Prateek Agarwal (Pre-seed investor)’s Post

interesting stats from Sifted on the not so good relationship between founders and VCs. There are natural misalignments between founders and investors. It starts with the valuation. Founders want to keep as much equity as possible and therefore have high valuations from the beginning. Investors want control and return so as much equity as possible, which means a low valuation as they come in. That first interaction often sets the tone for what is coming later where both sides do not fully show their cards. It also does not help that founders are often not aligned between themselves. Both sides also show reluctance to get help from outside to manage their relationship, like a dysfunctional couple who refuses to see a therapist...they only see intermediaries as people who can make the first introduction and that is a costly mistake. Most founders and nearly all investors want the company to make an exit, often within 5 years. The sad reality is that only 2% in the UK and often 1% in other countries succeed to exit. The exit itself is a great subject of misalignments that actually cannot be efficiently discussed between founders and investors : most founders don't a have a clear view of what an exit means for them and try to hide that when they are asked by investors. Misalignments are a major cause of this ridiculously low rate of successful exits. When will investors and founders realise they need support in managing they relationship and to help them to get aligned? Dealing with misalignments has become a central activity of Value Squared and partners, so some people get it, but too many still think this is a "nice to have" that they can make the economy of. If both sides are serious about improving their chances of exit beyond the 2% , more founders and investors need to get help to get the right vision and grow together toward a strong exit. #misalignments #investors #startups #investments #valuation

🚀 Unlocking the Power of Secondary Stock Transactions in Venture-Backed Startups! 💼 Venture capital dynamics are evolving, and secondary transactions are becoming a key strategy for founders and investors alike. 🔄 Discover why secondary transactions matter and how they can benefit your startup's financial strategy in our latest article! 📈 Don't miss out on this insightful read: https://lnkd.in/dzwYXnR9 #VentureCapital #StartupFinance

Investors often tell me what we’re doing at Stableton is impossible. These are the 7 misconceptions I run into most often: 1. “It’s just not possible.” Many people assume the only way to invest in private companies is through major funding rounds open only to top-tier VCs and sovereign wealth funds. Of course, that’s not an option for most people. The good news is, it isn’t the only way to get exposure. There’s a huge amount of liquidity in the secondary market which can give investors access to pre-IPO unicorns. People just don’t know about it. 2. “These companies don’t allow share transfers.” Yes, some companies don’t allow it — but many do. As of today, Stableton is on the cap table of 13 of the 20 pre-IPO tech companies. For the other 7, we get exposure by investing at zero cost in SPVs that are directly on the cap table. 3. “Startups are too risky.” Yes — but these aren’t startups. The Top 20 companies are typically 8-12 years old, profitable, well-funded, and have a clear path to IPO. They’re the blue-chip equities of the private market. But just to make sure, we created a Top 20 index with Morningstar to see how a systematic investment strategy in this universe would have performed over the past several years. The result: only 5% of the companies went out of business, while 69% went public or were acquired. 4. “These companies are so close to IPO that there’s no upside.” This is just not true. With that same Morningstar backtest, we found that investing in the Top 20 over the past 10 years yielded an average return of 107% over a 2.4-year holding period. We buy shares at a 20% or more discount and hold as revenues grow 30-100% annually. During the IPO, these companies often see strong demand, and investors pay a premium — meaning the shares we bought at 80% may sell for 125%. 5. “They’re completely illiquid.” This is false. There is actually liquidity — you just have to know the participants from whom to buy and sell. Secondary transactions are often very confidential, and the market is very opaque and fragmented. 6. “You have to go through the investment bank running the IPO process.” Actually, we acquire our shares mostly before the company even decides to begin the IPO process — no investment bank required. 7. “IPOs decline after the initial pop, and all gains are lost.” This is not entirely true. While companies may underperform market indexes post-IPO, they often show positive absolute performance until the lockup expires. Early exits are possible through direct listings or SPACs. If you invested pre-IPO, you'll typically have substantial gains by the time the company lists. Have any other questions about how we make private market investments work for everyone? Let me know in the comments👇 Check out Stableton’s Navigator newsletter for more thoughts like these: https://lnkd.in/eG6ufZtT #secondaries #privateequity #marketdisruption #investing #innovation

Let's Talk About Sec(ondarie)s: Is It for You AND Me? 🚀💼 More and more often, when discussing raises with founders, there seems to be a new buzzword... no, not AI but secondaries. But what are they, and could they be the right move for you?🌟 What Are VC Secondaries? 🤔 VC secondaries involve selling existing shares in a private company, rather than issuing new shares. This provides liquidity for founders, early investors or employees before a major exit event like an IPO or acquisition. Why the Rise? 📈 Pandemic Effects and Changing Risk Appetite 🦠 The pandemic forced many founders to cut back and focus on survival. Now, they’re looking to de-risk their personal finances after the intense period of keeping their businesses afloat. VC secondaries offer a way to do this without losing sight of company growth. Alignment Between Founders and VCs 🤝 During downrounds, VCs use secondary transactions to ensure founders keep enough equity to stay motivated. This balances providing liquidity and preserving the founders' drive to grow the business. Companies Staying Private Longer ⏳ Companies are staying private longer, meaning shareholders of venture-backed firms must wait extended periods to realize their gains. Each new funding round often implies an additional 1-3 years of waiting. VC secondaries provide an opportunity for early stakeholders to gain liquidity without waiting for an uncertain future exit. The Benefits ✨ Financial Security for Founders 💰 VCs generally support founders using secondary transactions for financial security, like mortgages or kids’ schooling. The key is enough liquidity to reduce stress but not so much that founders lose focus on business growth. Market Examples 🏆 Revolut is a great example. Early employees and investors were able to sell shares in secondary transactions, providing liquidity while attracting new investors for further expansion. Challenges and Considerations ⚠️ Downround Dynamics 📉 Secondaries during a downround can signal a decreased company valuation, creating tension among stakeholders. Handling these situations delicately is crucial to maintaining trust. Fairness to Early Investors ⚖️ Founders sometimes overlook offering cash out to early-stage investors during secondaries, which can upset the cap table. Early investors took on significant risk and may feel sidelined if not included in liquidity opportunities. Transparent communication and equitable liquidity options are vital to keep everyone happy. Examples? WeWork. Raised more than $20 billion, and yes, Adam Neumann kept close to $2 billion for himself as the company spiraled into spectacular bankruptcy. Hopin – everyone wanted a piece so the founder sold $150m of shares… not long after, the company was sold for $50m! Is it for you and me? When secondary is being offered… should it be pro-rata to the whole captable… ! 🌍🚀 #VC #Secondaries #StartupLife #Entrepreneurship #UKStartups #FounderFocus #InvestorInsights #GrowthHacking