Illustration: Sarah Grillo/Axios
A growing number of late-stage startups are setting their own valuations and other deal terms, eliminating the concept of "lead investors."
Why it matters: This is a significant reversal of VC power, as financial engineers are giving way to founder engineers.
- Most of these deals are for pre-IPO companies, offering early allocations to mutual funds and hedge funds.
- There also are less mature issuers, including Gopuff. The Blackstone Group and Guggenheim are said to be coming in as lead investors on the instant delivery company's new $1 billion fundraise, while existing backer Fidelity is doubling down, but none of them are the lead investors, as Gopuff set all the terms (including the $14 billion pre-money valuation).
Between the lines: For companies, this means more vanilla terms. For investors, it means fewer structural protections, like those ratchets that had become prevalent during the inaugural unicorn boom.
- Caveat: "Leadless" deals still remain the exception to the rule, but their volume is rising alongside the rise in pre-IPO companies.
Keep quiet: Late-stage startups also are becoming smarter about how they communicate with potential investors.
- Such companies often are not just fundraising, but also making key hires who will receive large stock options grants — grants that would become less valuable if the 409A valuation gets boosted because of written proposals.
- The result is a lot more phone calls and encrypted messages via apps like Signal, and far fewer emails. One late-stage VC told me that his firm rarely submits a term sheet until the details have already been hammered out verbally, so as not to hamstring the company.
The bottom line: It's a seller's market, in which capital has become a commodity.