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The startup industry has been whistling a happy tune since the British chip designer ARM filed paperwork with the SEC late last month for an IPO. The growing expectation is that the hotly anticipated offering will force open the IPO window for many other outfits. But while ARM\u2019s beleaguered owner, SoftBank, is likely to wring out a substantial return<\/a> once ARM is rolled out on the Nasdaq, one \u201cblockbuster IPO\u201d may have less impact on the industry than many anticipate, says former operator, entrepreneur, and longtime VC Heidi Roizen.<\/p>\n We recently talked with Roizen \u2014 who has spent the last decade with Theshold Ventures<\/a> \u2014\u00a0 about the offering and what else is happening in the market right now. You can listen to that longer conversation here<\/a> or read excerpts from it, edited for length, below.<\/p>\n TC: You have a new podcast<\/a> and recently covered down rounds \u2014 a big topic this year. Is there any non-conventional wisdom for founders you can offer? VCs I\u2019ve talked with throughout the year say it\u2019s better to take a lower valuation than accept\u00a0 certain terms, or \u201cstructure,\u201d in order to maintain an inflated valuation.<\/strong><\/p>\n HR: Sure, venture capitalists will say, \u2018Just take the lower valuation.\u2019 But I think it\u2019s one thing to tell people, \u2018Terms are more important than valuation.\u2019 It\u2019s another thing to show someone, \u2018Hey, you\u2019re gonna walk away with 24% if you do this, but you\u2019re gonna walk away with 48% if you do that.\u2019 Entrepreneurs should run the math and make sure [they] understand that when [they\u2019re] giving downside protection [to VCs], that\u2019s probably going to come out of their own pocket. On the podcast, what I\u2019ve tried to do is give them real examples.<\/p>\n \u201cParticipating preferred\u201d is a term that no one heard for many years and which resurfaced this year. What else were many founders not exposed to previously and so are struggling with?<\/strong><\/p>\n There\u2019s a lot going on right now that entrepreneurs need to be aware of. The financing world is just one component. Compensation is another place where [founders] really have to look and say, \u2018We need to right size.\u2019 I\u2019m also working on a future episode about secondaries.<\/p>\n Secondaries are interesting in that they were once seen as something shameful that you didn\u2019t discuss, then it was fine to discuss them \u2014 you were actually smart taking money off the table. Then things really went haywire, with founders allowed to sell a lot of shares in their company \u2014 sometimes at sky-high prices \u2014 at the same time they were raising primary capital from investors.\u00a0<\/strong><\/p>\n It became Netflix documentary material.<\/p>\n Exactly! What did you make of a recent report that Tiger Global is nearing a sale<\/a> of part of its stake in a very buzzy AI company called Cohere. According to The Information, it\u2019s selling 2.1% of its stake and keeping 5%. Basically, it\u2019s just pulling out the money that it put into the company and taking it off the table. Tiger is reportedly having liquidity issues, but doesn\u2019t that kind of secondary sale also impact how the market sees Cohere?\u00a0<\/strong><\/p>\n I think it\u2019s more of an indicator about Tiger than Cohere. It\u2019s a very small percent [that it\u2019s selling]. Tiger is purportedly in a cash crunch, and they\u2019re portfolio managers. They look around at their holdings and they say, \u2018Gee, we have a bunch that if we were to try to sell in a secondary, we\u2019d have to take a loss. Meanwhile, we have Cohere where it\u2019s even money, so we can book that and it doesn\u2019t hit our books that bad. We return the money of the LPs and it\u2019s kind of a wash.\u2019 Part of those are psychological decisions. It\u2019s very hard to sell your losers.<\/p>\n In separate AI news, Salesforce just led a big round<\/a> in the AI startup Hugging Face, which is just the latest bet for Salesforce, which also has stakes in Cohere and Anthropic. As someone on an AI committee at Stanford<\/a>, do you think relationships with strategic investors are any more important for today\u2019s AI startups than other types of startups? It\u2019s nice to have the muscle of a Salesforce or an Oracle behind you, but there are downsides as well.<\/strong><\/p>\n Strategic investors are a huge part of the financial ecosystem for entrepreneurs. Something like 20% of all deals have a strategic investor in them. But as I once said to an entrepreneur, \u2018When when I invest in you, I only make money if your stock goes up. But when a strategic invests in you, they also make money when their stock goes up.\u2019 To me, that summarizes something really important. I understand Salesforce paid like 100 times revenue and to the best of my knowledge, there is no public company trading at 100 times revenue. Unless you\u2019re planning to sell that stock sometime in the future, that\u2019s a pretty aggressive price.<\/p>\n If you are also doing some sort of coincident biz dev deal that is going to allow you to leverage what [a startup has] into your<\/em> customer base and into your<\/em> technology and into your<\/em> new market segments, that makes your<\/em> stock go up. So we\u2019re going to have to wait and see, but I would imagine that that\u2019s how [Salesforce] justified paying a price like that.<\/p>\n In the meantime, everyone is waiting on this ARM IPO. The widespread thinking seems to be that this chip design company is going to worth anywhere from $40 billion to $80 billion and blow open the IPO window. Do you think so, too?<\/strong><\/p>\n Every company that goes public is different. I\u2019ve never understood this concept of, \u2018Well, the market is closed, but you take one super big company, and you put it out there, and all of a sudden everybody gets to go public again.\u2019 I personally don\u2019t understand that. So, no, I don\u2019t think it\u2019s gonna blow the market open and that a whole line is going to march out there and we\u2019re going to have 50 IPOs between now and December.<\/p>\n<\/p><\/div>\n