1 00:00:00,240 --> 00:00:01,700 [Miles] Picture month 14. 2 00:00:02,080 --> 00:00:05,200 [Miles] The bank balance is a number you can count in paychecks, and 3 00:00:05,259 --> 00:00:06,639 [Miles] the dashboard looks good. 4 00:00:07,019 --> 00:00:10,300 [Miles] Real users, real revenue, and still not enough. 5 00:00:10,820 --> 00:00:11,460 [Grant] Short of the bar. 6 00:00:11,939 --> 00:00:12,839 [Miles] Short of the bar. 7 00:00:13,199 --> 00:00:14,919 [Miles] Not a disaster, just short. 8 00:00:15,480 --> 00:00:15,619 [Grant] Ugh. 9 00:00:16,140 --> 00:00:19,140 [Grant] And that's the worst place to be because nothing forces your hand. 10 00:00:19,640 --> 00:00:21,839 [Grant] You've got time to make a bad decision slowly. 11 00:00:22,199 --> 00:00:22,480 [Miles] Right. 12 00:00:22,859 --> 00:00:26,699 [Miles] And I wanna be clear, this is a hypothetical founder, a composite 13 00:00:26,780 --> 00:00:29,379 [Miles] of the situation, nobody we're putting on the line. 14 00:00:29,800 --> 00:00:30,019 [Grant] Fair. 15 00:00:30,500 --> 00:00:33,740 [Grant] So, um, this is Miles and Grant, and this show follows one 16 00:00:33,859 --> 00:00:35,740 [Grant] startup through one high-stakes decision. 17 00:00:36,100 --> 00:00:39,200 [Miles] Last episode asked whether you clear the Series A bar. 18 00:00:39,619 --> 00:00:41,200 [Grant] This one starts when the answer is no. 19 00:00:41,679 --> 00:00:42,539 [Miles] So what do you do? 20 00:00:43,060 --> 00:00:45,740 [Miles] Take an extension on a SAFE somewhere in the one and a 21 00:00:45,799 --> 00:00:49,479 [Miles] half to three million dollar range, push for a priced A anyway, 22 00:00:50,000 --> 00:00:52,520 [Miles] or cut burn and aim for default alive. 23 00:00:52,920 --> 00:00:53,539 [Grant] Three doors. 24 00:00:53,859 --> 00:00:55,460 [Grant] And I'll tell you what I suspect, Miles. 25 00:00:56,039 --> 00:00:58,340 [Grant] The extension isn't good or bad on its own. 26 00:00:58,600 --> 00:01:00,679 [Grant] It depends on what you tell yourself it's for. 27 00:01:01,159 --> 00:01:03,140 [Miles] Funding a plan or hiding a gap. 28 00:01:03,979 --> 00:01:04,819 [Grant] You stole my ending. 29 00:01:05,239 --> 00:01:06,280 [Miles] Occupational hazard. 30 00:01:06,599 --> 00:01:09,159 [Miles] And honestly, that's the test we'll keep coming back to. 31 00:01:09,640 --> 00:01:12,620 [Miles] Two founders can take the same money on the same paper and 32 00:01:12,680 --> 00:01:14,579 [Miles] be doing completely different things with it. 33 00:01:15,519 --> 00:01:15,760 [Miles] Okay. 34 00:01:15,900 --> 00:01:19,000 [Miles] But before the founder's choice, how common is this spot? 35 00:01:19,439 --> 00:01:22,319 [Miles] Because if everybody lands here, it changes how you read it. 36 00:01:22,700 --> 00:01:23,000 [Grant] Yeah. 37 00:01:23,500 --> 00:01:23,700 [Grant] Hmm. 38 00:01:24,359 --> 00:01:26,340 [Grant] I have a guess, and I'd bet it's low. 39 00:01:26,739 --> 00:01:29,480 [Grant] Though I suspect the real answer will make this feel better and 40 00:01:29,560 --> 00:01:30,599 [Grant] worse at the same time. 41 00:01:31,060 --> 00:01:31,879 [Grant] We'll find out together. 42 00:01:32,879 --> 00:01:33,099 [Miles] Okay. 43 00:01:33,420 --> 00:01:37,019 [Miles] So before anyone gets too gloomy about this founder, let me throw 44 00:01:37,060 --> 00:01:37,879 [Miles] a headline at you. 45 00:01:38,459 --> 00:01:41,540 [Miles] Startups World ran a piece in August with a title that basically 46 00:01:41,599 --> 00:01:45,280 [Miles] says seed funding hit record highs, and five out of six seed 47 00:01:45,319 --> 00:01:47,599 [Miles] startups still won't reach an A series. 48 00:01:48,120 --> 00:01:49,019 [Grant] Five of six. 49 00:01:49,500 --> 00:01:50,519 [Miles] Five of six. 50 00:01:50,980 --> 00:01:51,060 [Grant] Ugh. 51 00:01:51,480 --> 00:01:52,420 [Grant] That's one article, though. 52 00:01:52,780 --> 00:01:53,620 [Grant] I want that on the table. 53 00:01:53,780 --> 00:01:56,659 [Grant] It's a secondary source, one writer, one framing. 54 00:01:57,120 --> 00:01:59,739 [Miles] Fair, but watch what happens when you pull a second one. 55 00:02:00,079 --> 00:02:00,340 [Grant] Go on. 56 00:02:00,840 --> 00:02:05,180 [Miles] A post by Trace Cohen at Value Add VC, updated in September, 57 00:02:05,359 --> 00:02:08,060 [Miles] relays Carta data from mid twenty twenty-six. 58 00:02:08,620 --> 00:02:11,879 [Miles] The median US seed round is a bit over four million dollars. 