Transparency in Funding

By Sean Knapp
December 14, 2015

A short term misalignment despite mutual long term interests.

Many entrepreneurs and investors embrace this dictum as a reality of the fundraising process; for others, it is just good sport. “Get VC X to give you a term sheet and use it to drive up VC Y.” “Don’t tell anybody you’re talking to VC A, because if they pass, everybody is going to wonder why and back away.” “Fundraising is just like selling a home in Silicon Valley, price it to get everybody hooked, then they’ll all compete to drive up the valuation.”

In my eight years at Ooyala, we raised more than $120m over 6 rounds of funding. Each round was a negotiation, and I readily admit we overplayed our hand a time or two. Despite this, we built great relationships with our investors, and I’d like to think we produced good returns as well. Each time we went out for funding, however, we would put our game faces back on and get out on the metaphorical playing field.

When founding Ascend, I spent a good deal of time thinking about our core principles, two of which are transparency and integrity. While one would hope we all approach fundraising with an incredibly high degree of integrity, transparency is far rarer. Despite our having an incredibly hot, entrepreneur-friendly market, most would contend transparency still favors the investor over the entrepreneur. The question for entrepreneurs is, does transparency get you something in return?

Nearly every investor should, and will, ask with whom you are speaking, and if you have received any term sheets. Most entrepreneurs I’ve met won’t answer this question, at least not truthfully. It’s understandable. It is very uncomfortable early on when the answers are, respectively, “I’m speaking with a number of people” (insert actual names) and “I have no term sheets.” The flip side, however, is that this much transparency, reveals your greatest supporters. I saw a whole range of responses during our process. In general, nobody outright passes at this point because of transparency -- if they pass, it is for another reason. Some will sit and wait -- these are not your enthusiastic supporters, and are unlikely to ever be. Some quietly reach out to the others, which I consider a violation of the trust implicit in transparency, and you should expect them to do the same in the future. Some ask for permission to chat with the others in the hopes of collaborating on the deal -- this I respect. For the most part, I believe there is an efficient enough market to protect against collusion. And lastly, there are those investors who aren’t concerned what anybody else thinks, who believe in some exciting combination of you and your idea, and who just  want “in” -- these are the enthusiastic supporters we all love and with whom we desperately hope to surround ourselves.

For Ascend, I’m outright floored by the number of supporters we have in the last category. Last week we closed a $4m seed round, co-led by Sequoia Capital and Lightspeed Ventures, with participation from 8 Partners, Core Ventures, Felicis, Shasta, SV Angel and Webb Investment Network. Each of these firms, and more importantly, Ascend’s champion within each firm, committed regardless of the others.

Bill Coughran (Sequoia) was my VP of Engineering during my time at Google. I have a profound level of respect for Bill, aspire to one day be as exceptional a leader as he, and many times in my career have sought out his wisdom. John Vrionis (Lightspeed) and I first met 8 years ago. John has an incredible eye for market fit, and an extreme willingness to go the extra mile for his companies. John and I met frequently while I was contemplating Ascend, including a napkin-drawing-session in his backyard just 2 days after his daughter was born. Joe Lonsdale (8 Partners) and I have known each other for just 4 years, despite being the same year and major at Stanford together (he seems to keep himself rather busy). Joe is the highest clock speed individual I know, hands down, and his ability to arrive at unique insights is outright astonishing. I’ve never seen Joe not “on”, and some of our best conversations happen during early morning runs.

I am profoundly appreciative of each of these three, as well as Ascend’s other champions Shinya Akamine, Wesley Chan, Joydeep Bhattacharyya, Brian Pokorny, and Maynard Webb. I didn’t think most people would read that far if I continued to rave about the entire group, but contact me if you’re interested -- I have no shortage of great things to say about each and every one of them. Nearly all of these individuals I’ve known for many years and worked with in a variety of capacities (fun fact: the dollar weighted tenure of relationship for this round is 7.18 years, with a max of 11). The term “network” is often abused, and misinterpreted to mean how many connections you have on LinkedIn. I believe that network is not that, but rather, the individuals for whom you are willing to put something on the line, and for they you. Transparency draws these people out of the crowd.

In the end, what was my give to get? Could we have raised a higher priced round of funding had we employed a more controlled measure of transparency? Absolutely. Would we have attracted the same exceptional and enthusiastic supporters to Ascend’s business? Absolutely not.

Thank you to our early supporters -- we couldn’t have a better group with whom to share our ascent! (I had to say it at least once!)