Inside rounds

Historically it’s always been a weak signal when a VC backed startup needs to raise money from the inside investors, aka as the inside round. But I never understood why. If the current investors love the company, they should keep investing as the company grows. Why do they need outside validation?

Back in 2009, I wrote about inside rounds and my take at the time was that conventional wisdom was wrong and I ended the post with

I’m sure a number of outsiders will see those inside rounds and see weakness. But it may very well be the other way around.

And looking back on our nearly 50 portfolio companies, it’s pretty clear that inside rounds can be a very good thing indeed for founders and early investors. Some of our best performing and fastest growing companies were all financed with follow on inside rounds by us and early syndicate partners – a few examples include Tumblr, AdMeld, Adap.tv and GroupCommerce.

The first three of those companies went on to raise big rounds from fantastic firms after we did the insider rounds previously (we just did the inside round at GroupCommerce so it’s too early to tell). The reason we brought on the new money eventually was because the new VC in each case brought something special to the party and the capital requirements for the business were likely to be outside the ability of the insiders capacity (not interest but capacity). 

I’m not suggesting that we will only do inside rounds in our highest performing companies. It depends on the objectives of the founders, capital requirements and the skills and fit of the new VC. But it is clear to me that inside rounds can be very important for early investors and founders alike.

A tip for all CEOs: do you have to attend that meeting?

Yesterday we had our first Founder Summit in NYC. We gathered over 50 founders and CEOs together to provide learnings and lessons on a variety of shared topics.

I want to thank all that attended and participated. 

We also had a few guest speakers come in. Ray Ozzie gave a talk about his passion & insight about social and mobile. And it was super cool to hear about his experiences on one of the earliest online communities

Our friend David Rosenblatt also led a discussion about his experiences running DoubleClick in good times, bad times and then turning it around and eventually sold to Google for over $3B. David is the cofounder of Group Commerce which is a Spark portfolio company and David is also on the Twitter board with me. David is a pure kick ass operator.

David shared a number of lessons and suggestions. One notable one was how a CEO can know whether his/her senior management team is performing. One method David discussed is for the CEO to carefully review his/her own calendar and review all upcoming meetings over the next few weeks.

Then identify which meetings absolutely require the CEO and which ones don’t. If the CEO is going to meetings that should be able to run without him/her then there is likely a problem with the person running that team.

Now, there are plenty of meetings that require a CEO’s direct attention particularly in the early days. But if you get to a place where you have senior executives reporting to you then looking at your calender will give you a sense if you have a problem or not.

I thought it was great advice and something I will make sure I discuss with all of our CEOs that are now running larger organizations. 

On Tuesday, Senate Republicans…managed to filibuster an effort to eliminate $21 billion in tax breaks for oil companies. Which is, I guess, useful information: However important deficit reduction is or is not, it’s not as important to Senate Republicans as tax breaks for oil companies. Noted.