59 00:02:12,259 --> 00:02:12,400 [Grant] Hmm. 60 00:02:12,800 --> 00:02:16,419 [Miles] That sits on a twenty-four million dollar post-money valuation, so a lot 61 00:02:16,460 --> 00:02:17,759 [Miles] of money goes in at the front. 62 00:02:18,240 --> 00:02:18,460 [Grant] Right. 63 00:02:18,639 --> 00:02:19,780 [Grant] And that's the part that bugs me. 64 00:02:20,120 --> 00:02:24,219 [Grant] You raise four million on a twenty-four million dollar valuation, everybody claps. 65 00:02:24,659 --> 00:02:28,379 [Grant] Then the same post says only fifteen to twenty percent of seed-funded 66 00:02:28,439 --> 00:02:31,360 [Grant] startups reach a Series A within twenty-four months. 67 00:02:31,860 --> 00:02:34,560 [Miles] Which is not far off one in six if you squint. 68 00:02:35,000 --> 00:02:35,139 [Grant] Huh. 69 00:02:35,560 --> 00:02:36,400 [Grant] It's not actually. 70 00:02:36,919 --> 00:02:40,479 [Grant] Five of six leaves you with about seventeen percent, so the two 71 00:02:40,580 --> 00:02:43,620 [Grant] sources are pointing at the same cliff from different sides. 72 00:02:44,580 --> 00:02:46,560 [Miles] Grant, the spreadsheet guy doing the check live. 73 00:02:47,020 --> 00:02:47,639 [Grant] I can't help it. 74 00:02:47,979 --> 00:02:49,800 [Grant] I'd have done it on a napkin at a deal dinner. 75 00:02:50,280 --> 00:02:52,159 [Miles] Okay, but here's what I wanted to get to. 76 00:02:52,699 --> 00:02:53,599 [Miles] The word within. 77 00:02:53,919 --> 00:02:55,520 [Miles] At twenty-four months is a clock. 78 00:02:55,740 --> 00:02:58,159 [Miles] A company can miss it and still get there later. 79 00:02:58,520 --> 00:03:00,979 [Grant] Which is where the founder's month fourteen gets ugly. 80 00:03:01,360 --> 00:03:03,719 [Grant] Half the window's gone, and the A hasn't shown up. 81 00:03:04,060 --> 00:03:06,539 [Miles] And Foundra has a number on exactly that. 82 00:03:07,020 --> 00:03:11,460 [Miles] An article from September says roughly thirty-eight percent of seed-funded startups now 83 00:03:11,500 --> 00:03:15,020 [Miles] raise an extension before they ever see a priced A term sheet. 84 00:03:15,379 --> 00:03:16,120 [Grant] Thirty-eight. 85 00:03:16,599 --> 00:03:16,900 [Grant] Wow. 86 00:03:17,120 --> 00:03:18,360 [Grant] That's nearly four in ten. 87 00:03:18,800 --> 00:03:22,560 [Miles] And it says the seed-to-A gap has stretched to eighteen to twenty-four 88 00:03:22,699 --> 00:03:23,099 [Miles] months. 89 00:03:23,580 --> 00:03:24,740 [Grant] Ah, I'd hold that one loosely. 90 00:03:24,879 --> 00:03:27,620 [Grant] It's a single piece, and the headline is selling a playbook. 91 00:03:28,060 --> 00:03:31,500 [Grant] Foundra literally titles it The Default, Not the Failure. 92 00:03:31,740 --> 00:03:33,400 [Grant] That's a thesis, not a survey. 93 00:03:34,039 --> 00:03:34,340 [Miles] Sure. 94 00:03:34,520 --> 00:03:37,259 [Miles] I'm not saying it's consensus, but even if you shave it down, 95 00:03:37,439 --> 00:03:39,240 [Miles] the direction matches the other two. 96 00:03:39,639 --> 00:03:42,240 [Miles] The straight line from seed to A is the exception. 97 00:03:42,639 --> 00:03:45,400 [Grant] Let me put arithmetic on it anyway, just as an illustration. 98 00:03:45,819 --> 00:03:48,759 [Grant] Take that eighteen-to-twenty-four-month range at face value. 99 00:03:49,139 --> 00:03:53,139 [Grant] A company at month fourteen has somewhere between four and ten months 100 00:03:53,159 --> 00:03:55,659 [Grant] to go before it's simply running at the typical pace. 101 00:03:56,080 --> 00:03:58,699 [Miles] Four months is barely a sales quarter and a bit. 102 00:03:59,219 --> 00:04:02,860 [Miles] And ten only sounds roomy until you subtract the time a raise 103 00:04:02,900 --> 00:04:06,300 [Miles] itself eats up, the intros, the meetings, the diligence. 104 00:04:06,879 --> 00:04:11,000 [Grant] So a stretching gap isn't just a statistic, it's why the runway 105 00:04:11,080 --> 00:04:11,939 [Grant] math stops working. 106 00:04:12,539 --> 00:04:14,939 [Grant] The money may have been sized for a faster road than the 107 00:04:15,000 --> 00:04:16,220 [Grant] market is giving people now. 108 00:04:16,740 --> 00:04:19,959 [Miles] Which means the shortfall isn't automatically a failure of effort. 109 00:04:20,160 --> 00:04:22,740 [Miles] It can be a mismatch between the plan and the clock. 110 00:04:23,180 --> 00:04:25,759 [Miles] Still your problem, but a different problem to fix. 111 00:04:26,259 --> 00:04:28,759 [Grant] Yeah, and that changes how it feels from inside. 