The Real Truth About Inside-Led Financing Rounds

A new academic paper seeks to destroy the myth that venture capitalists use inside rounds to dilute founders by issuing themselves cheap stock.

Sure, there are plenty of lawsuits that claim this, but I’ve actually never seen it happen when reputable firms are involved.

This paper is the first empirical study of its kind and concludes that inside rounds are most often seen when companies can not find a new funding partner and the pricing seen in these types of transactions tend to be over-priced, not under-priced.

It’s a fascinating report and the authors (Jesse Fried from Harvard and Brian Broughman from Indiana) are seeking feedback on their article. So please read and fire away.

One piece of information that I’ve already given them is that in good economic times (like today) one sees more and more inside rounds done at attractive increases in valuations between companies and VCs that don’t want to waste management time to go seek a new outside lead investor.

The article is here.