Raise Millions by Hustle Fund VC Page 31 She uses that money to improve the product, acquire users, and hire a few people. After 8 months of working on the business, the founder doesn’t see the traction she was hoping for. And she’s out of money. She decides to raise another round of funding. Only this time, investors have less conviction in her business. Since she hasn’t proved that her idea is successful, they might recommend a lower valuation, but that can look really bad. Decreasing the valuation is a signal to investors that there is something wrong with the business. And since investors see anywhere from 10 to 1000 pitches every month, they’re more likely to invest their money in a new company instead of writing this founder another check. Ironically at the time of this writing (January 2023) where capital is really tight, down rounds are not negative signals. It’s a sign that someone wants to invest. So this is the exception to the rule. Consideration #3: Recruiting Most startups don’t have the capital to offer competitive salaries to high-quality talent. That’s where the ESOP comes in. By attracting talent with stock options, founders are able to conserve cash while employees feel like they have ownership of the company. Those employees are incentivized to work really hard to make the business successful because if the business does well, their options will be worth a TON of money. Right? hustlefund.vc / @hustlefundvc