112 00:04:29,259 --> 00:04:31,079 [Grant] Our founder isn't a cautionary tale. 113 00:04:31,480 --> 00:04:32,920 [Grant] They're sitting in the middle of the pack. 114 00:04:33,360 --> 00:04:36,920 [Miles] Which sounds comforting until you remember being common isn't the same as 115 00:04:36,939 --> 00:04:37,680 [Miles] being fine. 116 00:04:38,740 --> 00:04:38,939 [Grant] No. 117 00:04:39,399 --> 00:04:41,500 [Grant] Lots of people are common and outta cash. 118 00:04:42,040 --> 00:04:43,459 [Miles] So the founder isn't alone. 119 00:04:43,740 --> 00:04:45,319 [Miles] What are the actual options? 120 00:04:45,920 --> 00:04:48,240 [Grant] Short list, and every one of them costs something. 121 00:04:48,560 --> 00:04:50,000 [Grant] Let's lay them out one at a time. 122 00:04:51,120 --> 00:04:54,259 [Miles] Okay, so the founder's sitting there with the spreadsheet open. 123 00:04:54,579 --> 00:04:56,899 [Miles] Walk me through what's actually on the table, Grant. 124 00:04:57,459 --> 00:04:58,060 [Grant] Three moves. 125 00:04:58,660 --> 00:05:01,680 [Grant] Raise an extension on a SAFE, somewhere between one and a half 126 00:05:01,699 --> 00:05:02,740 [Grant] and three million dollars. 127 00:05:03,279 --> 00:05:07,060 [Grant] Push for a priced A anyway, or cut burn hard and aim 128 00:05:07,100 --> 00:05:08,420 [Grant] to be default alive. 129 00:05:09,079 --> 00:05:09,500 [Miles] Hold on. 130 00:05:09,660 --> 00:05:11,000 [Miles] Define that last one. 131 00:05:11,180 --> 00:05:13,560 [Miles] People throw it around like it means not dying. 132 00:05:14,199 --> 00:05:15,199 [Grant] It's tighter than that. 133 00:05:15,699 --> 00:05:21,060 [Grant] Y Combinator's startup library defines default alive as reaching break even before 134 00:05:21,100 --> 00:05:25,259 [Grant] the money runs out if expenses stay flat and revenue keeps growing 135 00:05:25,300 --> 00:05:26,600 [Grant] at the pace it currently grows. 136 00:05:27,459 --> 00:05:28,779 [Miles] Flat expenses. 137 00:05:29,000 --> 00:05:30,139 [Miles] That's the part that bites. 138 00:05:30,819 --> 00:05:31,079 [Grant] Right. 139 00:05:31,339 --> 00:05:35,720 [Grant] No new hires, no surprise cloud bill, and revenue just keeps climbing 140 00:05:35,759 --> 00:05:37,259 [Grant] at the pace it currently grows. 141 00:05:37,879 --> 00:05:41,240 [Miles] Which is a big if for anybody who's been guessing at growth 142 00:05:41,279 --> 00:05:41,720 [Miles] for a year. 143 00:05:42,800 --> 00:05:43,000 [Grant] Yeah. 144 00:05:43,620 --> 00:05:45,420 [Grant] I've built that model for portfolios. 145 00:05:45,540 --> 00:05:48,420 [Grant] The inputs always look calmer on the spreadsheet than they do in 146 00:05:48,459 --> 00:05:48,899 [Grant] real life. 147 00:05:49,519 --> 00:05:52,600 [Miles] And YC doesn't leave it as a private exercise, does it? 148 00:05:53,139 --> 00:05:53,339 [Grant] No. 149 00:05:53,600 --> 00:05:57,139 [Grant] The same page asks founders to say which one they are, default 150 00:05:57,180 --> 00:06:01,060 [Grant] alive or default dead, right at the start of their investor updates. 151 00:06:01,663 --> 00:06:01,903 [Miles] Huh. 152 00:06:02,144 --> 00:06:04,663 [Miles] Before the good news, before the logo slide 153 00:06:05,204 --> 00:06:06,384 [Grant] Before anything. 154 00:06:06,783 --> 00:06:10,124 [Grant] It forces the founder to run the check, and it tells investors 155 00:06:10,163 --> 00:06:10,983 [Grant] you've already run it. 156 00:06:11,684 --> 00:06:13,324 [Miles] Okay, so that's door three. 157 00:06:13,584 --> 00:06:14,744 [Miles] What about the extension? 158 00:06:14,863 --> 00:06:16,524 [Miles] Is that just a cheaper down round? 159 00:06:17,144 --> 00:06:18,783 [Grant] Um, this is where people get tangled. 160 00:06:19,144 --> 00:06:23,843 [Grant] One aggregator, Causo's guide on down rounds and bridges, explains that a 161 00:06:23,884 --> 00:06:27,363 [Grant] Bridge or Extension generally sets no new valuation. 162 00:06:27,704 --> 00:06:30,043 [Grant] It's a deferral, not a cheaper down round. 163 00:06:30,803 --> 00:06:32,824 [Miles] So nobody's repricing the company 164 00:06:33,444 --> 00:06:34,644 [Grant] Nobody's repricing it. 165 00:06:34,764 --> 00:06:37,463 [Grant] The old number just sits there while the clock keeps running. 166 00:06:38,043 --> 00:06:40,283 [Miles] Wait, that sounds almost too comfortable. 167 00:06:40,944 --> 00:06:42,363 [Grant] Comfortable is the word. 168 00:06:42,684 --> 00:06:45,463 [Grant] And fair warning, Causo is a secondary aggregator. 