A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here.
I’ve been working with startups since the 1980s; long before many of the current crop of entrepreneurs were born.
Back then, startups were focused on raising enough.
Enough was the minimal amount needed to develop their product start selling it — with the tightly focused goal of building a viable, sustainable business with strong financials and profit.
An old fashioned idea in an era where founders are lauded for their fund-raising skills and their companies are valued accordingly.
However, the idea of enough is gaining supporters.
The most recent is Sachin Kamdar, CEO of Parse.ly.
Kamdar needed to raise $5 million and couldn’t, in spite of strong financials and substantial growth.
They didn’t want enough money.
While they wanted 5 million, the VCs said they weren’t thinking big enough and offered 25 million and, eventually, 40 million.
What’s really going on here?
As has been noted by many entrepreneurs, and even some investors, VCs don’t offer what’s best for your company.
They offer what is best for their company.
Because they are awash with money, then need to deploy it. They’re limited by how many companies they can work with, so their preference is to make larger investments in fewer companies.
From studying the data, this much is clear: VCs are cash-rich right now, and it’s affecting startups. It pushes companies to raise more money than they actually need. Their viewpoint is, if VCs focus on writing bigger check sizes to companies that have a conceivable path to $100M in annual revenue, then they can put their capital to work “efficiently”. But that efficiency is self-defeating: writing bigger check sizes doesn’t, in itself, put that capital efficiently to work. It might, instead, breed company inefficiency.
VCs also don’t really care who succeeds; they only need one or two 10X successes for their fund to succeed.
In the end, Kamdar turned to his board for advice and found the solution, instead.
Our existing investors knew our business better than anyone. They understood how we were able to scale revenue and product on a lean budget. While they’d seen other SaaS companies come and go since our 2013 Series A, Parse.ly maintained rapid growth. And as it turned out, not only was there enough money to meet $5M in financing, most all of our past investors wanted to double-down. As a result, we ended up raising $6.8M.
A good outcome for Parse.ly and the data they uncovered means a better one for you.
Image credit: HikingArtist