Following on from the announcement that Mapbox just secured $10M in Series A and conversations this morning with a NISP EIR, I am left wondering how Northern Ireland can justify selling Series A of the scale of £200K with a 10% fee return and equity stakes of up to 30%?
Doesn’t that just end up de-motivating the founders? Don’t you just end up with an institutional stakeholder who has difficulty following on especially when the expectation of the return on the fund is less than zero?
Doesn’t it push valuations down when our geography would indicate that to approach your Series B (which will be a year away) you will need to look beyond these shores and spend a chunk of your Series A funding that process (and not focusing on product)?
Doesn’t it mean the job of the CEO becomes the endless search for further capital and not the development and expression of the team vision? How much runway does £200K provide for a globally focused startup compared to $10M?
And what is the purpose of public backed funds? I would expect them to be tasked with the role of creating value-added startups who will be fit to employ others, equipped to challenge anyone and financed to play on a global stage? I would not expect term sheets that were predatory, equity stakes that were nausea inducing, valuations that were humbling and anti-founder clauses (including an insistence of a hostile board member) that caused founders to disengage from the process early.
The point of public-backed funds is not to get as much value for money as possible (in terms of startup equity and founder enmity) but to accelerate the development of these companies to some sort of exit, up to and including merger, acquisition or even IPO. Inadvertently we have incentivised exactly the wrong activity in our public venture funds. I would be curious to see if it happens again.