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Back to 20VC: David Tisch on Why High Ownership and Concentration is BS | Why No Manager Actually Wants to Stay Small | Why Competing with the Mega Platforms is a Losing Game | Why the Lean Startup is a Fake?, with David Tisch.

Does Pro Rata Help Founders More Than Firms?

David Tisch says having pro rata in the documents helps the founder more than it helps the firm. Early-stage funds that say they do not need pro rata and will give it away are selling marketing garbage. The right to invest in later rounds is earned whether the documents grant it or not, and it is not that black and white.

If a founder asks a firm to step back and the firm says no, the firm is getting into a fight it is likely to lose. The loss can be financial, because some mechanism can be used to remove the pro rata, or, more importantly, reputational, because the founder gets angry and stops liking the firm. Taking that reputational risk is on the firm.

Funds that follow into the A and the B are happy to squash an earlier investor any way they can. The more pro rata sits in the documents, the more leverage a founder has to negotiate the next round. When a new firm wants 22% and 6% of the cap table still needs pro rata, the founder can tell the follow-on investor the ownership map does not work and ask to redo the terms.

Grokipedia·David Tisch

Transcript

20VC: David Tisch on Why High Ownership and Concentration is BS | Why No Manager Actually Wants to Stay Small | Why Competing with the Mega Platforms is a Losing Game | Why the Lean Startup is a Fake? ·

The Twenty Minute VC: Venture Capital | Startup Funding | The Pitch

More from this episode

  1. Why Is Today's Venture Market Not a Repeat of 2021?David Tisch says the venture market now has nothing to do with 2021.
  2. Why Do Later Startup Rounds Dilute Founders Less?David Tisch says fast-growing companies now give up far less of the company in later rounds, so an early check gets diluted less.
  3. Why Does David Tisch Think High Ownership at Seed Is Overrated?David Tisch says trying to buy 10 to 20 percent of a true outlier in the seed round, and beat the best venture firms to do it, is a bet he has never understood.
  4. Is the Lean Startup Method Fake?David Tisch says the lean startup was a total fake.
  5. Why Does David Tisch Take 1 Percent Ownership?David Tisch will take a 1 percent or 2 percent stake when the founder is unbelievable and the opportunity is amazing.
  6. Why Did Box Group Stop Funding Brands?David Tisch says Box Group has stopped funding brands, and he does not think the brands are small.
  7. What Is Rogo in Finance AI?David Tisch was in the earliest round of Rogo, a company building AI for finance.
  8. Should Seed Investors Sell When Founders Take Money Off the Table?David Tisch does not sell early, even when founders take money off the table. He works for the LPs who invest money in the firm, and his customers are founders.
  9. Why Do New Venture Managers Outgrow a Small Fund?David Tisch says new venture managers do not plan to stay with a small fund. Very few people get into venture wanting to keep doing the same thing.
  10. Why Does David Tisch Ban Negativity in Seed Decisions?David Tisch bars negativity when his firm decides on early stage deals.
  11. Why Is Y Combinator Different From Every Other Venture Firm?David Tisch says Y Combinator is the only differentiated product in venture because no one else gets the ownership Y Combinator gets.

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