169 00:06:45,803 --> 00:06:49,744 [Grant] It compiles figures from elsewhere, including Carta data, so I check those 170 00:06:49,803 --> 00:06:52,144 [Grant] underlying numbers before quoting them to anyone. 171 00:06:52,944 --> 00:06:53,184 [Miles] Fair. 172 00:06:53,423 --> 00:06:55,504 [Miles] I still like that it separates the three. 173 00:06:55,684 --> 00:06:56,963 [Miles] A down round is a price. 174 00:06:57,084 --> 00:06:58,524 [Miles] An Extension is a delay. 175 00:06:58,923 --> 00:07:03,024 [Miles] Default Alive is a different question entirely about the business itself. 176 00:07:03,543 --> 00:07:04,343 [Grant] And the Priced A? 177 00:07:04,983 --> 00:07:07,764 [Miles] That's the one where somebody has to say a number out loud 178 00:07:07,803 --> 00:07:10,704 [Miles] and defend it, which is exactly what you can't do if the 179 00:07:10,764 --> 00:07:12,223 [Miles] model isn't repeatable yet. 180 00:07:12,723 --> 00:07:14,283 [Grant] Let's Price each Door honestly, though. 181 00:07:14,603 --> 00:07:16,403 [Grant] The extension costs you pressure. 182 00:07:16,824 --> 00:07:20,184 [Grant] The clock keeps running, the old number sits there, and now you 183 00:07:20,223 --> 00:07:23,564 [Grant] have investors who've written checks and will wanna know what happened to 184 00:07:23,584 --> 00:07:24,004 [Grant] the plan. 185 00:07:24,324 --> 00:07:26,403 [Miles] The Priced A costs you the argument. 186 00:07:26,803 --> 00:07:29,884 [Miles] You're walking into a room with real metrics that fall short of 187 00:07:29,923 --> 00:07:32,644 [Miles] the bar and asking someone to put a price on that gap. 188 00:07:33,264 --> 00:07:36,624 [Miles] Even if you win, you've spent months fundraising instead of building. 189 00:07:37,064 --> 00:07:39,244 [Grant] And Default Alive cost you ambition. 190 00:07:39,624 --> 00:07:42,463 [Grant] Cutting burn hard means saying no to things you wanted to try, 191 00:07:42,524 --> 00:07:44,803 [Grant] and Flat expenses means flat bets. 192 00:07:45,163 --> 00:07:47,944 [Grant] The upside is that you answer to your own spreadsheet instead of 193 00:07:48,004 --> 00:07:49,103 [Grant] someone else's patience. 194 00:07:49,723 --> 00:07:54,103 [Miles] Three costs, time pressure, a hard argument, a smaller dream. 195 00:07:54,483 --> 00:07:54,663 [Grant] Mm. 196 00:07:54,903 --> 00:07:58,283 [Grant] So the founder isn't really choosing between three pots of money. 197 00:07:58,944 --> 00:08:00,644 [Miles] Two pots and one discipline. 198 00:08:01,584 --> 00:08:03,324 [Grant] Okay, that's the line you keep. 199 00:08:03,884 --> 00:08:06,264 [Miles] I'll take it, but sit with the deferral for a second. 200 00:08:06,504 --> 00:08:10,023 [Miles] If the extension only pushes the date back, the question becomes what 201 00:08:10,064 --> 00:08:11,463 [Miles] that time actually buys. 202 00:08:11,884 --> 00:08:14,524 [Grant] And whether anyone wrote it down before the money landed. 203 00:08:14,783 --> 00:08:16,283 [Grant] That's the part most people skip. 204 00:08:17,423 --> 00:08:20,603 [Miles] Okay, so say the founder takes the money, one and a half 205 00:08:20,644 --> 00:08:22,043 [Miles] or three, whatever lands. 206 00:08:22,603 --> 00:08:25,723 [Miles] Grant, what does the bank balance tell you about whether that was 207 00:08:25,783 --> 00:08:26,163 [Miles] smart? 208 00:08:26,723 --> 00:08:27,124 [Grant] Nothing. 209 00:08:27,324 --> 00:08:28,084 [Grant] That's what bugs me. 210 00:08:28,684 --> 00:08:31,983 [Grant] Two founders can wire the exact same amount on the exact same 211 00:08:32,063 --> 00:08:34,543 [Grant] SAFE, and one of them has a plan, and the other has 212 00:08:34,604 --> 00:08:34,984 [Grant] a hope. 213 00:08:35,504 --> 00:08:36,043 [Miles] Same money. 214 00:08:36,524 --> 00:08:39,864 [Grant] Same money, same cap table line, and relieved Slack message. 215 00:08:40,303 --> 00:08:43,183 [Grant] So the only useful question is the one I'd ask across the 216 00:08:43,224 --> 00:08:43,524 [Grant] table. 217 00:08:43,923 --> 00:08:46,783 [Grant] What specific thing would these extra months prove? 218 00:08:47,323 --> 00:08:49,803 [Miles] And I guess traction doesn't count as an answer. 219 00:08:50,403 --> 00:08:50,583 [Grant] No. 220 00:08:51,203 --> 00:08:52,224 [Grant] Traction is a mood. 221 00:08:52,644 --> 00:08:55,443 [Grant] I want a sentence with a number in it, like, "We'll show 222 00:08:55,504 --> 00:08:59,783 [Grant] that customers acquired through outbound renew without a discount," something that can 223 00:08:59,844 --> 00:09:02,043 [Grant] come back true or false by a date. 224 00:09:02,464 --> 00:09:05,083 [Miles] See, this is where I'd lean on the founder, though, because in 225 00:09:05,124 --> 00:09:09,163 [Miles] the room, the answer usually comes out smooth, rehearsed, and I'd be 226 00:09:09,244 --> 00:09:10,524 [Miles] listening for what's missing. 