Tech Reporters, You’re Being Played By Using “Oversubscribed” To Describe Successful Funding Rounds

Why I Cringe Every Time I Read This Word

Arrrrrgh

I recognize this is an overreaction. But humans have their quirks and one of mine is I cannot stand when the tech biz press uses “oversubscribed” to characterize a startup’s funding round or a venture fund’s raise. Before I share why, let me just explain what it means and is intended to convey in a financial context.

When a founder or a VC claims their round was oversubscribed they’re signaling to you that they had way more investors competing to give them money than they wanted to raise. It has nothing to do with the size or terms of the actual raise, just the presence of greater supply than demand.

Ok so why is it foolish for tech reporters to repeat this somewhat cliche talking point?

1. It Leads To A Prisoner’s Dilemma of Hyperbole: Well if every other company is saying they were oversubscribed then we should say it too. No, even better, let’s be specific and say something like “we were 5x oversubscribed for this round.” Yeah, that’ll show em. Until 10x oversubscribed is claimed by the next startup. And so on, and so on.
2. Counterintuitively, It’s True of Most Reported Rounds: If a startup or a fund can reach its targeted amount, it can be ‘oversubscribed’ with the next dollar of interest. In fact, at that point it gets easier to raise the incremental capital, not harder, because you’ve solved the social signaling issue by attracting all the previous investors. In a single raise, getting your first investor is harder than getting your 101st. This is especially true when the quality of previous investors is high. There hasn’t been a seed round Homebrew participated in that wasn’t ‘oversubscribed,’ especially after we committed and signaled to other investors it was, at least in our minds, a startup to back. And I’d reckon same is true of every other peer fund of ours. And every Homebrew fund has had excess demand as well.
3. It’s Easy to Manufacture By Playing Cute With Figures: “We set out to raise $10…