When “All In” is the Safest Bet

The checks are enough to make your eyes bug out. A $400m series C here, a multi-billion dollar series G there, another multi-billion dollar series K six months later at a higher valuation. Private company founders have never seen so many zeros all at once.[1] It’s enough to make you think something strange is going on.

The rise of the monster round is very much a creation of recent history. Even at the peak of the dot-com bubble, companies didn’t raise money at such a rapid clip.

Any time you see a metric that hit a high in 2000, didn’t beat that number in 2007, but sets records today, the temptation is to yell “bubble!” But the market has changed, and it’s changed in a way that makes the monster round not just less risky in an absolute sense, but less risky than a smaller investment in the same company at the same valuation.

There’s a common profile for companies that get huge investment rounds:

• They’ve proven their unit economics at a small scale.
• They’re fighting for market share in a business that has network effects.
• Their main customer acquisition channel, whether it’s marketing or sales, is straightforward to model.

This trio of traits describes a few famous disasters from earlier in the cycle: group-buying and meal-kit companies raised large rounds based on the same math, and they notoriously fell apart. (After the group-buying business got bad, but before the meal-kit business did, I wrote up…