227 00:09:10,903 --> 00:09:11,364 [Grant] Like what? 228 00:09:11,803 --> 00:09:15,063 [Miles] Like the part where the growth came from the founder personally closing 229 00:09:15,124 --> 00:09:18,823 [Miles] every deal, or from two big customers who happen to be friends. 230 00:09:19,364 --> 00:09:23,024 [Miles] The metrics are real, we said that, but real and repeatable are 231 00:09:23,063 --> 00:09:23,823 [Miles] different words. 232 00:09:24,244 --> 00:09:24,484 [Grant] Mm. 233 00:09:24,764 --> 00:09:25,663 [Grant] That's the sugarcoat. 234 00:09:26,244 --> 00:09:26,484 [Miles] Yeah. 235 00:09:26,683 --> 00:09:28,844 [Miles] We just need more time is true of everybody. 236 00:09:29,244 --> 00:09:31,823 [Miles] It's also what you'd say if the engine only runs when you're 237 00:09:31,884 --> 00:09:32,844 [Miles] pushing it by hand. 238 00:09:33,264 --> 00:09:35,443 [Grant] That's a line sellers use about everything, isn't it? 239 00:09:35,783 --> 00:09:36,183 [Miles] It is. 240 00:09:36,443 --> 00:09:39,144 [Miles] I've bought cars off people who said that exact thing about the 241 00:09:39,203 --> 00:09:39,504 [Miles] engine. 242 00:09:40,004 --> 00:09:42,583 [Miles] If a seller can't tell me what's been done and what hasn't, 243 00:09:43,004 --> 00:09:45,283 [Miles] I assume the gap is bigger than the story. 244 00:09:45,823 --> 00:09:48,344 [Grant] That's just due diligence, and it's the same in a pitch. 245 00:09:48,864 --> 00:09:52,124 [Grant] Vague history means the founder either doesn't know or doesn't want to 246 00:09:52,163 --> 00:09:52,403 [Grant] say. 247 00:09:52,943 --> 00:09:53,923 [Miles] So here's a test. 248 00:09:54,264 --> 00:09:55,283 [Miles] Suppose you're the founder. 249 00:09:55,624 --> 00:09:56,504 [Miles] Pause for a second. 250 00:09:57,063 --> 00:09:59,644 [Miles] What's the one thing you'd be scared to write down? 251 00:10:00,124 --> 00:10:02,903 [Grant] That the next six months look like the last six months. 252 00:10:03,244 --> 00:10:06,844 [Grant] Same pipeline, same close rate, just more of it funded by the 253 00:10:06,884 --> 00:10:07,384 [Grant] extension. 254 00:10:07,844 --> 00:10:11,323 [Grant] If I can't write down what changes, then the extension is rent 255 00:10:11,563 --> 00:10:12,203 [Grant] on a delay. 256 00:10:12,644 --> 00:10:13,283 [Miles] That's honest. 257 00:10:13,703 --> 00:10:16,344 [Grant] It's uncomfortable, which usually means it's useful. 258 00:10:16,803 --> 00:10:20,263 [Miles] And you'd want that sentence written before the wire lands, not after. 259 00:10:20,683 --> 00:10:21,144 [Grant] Before. 260 00:10:21,503 --> 00:10:24,563 [Grant] Once the money's in, every result gets a story attached. 261 00:10:24,923 --> 00:10:28,323 [Grant] A sentence written in advance can't be bent to fit whatever happened. 262 00:10:28,903 --> 00:10:30,004 [Grant] That's the whole value of it. 263 00:10:30,244 --> 00:10:31,663 [Miles] Now, there's an outside angle here. 264 00:10:32,203 --> 00:10:36,543 [Miles] Carta's Q1 2026 report page lists bridge rounds and the time between 265 00:10:36,583 --> 00:10:40,063 [Miles] rounds among its charts, and it frames all of that as companies 266 00:10:40,144 --> 00:10:41,183 [Miles] staying private longer. 267 00:10:41,744 --> 00:10:42,043 [Grant] Okay. 268 00:10:42,403 --> 00:10:42,984 [Grant] Careful, though. 269 00:10:43,583 --> 00:10:44,683 [Grant] What do the charts say? 270 00:10:45,323 --> 00:10:45,524 [Miles] Fair. 271 00:10:45,984 --> 00:10:49,004 [Miles] The page only describes what's inside, so I don't have the figures, 272 00:10:49,124 --> 00:10:50,443 [Miles] and I'm not gonna pretend I do. 273 00:10:50,844 --> 00:10:52,004 [Miles] The full report has them. 274 00:10:52,443 --> 00:10:55,224 [Grant] Good, because the trend line is the comfort trap. 275 00:10:55,703 --> 00:10:58,884 [Grant] Everyone staying private longer is a lovely sentence for a founder to 276 00:10:58,923 --> 00:10:59,443 [Grant] hide behind. 277 00:10:59,984 --> 00:11:00,224 [Miles] Right. 278 00:11:00,344 --> 00:11:01,563 [Miles] It explains the climate. 279 00:11:01,703 --> 00:11:03,364 [Miles] It doesn't explain your company. 280 00:11:03,844 --> 00:11:04,624 [Grant] Exactly. 281 00:11:04,964 --> 00:11:06,884 [Grant] The market can tell you the gap is stretching. 