Photo Credit: Brent Leimenstoll by David Frankel “I can grade you, or I can teach you, but I can’t do both.” This excellent line was shared with me by , a managing partner at and a . His point is that if he’s grading a student, there is an adversarial dynamic where students are being assessed and sorted against an established standard. When he’s teaching, the relationship is collaborative and constructive, ideally leading to new discoveries. Matthew Rhodes-Kropf Tectonic Ventures Professor of Entrepreneurship at MIT It’s an important insight and also a good way to frame the way we approach follow on investing at . We’re an unusual fund in that we don’t lead follow-on rounds of funding, and we rarely go beyond our pro rata responsibilities. Our mission is to be the most aligned fund for founders at the seed stage. Meaningfully participating in later rounds of fundraising makes it hard to maintain that alignment. To borrow Professor Rhode-Kropf’s formulation: Founder Collective “We can fund your next round, or we can coach you on raising it, but we can’t do both .” well When we promote our startups to Series A funds, we do so with the knowledge that we will be diluted alongside the founders. Founders know this, and when we offer advice, they can rest assured that we’re on their side. We share the upside and downside of their decisions. However, If we were investing in the next round, there might be a suspicion that any advice proffered might redound to our benefit at the founder’s expense. We believe it’s important to have these bright lines because the advice we share can sometimes seem counterintuitive. In some cases, we tell startups that they should consider a term sheet that comes with a lower valuation than competitors. If we were investing in that next round, this counsel would seem entirely self-serving, and entrepreneurs would be right to discount it. Thankfully, our financial alignment with entrepreneurs makes the explanation more plausible. For example, we can explain that a lower post-money valuation preserves optionality in future rounds that might make them millionaires many times over. At Series A we have no incentives other than the success of our founders. Case in point, I recently met with a founder who was having trouble pulling together a Series A. However, he did have inbound M&A interest that would represent a decent return. The typical investor/entrepreneur dynamic meant he couldn’t have an honest discussion with his other backers about the offer without causing them to doubt his dedication to the business. Since he didn’t have to “sell” us on the next round of financing, this founder knew we could provide an objective perspective. This model works for us and helps further our mission, but it’s not for everyone. All the same, I thank Professor Rhodes-Kropf for teaching me a new way to think about our practices.

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