCs are telling me to spend it, really. I think this is probably like separate point, I don't know if you have it in one of my tweets, but like, I don't... My experience at least with Mercury has been like, you want VCs to be your partner. If you're ever in a situation where VCs are telling you to do things, you've kind of screwed up that relationship already. And I am telling VCs, hey, what do you think? I'm thinking of doing this, etcetera. And they have opinions, but I've never had any of our VCs say like, hey, you know, do this instead, and I think you should go do this kind of thing. It's been much more like, okay, that's reasonable. Like, what have you thought about this, etcetera? Like, it's it's very collaborative. And I think that's how VCs like to operate with the entrepreneurs. I think this whole model of like VCs are telling me to spend money or like VCs are telling me to do x is like kind of a a flawed model that I don't think entrepreneurs should like fall into.
00:43:52 · Joubin Mirzadegan, Immad Akhund
[00:43:52] S1: Mhmm. And so I guess the counter argument... Let's take the VC point aside, because obviously, I agree it's self serving. Yeah. But the argument that they would make. Yep. Which in some ways maybe hold some water in my mind is like you limit your paths. For example, okay, let me just take like, okay, if you raise at 1.6 Mhmm. And the business didn't do as well as it has, like, obviously now that decision in hindsight looks great because you took less dilution and you've raised three x that valuation. Yep. But if that wasn't true [00:44:27] S0: Yeah. [00:44:28] S1: And you, let's just say you raised it, I don't know, 800,000,000 instead, and you got acquired for a billion. Mhmm. Because it was, you know, it still made sense for an acquisition. That'd be like one argument. Argument two is the raising at a extremely high price puts in some ways, especially in B2B, like enterprise, like inordinate amount of pressure where there is, especially on go to market, like headcount equals revenue. And if you've signed up for this giant valuation, you're probably signing up for a bigger number than you otherwise would have, which maybe the market may or may not be able to sustain. And now you start doing unnatural things.
00:44:28 · Joubin Mirzadegan, Immad Akhund
[00:44:28] S1: And you, let's just say you raised it, I don't know, 800,000,000 instead, and you got acquired for a billion. Mhmm. Because it was, you know, it still made sense for an acquisition. That'd be like one argument. Argument two is the raising at a extremely high price puts in some ways, especially in B2B, like enterprise, like inordinate amount of pressure where there is, especially on go to market, like headcount equals revenue. And if you've signed up for this giant valuation, you're probably signing up for a bigger number than you otherwise would have, which maybe the market may or may not be able to sustain. And now you start doing unnatural things. [00:45:19] S0: I think it goes back to my previous point that the founder's always gonna take it. So you just have to manage around it. Right? So to me, the M and A point, I don't think it matters too much. I mean, for most PCs, whether they get 1.2 X or one x, which is like the preference stack, it's like basically the same. So, you know, it's like... You're basically in like some sort of failure scenario. I'm not worried about the VC. I'm saying [00:45:41] S1: more from the founder perspective. [00:45:42] S0: Even the founder. It doesn't matter. Like, [00:45:43] S1: it's Yeah. Yeah.
00:45:43 · Joubin Mirzadegan, Immad Akhund
[00:45:43] S1: it's Yeah. Yeah. [00:45:44] S0: Like, again, if you're not spending the money, then like actually, you know, generally speaking, M and As sets a price, and then they add the money on top. If you've got more money in the bank, you've got a higher valuation, really. So I don't think M and A is an issue. I think down rounds are more often an issue, and it is quite hard to do down rounds. In really frothy markets, when the markets turn, people actually... I don't think... At least my experience hasn't been their mind doing down rounds. There was a bunch of down rounds for like actually pretty good companies in '23 and '24, and everyone was like, okay, know, everyone acknowledged '21 was crazy, and that it wasn't really a down round. This was just like the right size round. So I think it's manageable, again, if you're not spending all the money. If you're spending all the money and you've overspend money and you didn't come up with like any productive outcome from it, like, that's always gonna be a problem. And that ties into my last thing. I think you need really good discipline on spending money. So nobody has that. You say... [00:46:39] S1: Like, do you... Like, don't you think you're... [00:46:41] S0: You should. [00:46:41] S1: I just feel like most founders [00:46:43] S0: You know, there's this statement [00:46:44] S1: that's their burn proportionally. I...