282 00:11:07,203 --> 00:11:09,303 [Grant] Only you can say what you'll show inside it. 283 00:11:09,864 --> 00:11:13,203 [Miles] So the extension is neutral, and the founder's answer is what gives 284 00:11:13,244 --> 00:11:13,964 [Miles] it a direction. 285 00:11:14,303 --> 00:11:16,464 [Grant] And an investor on the other side of the table is going 286 00:11:16,504 --> 00:11:18,384 [Grant] to read that answer a particular way. 287 00:11:18,783 --> 00:11:20,043 [Grant] They've seen a lot of these. 288 00:11:20,583 --> 00:11:22,864 [Miles] Which brings us to the people who read them for a living. 289 00:11:23,344 --> 00:11:25,744 [Miles] How do insiders actually read an extension? 290 00:11:26,224 --> 00:11:29,004 [Miles] We can work through that with YC's own published guidance. 291 00:11:29,484 --> 00:11:30,783 [Grant] Yeah, let's see what they say. 292 00:11:30,943 --> 00:11:32,303 [Grant] I'm curious how blunt it gets. 293 00:11:33,344 --> 00:11:37,183 [Miles] Okay, so YC's view, and I wanna be careful here because there's 294 00:11:37,224 --> 00:11:38,644 [Miles] no YC partner on this show. 295 00:11:38,803 --> 00:11:40,864 [Miles] Nobody's going to put words in a partner's mouth. 296 00:11:41,183 --> 00:11:41,364 [Grant] Right. 297 00:11:41,663 --> 00:11:42,844 [Grant] What we have is paper. 298 00:11:43,244 --> 00:11:47,283 [Grant] TechCrunch reported YC's guidance to its portfolio founders back in twenty twenty-two. 299 00:11:47,644 --> 00:11:51,344 [Miles] Twenty twenty-two, different market, so nobody should hear this as this year's 300 00:11:51,403 --> 00:11:51,844 [Miles] advice. 301 00:11:52,323 --> 00:11:53,884 [Grant] Agreed, and the advice was blunt. 302 00:11:54,303 --> 00:11:58,964 [Grant] TechCrunch reported YC told founders to cut cost and extend runway until 303 00:11:59,004 --> 00:12:00,644 [Grant] they reach default alive. 304 00:12:01,063 --> 00:12:03,224 [Miles] Cut first, not raise first. 305 00:12:03,583 --> 00:12:03,823 [Grant] Yes. 306 00:12:04,307 --> 00:12:06,427 [Grant] Then comes the second half, which people forget. 307 00:12:07,067 --> 00:12:10,008 [Grant] If you can't get to default alive and investors will give you 308 00:12:10,067 --> 00:12:13,408 [Grant] more money, even on the same terms as your last round, you 309 00:12:13,447 --> 00:12:15,067 [Grant] should strongly consider taking it. 310 00:12:15,488 --> 00:12:16,427 [Miles] Same terms. 311 00:12:17,947 --> 00:12:18,947 [Miles] So no step up. 312 00:12:19,248 --> 00:12:19,567 [Miles] Flat. 313 00:12:19,807 --> 00:12:20,167 [Grant] Flat. 314 00:12:20,668 --> 00:12:24,148 [Grant] Which for a founder who wanted a story about momentum, feels like 315 00:12:24,207 --> 00:12:25,028 [Grant] swallowing glass. 316 00:12:25,408 --> 00:12:25,567 [Miles] Hmm. 317 00:12:25,788 --> 00:12:28,687 [Miles] I've watched people negotiate harder over a hood ornament. 318 00:12:28,888 --> 00:12:30,847 [Grant] But look at what that guidance actually says. 319 00:12:31,368 --> 00:12:33,567 [Grant] Taking the money isn't framed as shameful. 320 00:12:33,908 --> 00:12:36,827 [Grant] It's framed as the sensible move when the alternative is running out 321 00:12:36,868 --> 00:12:37,388 [Grant] of cash. 322 00:12:37,687 --> 00:12:38,107 [Miles] Hmm. 323 00:12:38,388 --> 00:12:39,447 [Miles] But it's conditional. 324 00:12:39,967 --> 00:12:43,888 [Miles] Cut first, can't reach Default Alive, and only then take it. 325 00:12:44,148 --> 00:12:44,628 [Grant] Exactly. 326 00:12:44,868 --> 00:12:45,748 [Grant] The order matters. 327 00:12:46,107 --> 00:12:47,988 [Miles] Walk me through why the order matters, though. 328 00:12:48,207 --> 00:12:48,807 [Miles] Money's money. 329 00:12:49,028 --> 00:12:51,687 [Grant] Because of what each order says to the person across the table. 330 00:12:52,207 --> 00:12:55,768 [Grant] Cut first, then raise, and you're telling them you treated the cash 331 00:12:55,807 --> 00:12:58,148 [Grant] like it was scarce before you asked for more. 332 00:12:58,687 --> 00:13:01,587 [Grant] Raise first, and the cuts look like something you did because you 333 00:13:01,628 --> 00:13:02,168 [Grant] got caught. 334 00:13:02,567 --> 00:13:04,067 [Miles] Same dollars, different story. 335 00:13:04,327 --> 00:13:05,768 [Grant] Same dollars, different story. 336 00:13:06,187 --> 00:13:07,967 [Grant] And a Flat number can't dress that up. 337 00:13:08,268 --> 00:13:11,087 [Miles] So here's my read, and it's ours, not YC's. 338 00:13:11,548 --> 00:13:13,967 [Miles] The guidance gives you a way to tell a Stall from a 339 00:13:14,008 --> 00:13:14,408 [Miles] Plan. 340 00:13:14,847 --> 00:13:16,868 [Miles] A Stall is raising because you're scared. 