Valuation increases really matter to most VCs, so they want you to go raise a big round.
VCs only make profits on an exit–an IPO or a sale of a portfolio company. But they make money on management fees too, and to get them, they need to raise multiple venture funds. They need to raise another fund. When they go to raise another fund, some and probably even most of their track record is still going to be illiquid, in companies that haven’t yet gone public or been acquired.
Those illiquid companies will be valued based on their most recent valuations. If you as a founder raise another round at 2x-3x the price of last one, VCs can tell their own investors, the LPs, how strong the return on this investment has been–even if it’s just paper gains. They can sell this when they raise their next venture fund. If there isn’t another fund, the venture firm just becomes a zombie.
(1) Since the size of a round is always proportionate to its valuation, this means it’s in your VCs’ interests to have you raise a large round.
(2) A large round has many advantages — capital can be used as an offensive strategy. But a large round is not always best for the company, the founder or the team. As Rob Go says there, “modest sized rounds focus a team and establish discipline”.
(3) So add this to the list of potential conflicts of interest between companies and VCs.