HACKER Q&A
📣 milkytom

WWYD? Looking to take secondary, pre-Series A


I'm looking for some "What Would You Do?" advice from the founder and investor community. Generally looking for guidance on if the VC fund is correct.

Financial Overview

- Our only round, a year ago (seed investment) we were valued at £6.2M - I own ~41% of the business, and so does my co-founder. - We've doubled our ARR this year and hit $1.2M ARR - We'll be looking for a Series A round in mid-2025 after being profitable

Personal Overview

- It's been ~3 years that I have been on this journey, bootstrapped with no salary for about 2 years and up until a year ago when I started closer to the market rate at £80K - Currently, have a very small flat which is mortgaged, living in the UK - I'm looking to buy a house for my partner and me to live in long-term

State of the Play

- Our Non-executive director (NED) is happy to buy a small stake from me, £250K, and £100K from the other co-founder. The NED and myself are very bullish on the business and its long-term future. - The VC fund has said, "~5% at this stage will be a bad signal to VCs at this point" and "if you look at any Series A funds, they would see this as a red flag". They have pre-emption rights for any transfers but we are allowed share transfers.

My question stands: Is the VC correct, is selling 5% problematic? Could alienating our VC fund cause any issues downstream?

WWYD?

  👤 chatmasta Accepted Answer ✓
You have 1.2mm ARR, that's a lot of leverage and you're in a strong position to raise a Series A. Your current investor has no reason to encourage you to take money off the table, but they also don't have a super compelling reason to discourage it. But of course if you ask them, they'll say "no don't do that." Ultimately the only way to get a read on the situation is to start the raise and see how outside investors really feel about it.

But why the rush to take money out now? And why slow walk into Series A? Personally I'd try to couple it with the raise (rather than pre-emptively) because that's when you'll have most leverage against all parties, and you'll probably be able to sell your stake for even more too. So either raise now, or sell your stake later. Once you get two new outside investors, you just need one of them to approve a secondary sale and that's enough leverage to get the others in line with it.

Also, you can always increase your salary, or even pay yourself a bonus. Your lack of salary for two years and subsequent revenue increase seems like a good enough argument for why you deserve one. Get your co-founder aligned and pay yourselves some cash...

👤 lulznews
No offense but you sound somewhat clueless and need to get some advisors who are aligned with your interests, not hard nosed hard money investors. Money is still abundant, at 100% growth 1.2mm revenue, should be no problem to raise $5 at $30 mil, which could include cashing some out or just start paying yourself a real salary.

I’d look outside the UK if this is what you’re hearing from UK investors.