341 00:13:17,107 --> 00:13:20,028 [Miles] A plan is raising because you already tried the cuts and the 342 00:13:20,087 --> 00:13:21,427 [Miles] math still doesn't close. 343 00:13:21,748 --> 00:13:21,988 [Grant] Mm. 344 00:13:22,488 --> 00:13:23,528 [Grant] That's a clean way to put it. 345 00:13:24,107 --> 00:13:27,128 [Grant] It also protects you from telling yourself a nicer story afterward. 346 00:13:27,467 --> 00:13:29,687 [Grant] The guidance doesn't care how you feel about the raise. 347 00:13:29,888 --> 00:13:32,668 [Grant] It cares about whether you went through the alternatives first. 348 00:13:33,067 --> 00:13:34,408 [Miles] So how does the market treat it? 349 00:13:34,707 --> 00:13:35,768 [Miles] Is this founder weird? 350 00:13:36,227 --> 00:13:36,427 [Grant] No. 351 00:13:36,967 --> 00:13:40,447 [Grant] A roundup on the blog Mean.CEO pulled together Carta data. 352 00:13:40,927 --> 00:13:44,888 [Grant] Bridge rounds were sixteen point six percent of all cash raised on 353 00:13:44,947 --> 00:13:47,288 [Grant] Carta in the second quarter of twenty twenty-four. 354 00:13:47,648 --> 00:13:50,408 [Miles] Of all the cash, that's a big slice. 355 00:13:50,868 --> 00:13:53,368 [Miles] And a year earlier, it was eleven point eight percent. 356 00:13:53,827 --> 00:13:56,048 [Miles] Wait, so it grew by about half in a year? 357 00:13:56,528 --> 00:13:57,207 [Miles] Roughly, yeah. 358 00:13:57,488 --> 00:14:00,967 [Miles] Though it's a secondary roundup relaying Carta, so I'd hold it loosely. 359 00:14:01,488 --> 00:14:01,727 [Grant] Sure. 360 00:14:02,107 --> 00:14:03,628 [Miles] Still, direction matters. 361 00:14:04,187 --> 00:14:07,447 [Miles] More money flowing into bridges, so an investor looking at an Extension 362 00:14:07,508 --> 00:14:08,488 [Miles] has seen a lot of them. 363 00:14:08,947 --> 00:14:10,427 [Miles] Which cuts both ways, Miles. 364 00:14:10,827 --> 00:14:12,528 [Miles] Familiar means they won't gasp. 365 00:14:12,947 --> 00:14:15,748 [Miles] It also means they've learned to ask what the Bridge is hiding. 366 00:14:16,268 --> 00:14:17,847 [Miles] Ah, so Everyones seen the movie. 367 00:14:18,347 --> 00:14:20,807 [Grant] Everyones seen the movie, and they can spot the ones where the 368 00:14:20,868 --> 00:14:21,988 [Grant] ending was never written. 369 00:14:22,528 --> 00:14:24,868 [Miles] Whats would that look like from their side, spotting it? 370 00:14:25,268 --> 00:14:28,648 [Grant] Probably a founder who talks about the money and goes quiet about 371 00:14:28,687 --> 00:14:29,168 [Grant] the work. 372 00:14:29,748 --> 00:14:32,268 [Grant] If every answer is about runway and none of it is about 373 00:14:32,288 --> 00:14:33,967 [Grant] what changes, thats the tell. 374 00:14:34,587 --> 00:14:37,347 [Miles] Okay, so for our founder, what does the paper say? 375 00:14:37,768 --> 00:14:41,967 [Grant] That the Extension is allowed, maybe even smart, if the Cutting were 376 00:14:42,048 --> 00:14:43,648 [Grant] genuinely explored first. 377 00:14:44,148 --> 00:14:46,888 [Miles] And if our founder has done the Cutting exercise and it only 378 00:14:46,908 --> 00:14:50,227 [Miles] gets them partway, thats exactly the spot that Guidance speaks to. 379 00:14:50,707 --> 00:14:52,028 [Grant] Then thats where they might land. 380 00:14:52,467 --> 00:14:55,587 [Grant] Not a Priced A, not a clean Default Alive. 381 00:14:55,967 --> 00:14:59,528 [Grant] An Extension with a sentence attached about what the months will prove. 382 00:14:59,988 --> 00:15:02,628 [Grant] And that's an if, because we don't know the cuts are done. 383 00:15:03,128 --> 00:15:06,368 [Grant] And whether that sentence survives contact with real customers. 384 00:15:06,827 --> 00:15:07,168 [Grant] Mm. 385 00:15:07,447 --> 00:15:08,347 [Grant] That's the next part. 386 00:15:09,488 --> 00:15:11,408 [Miles] Okay, so where does that leave our founder? 387 00:15:11,888 --> 00:15:16,268 [Miles] Still mid-decision and still owing an answer to what specific milestone the 388 00:15:16,327 --> 00:15:17,207 [Miles] extra months prove. 389 00:15:17,707 --> 00:15:17,967 [Grant] Right. 390 00:15:18,408 --> 00:15:22,788 [Grant] And TechCrunch's write-up of VC's twenty twenty-two guidance already told us taking 391 00:15:22,847 --> 00:15:24,307 [Grant] available money isn't the sin. 392 00:15:25,028 --> 00:15:27,327 [Grant] It's an old position, though, not current policy. 