A top 20 VC firm, a16z, shared “16 Commandments” for raising equity in “challenging” markets. The reality is that for ~99.9% who never get VC, every market is challenging. So how useful are these VC commandments?
If you’re building a venture, should you follow these VC commandments – or are they only for the “lucky” few who get VC – “lucky” because approximately 80% of those who do get VC are said to fail.
Here’s the reality: 94% of billion-dollar entrepreneurs avoided or delayed VC and did not have to follow these “commandments.” But it is worth knowing what a top VC recommends.
The advice can be grouped into three categories:
#1. VC-Specific Commandments – Helpful, If You Qualify for VC
These apply mainly to the 0.1% of ventures that fit the VC mold. If you’re in that rare group, this advice may help. But if you’re not, tread carefully.
- Get a quick “yes” from a VC – especially if your burn rate threatens your venture.
Unicorn-Entrepreneur (UE) rule: No burn rate. - Raise more capital if you can – even if it dilutes equity.
UE rule: This is the VC mantra because it helps them – they are the ones getting the equity. UEs kept 2x – 7x the proportion of wealth created by delaying or avoiding VC. Dilution matters for entrepreneurs. - Allocate enough time to fundraise – but don’t wait until you’re out of cash.
UE rule: Not a problem if you don’t have a burn rate. - Share the data VCs expect – while safeguarding what’s sensitive.
UE rule: VCs can share your data with their portfolio companies. Watch out. - Secure insider participation for the next round – it signals strength to new investors.
UE rule: Shows potential VCs that insiders still expect high returns. More dilution. - Build ecosystem relationships – you’ll need them.
UE rule: A wider network is nearly always good. - Prepare for tough questions – anticipate them early.
UE rule: Better to take off without VC as 94% of billion-dollar entrepreneurs did – and let the VCs come to you, which means they need to sell themselves to you and you control them. This is what Bezos, Zuckerberg, and Jan Koum (WhatsApp) did. - Understand that your valuation will fluctuate with VC cycles – good markets don’t last.
UE rule: If you grow without VC, a VC cycle will not affect you. - Avoid “structured” deals that seem attractive now but could backfire later.
The UE rule: Better if you can avoid VC. But structured deals may also work out and be better if you can achieve your business plan.
#2. Universal Commandments – Worth Heeding by All
A few of a16z’s rules offer useful wisdom for all entrepreneurs – but even here, many billion-dollar founders took a different path to apply them smarter.
- “Be flexible on structures and sources.” Absolutely. But go beyond family offices and strategic investors. Successful founders tapped:
- “Don’t pursue growth at the expense of profitability.” Sound advice. But while Silicon Valley uses metrics like the Rule of 40 (growth rate + EBITDA margin), most billion-dollar entrepreneurs focused on the Rule of Cash Flow.
Case in point: Bob Kierlin had an elegant Rule of Cash Flow – lease everything except inventories and receivables, manage both tightly, maintain strong margins, and train leaders early. Result? 30% annual growth from internal cash flow alone. That’s un-hyped genius – quiet, efficient, and sustainable. (Bootstrap to Billions from www.dileeprao.com). - “Be deliberate and precise on use of proceeds.” True. But billion-dollar entrepreneurs did more than talk about it – they lived it. They invested where they had an edge and bootstrapped everywhere else.
Example: Gaston Taratuta of Aleph positioned his company globally by hosting a Stanford event that brought Internet leaders to speak to his clients – an edge that fueled massive expansion. - “Communicate with Candor.” No one should invest in someone who’s not honest. But history shows even elite investors can be swept up by hype. Consider Elizabeth Holmes and Sam Bankman-Fried. Transparency isn’t just ethical – it’s strategic.
#3. Commandments You Should Approach with Caution.
Some commandments may sound helpful but come with hidden risks – especially for founders who don’t have elite backers or a soft landing if things go wrong.
- Pressure Test Your Burn Multiple: Better yet, grow value without burning cash.
- Use of Deferred Valuation instruments: These may benefit founders – but they can disadvantage early-stage angels by deferring valuation (https://www.forbes.com/sites/dileeprao/2024/12/23/3-proven-financing-strategies-to-outsmart-venture-capital-in-2025/). Smart angels outside Silicon Valley would do better to avoid such instruments.
- “Preserve Optionality.” This implies that you may need to raise funds from other sources –or fail. Failure may work for a select few from elite schools with attractive options. But for most, the risks are real and lasting. Those who have failed may not find great jobs. Instead of “preserving optionality,” preserve control by avoiding or delaying VC and get skills to reduce the odds of failure.
MY TAKE: VC wisdom works for a few. Entrepreneurial wisdom works for all. What’s optimal for VCs may not be right for you. While Silicon Valley has made extraordinary contributions – and promoted them vigorously – the rules that work for a few may not work for you.
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