Tailscale has raised $160M

If they had taken just say $40 million would they be able to sustain their project for the foreseeable future and perhaps not yield as much future product direction and equity?

I honestly don't know how this big dealmaking works but it strikes me that when you take out this big of an obligation that the obligation has a gravity that may drag you in a direction you (or consumers) do not want to go.

Love Tailscale as a product (as does everyone I talk to) but genuinely want to learn more about the trade-offs as usually when we see big dollar signs all we do is celebrate.

Equity investments like this don't need to be repaid, so there isn't a legal obligation to repay them. Of course, there is an obligation to maximize shareholder value — but that is totally independent of the dollar amount invested.

When founders raise this much money, it's because there's (1) a lot they want to do and hire for, or (2) they don't want to worry about monetizing the product for a significant period and focus on growth or product development.

GP didn't talk about "repaying" anything. Taking 160M instead of 40M at the same valuation means giving up 4x the shares, and that's going to result in a bigger voice for those investors at the table in making decisions about the future path of the company.

What if they were offered $160mm and Tailscale countered with 4X the valuation, lowering the number of shares by 75%? Similarly, what if they wanted $40mm but the only deal on the table was $160mm due to ownership targets of funds that can actually write $40mm+ checks? It's hard to play these armchair games, even less so when the terms aren't known.

You're right that we don't know all the terms, but $160M raised is not small and it is very reasonable to worry about what level of control will be given up long term because of it.

(3) investors offer the option for founders (and earlier investors) to take money off the table by buying up a percentage of their stake, essentially creating a mini-exit for the founder and earlier investors

One of the main problems with raising too much is that you stop caring about product-market fit and can go on tangents that do not make you competitive. This is quiet common afaik.

That depends on the share classes. Companies with high interest from investors can sometimes get them to accept shares with reduced voting rights.

Yes; you will burn through all the capital you raise in ~18 months. It is _extremely_ difficult to efficiently allocate large raises (100M+) in 18 months. In fact, I’m developing a pet thesis that no single human or business can efficiently allocate more than $100M. This would imply that any time a single raise is more than 100M, the investors always would have had a better return by splitting it into chunks of 100M or less. It’s not a _good_ thesis yet, just one I’m performing thought experiments with

Why would you not just have the same amount of income, but spend less money?

Some business can certainly allocate more than $100M, but I could see that thesis for VC-backed tech-style product companies.

A few examples come to mind immediately: trading firms/hedge funds often have more capacity than that in their existing strategies; hardware businesses can have substantial up-front costs; companies with high COGS might need that much to just scale at the rate they're already moving, since each unit locks up a bunch of capital until it's sold.

No one is going to answer you because no one has seen their books.

The benefit for VC of lending you more than you need is (a) getting the owners hooked on spending money, then (b) taking control.

That's much less of a problem than not being able to raise enough in the next round because you only 1.5x'd instead of 3 or 5.

> Equity investments like this don't need to be repaid

You are saying equity is not bonds.

However investors expect to be repaid in the future with control and exhorbitant interest rates (based on risk). VC invests to make money, but that money comes from future equity rounds or IPO.

If you didn't take the VC money (and the business achieved the same growth without the money) then you'd expect you would have been better off by at least the amount invested (investors don't invest with the expectation of only getting their money back).

If the business doesn't succeed then you are on the hook to pay the debt from your equity via liquidation preferences.

VC payment is expectation statistics, but the investors know that game and invest to make money. That money comes from the current equity owners making less in the future.

Isn't it better to 1.5x in 6 months on 40 million than 3x in 2 years on 160?

By definition focusing on things that don't grow your business because you have way too much money in the bank is going to be worse for your business than being forced to focus because you've only got a year of runway.

Not only the "expectation" but lots of VCs have preference built in that guarantees them huge returns on basically any liquidity event. It's probably not as likely in a Series C like this but 2-3x preference is not unheard of. There are few investment vehicles where for every $1 you put in you're guaranteed to get the first $3 made back first.

obligatory "Raising too much money" (Silicon Valley) https://www.youtube.com/watch?v=8ZgfTarNxdY

I'd be curious how much of this $160 million is immediately allocated to bonuses, founders taking money off the table, increased salaries, employee option pools, etc.

409a valuations are made up by independent appraisals, but it’d be quite strange for an investor to agree a share is worth 4 times the appraised value.

Yeah I take this as bad news, as a user. I dread the inevitable enshittification. Hopefully open source UX over Wireguard is close-enough to as good by the time they drive me away that losing them isn't too painful.

Took a project I'd been putting off and putting off because I knew it'd eat half a Saturday, and made it a 20-minute affair from signup to having everything done, including adding some devices to the network that I wouldn't even have bothered to try adding on my own.

You can’t be serious. Lots of businesses easily have that much just in cost of goods or marketing spend. $100M is not such a crazy amount especially considering the cost of hiring technical people.

Also note that the benchmark of “efficiency” should be a function of growth, not some absolute standard.

Now I'm waiting for all AI billboards in San Francisco to be replaced with Tailscale ads

I think we are saying slightly different things. COGS are composed of many smaller capital allocations. According to this untested, pet thesis, putting on a report that $250M was spent on capex is just fine; but if you go to a single vendor and sign a $250M contract, you have wasted money by not being more careful about how that capital is allocated. $100M is _a lot_ of capital, and I think it’s easy to lose sight of how much stuff you can do with that much money when applied to industries that don’t pay tech salaries for speculative growth. As examples: how many pounds of food could you grow for 100M? How many doctors could we train for 100M?

I think the thesis is thought provoking. Not sure yet if it’s worth anything, but it also doesn’t preclude businesses from having massive cashflow.

Maybe 200 doctors at prevailing medical school rates? That’s not an obscene amount.

I mean, it is obvious that you cannot sustain efficiency as you scale (Amdahl's law) but (1) $100M is not that crazy to be able to keep track of in your head, even for a single individual (I can imagine a successful real estate developer with a handful of ongoing projects and various other personal investments), and (2) in a high growth situation, it makes financial sense to sacrifice some economic gain for scale. In your original example, sure an investor would be better off, if they could actually find 10 good investments with zero cost, to spread their money, but very likely they'd be better off taking the big one and spend their energy raising more money.