393 00:15:27,967 --> 00:15:30,687 [Miles] So let me make the milestone real, because it's easy to nod 394 00:15:30,727 --> 00:15:31,048 [Miles] along. 395 00:15:31,707 --> 00:15:34,668 [Miles] Say the worry is that every deal so far came through the 396 00:15:34,707 --> 00:15:35,648 [Miles] founder personally. 397 00:15:36,288 --> 00:15:39,648 [Miles] A real milestone would be that someone who isn't the founder closes 398 00:15:39,707 --> 00:15:42,648 [Miles] new deals from a cold start without the founder stepping in to 399 00:15:42,687 --> 00:15:43,528 [Miles] rescue the price. 400 00:15:44,168 --> 00:15:44,807 [Grant] Careful, though. 401 00:15:45,307 --> 00:15:46,548 [Grant] New deals is squishy. 402 00:15:46,967 --> 00:15:49,548 [Grant] Pick the number before the money lands, and pick it so you 403 00:15:49,567 --> 00:15:50,668 [Grant] could actually miss it. 404 00:15:51,187 --> 00:15:51,368 [Miles] Right. 405 00:15:51,687 --> 00:15:52,347 [Miles] That's the point. 406 00:15:52,727 --> 00:15:55,288 [Miles] If the answer can't come back as a no, it isn't a 407 00:15:55,347 --> 00:15:56,668 [Miles] milestone, it's a wish. 408 00:15:57,727 --> 00:15:59,347 [Grant] And that's the uncomfortable part. 409 00:15:59,827 --> 00:16:01,128 [Grant] A no is information. 410 00:16:01,347 --> 00:16:04,748 [Grant] A founder who's already spent the extension on a story doesn't get 411 00:16:04,788 --> 00:16:05,347 [Grant] to use it. 412 00:16:05,807 --> 00:16:05,947 [Miles] Huh. 413 00:16:06,587 --> 00:16:08,248 [Miles] That landed harder than I expected. 414 00:16:08,908 --> 00:16:11,807 [Miles] Writing down something you might fail at is a different kind of 415 00:16:11,868 --> 00:16:13,548 [Miles] scary than watching the bank balance. 416 00:16:14,168 --> 00:16:14,587 [Grant] It is. 417 00:16:15,048 --> 00:16:16,707 [Grant] Running out of cash happens to you. 418 00:16:17,067 --> 00:16:19,227 [Grant] A missed milestone is something you did. 419 00:16:19,807 --> 00:16:23,106 [Miles] Which is why the Twenty Twenty-two position is useful, but not a 420 00:16:23,167 --> 00:16:23,947 [Miles] permission slip. 421 00:16:24,528 --> 00:16:27,727 [Miles] It says strongly consider the money if Default Alive is out of 422 00:16:27,788 --> 00:16:28,067 [Miles] reach. 423 00:16:28,488 --> 00:16:30,908 [Miles] It doesn't tell you what to prove once you've taken it. 424 00:16:31,648 --> 00:16:32,847 [Miles] So what do we watch for? 425 00:16:33,368 --> 00:16:36,427 [Grant] Whether the answer gets written down before anything's signed. 426 00:16:37,048 --> 00:16:37,467 [Grant] That's all. 427 00:16:38,028 --> 00:16:41,488 [Miles] There's no real founder to ask, so nothing's done, and we won't 428 00:16:41,528 --> 00:16:42,408 [Miles] invent an ending. 429 00:16:43,028 --> 00:16:44,307 [Grant] No ending, on purpose. 430 00:16:44,748 --> 00:16:45,868 [Grant] The choice is still open. 431 00:16:46,187 --> 00:16:49,187 [Grant] Extension, Priced A, or Default Alive. 432 00:16:49,748 --> 00:16:52,347 [Grant] And a sentence that decides what any of them means. 433 00:16:52,868 --> 00:16:54,187 [Miles] Then let's go stand there. 434 00:16:55,268 --> 00:16:57,748 [Miles] So the founder hasn't told us which way it went. 435 00:16:58,187 --> 00:16:59,687 [Miles] Still weighing it as far as we know. 436 00:17:00,128 --> 00:17:00,347 [Grant] Hmm. 437 00:17:00,727 --> 00:17:01,727 [Grant] And I'm fine leaving it there. 438 00:17:02,187 --> 00:17:05,788 [Grant] Whatever they pick, I'd wanna hear what they said the extra months 439 00:17:05,807 --> 00:17:06,387 [Grant] would prove. 440 00:17:06,907 --> 00:17:07,147 [Miles] Same. 441 00:17:07,847 --> 00:17:10,867 [Miles] If you're a first-year YC founder, you're gonna hit a version of 442 00:17:10,907 --> 00:17:11,127 [Miles] this. 443 00:17:11,567 --> 00:17:12,067 [Grant] Oh, you will. 444 00:17:12,548 --> 00:17:13,448 [Miles] So send them our way. 445 00:17:13,867 --> 00:17:16,807 [Miles] The address is yearone@heymato.com. 446 00:17:17,407 --> 00:17:19,468 [Miles] Tell us where you are, even if it's messy. 447 00:17:20,008 --> 00:17:21,508 [Grant] Especially if it's messy. 448 00:17:21,768 --> 00:17:23,127 [Grant] Those are the good conversations. 449 00:17:23,548 --> 00:17:25,428 [Miles] And if this one was useful, leave a review. 450 00:17:25,688 --> 00:17:27,268 [Miles] It helps other founders find the show. 451 00:17:27,708 --> 00:17:30,748 [Grant] I'll go check my runway spreadsheet now, just to be SAFE. 452 00:17:31,288 --> 00:17:31,988 [Miles] Thanks for listening.