Mega rounds of funding are creating a frenzy in the startup world.

Start-ups raising $100 million or more from investors — known as a mega-round in Silicon Valley — used to be a rarity. But now, they are practically routine, producing a frenzy around tech companies with enough scale and momentum to absorb a large check.

But are they smart?

It may be great for ego and bragging rights, but does it make you richer?

Probably not.

Consider Zappos and Wayfair.

EACH ONE of Wayfair’s two co-founders made as much money as ALL of Zappos’ shareholders combined. (…)  Put another way, Wayfair co-founders made at nearly 10X as much as Hsieh.

Mega rounds hurt employees by substantially diluting their stock and forces you to grow, often at an unreasonable rate.

In these days of frenzied money, some founders, such as Gusto’s founder/CEO Joshua Reeves choose to say no to excessive funding.

Gusto, a payroll and benefits software company, raised $140 million in July, but could have done five times that, according to Joshua Reeves, its chief executive and founder.

Startups seem to have forgotten that the purpose of a company is to make money, not raise it.

Mr. Reeves, of software start-up Gusto, acknowledged that founders who obtain outsize sums of capital can get caught up in a “growth at any cost” mentality. That is why he chose not to maximize his funding round despite the intense interest. “It’s up to the founder to realize that’s a distraction,” he said. “Success is not having more money or a bigger team, but having more customers or revenue.”

Think about it.

Image credit: HikingArtist

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here.

Short post, longer articles, but worth the read.

Not all founders are focused on valuation.

Some think it through, realize their mission is the most important thing and find like-minded investors.

What has made us really successful is this idea that we’re not building a company. What we’re doing is solving a problem. In that sense, we’re not emotional about our solution but, rather, constantly listening to our customers and the market and being able to then adjust alongside that. –Shivani Siroya, founder of Tala.

Others get seduced by the idea of ego-boosting valuations, money to drive growth and a buy-out that lets them retire — or do it again.

Most founders dream of building a product that eventually becomes a household name and sells for a billion dollars, but chasing that goal comes with some downsides. The grow-at-all-costs model inevitably forces you to sacrifice something you care about in service of short-term revenue growth, whether that’s your culture, your employee experience, your products, or your creative approach.

That said, when they find the fun gone some go to great lengths to extricate themselves and their company from the investor attitude of “growth first/last/always!” as opposed to the radical idea of pleasing customers, employees and thinking for the long-term.

The Wistia founders felt so strongly that they preferred debt to selling — a large amount of debt.

We turned down the offer to sell Wistia and instead took on $17.3M in debt. This allowed us to buy out our investors, gain full control of Wistia, and take the path less traveled in the tech industry.

Read Wistia’s story, as told by it’s founders, on it’s site.

There’s a lot of hard-won wisdom, along with pragmatic explanations of what look like touch-feely decisions.

What is often forgotten in startup land is the high value associated with being happy to get up and go to work.

Image credit: Tala and Wistia

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here.

This is a short post, aside from the quotes, and I honestly don’t care if you skip my part and just read the  main links, especially the last on from DHH.

It’s exactly two years since I saw a successful lifestyle business founder, Andrew Wilkinson of MetaLab and Flow, loudly and publicly say that he would rather be a horse than a unicorn.

Meaning, he would rather build his businesses organically and self-funded than take outside investment.

I wondered if his attitude was a harbinger of returning sanity.

Ha! Wilkinson’s attitude was an outlier, as opposed to a trend.

However, early as he was I see more successful founders following a similar path.

A few days ago I read a Medium post from Mara Zepeda, Co-founder and CEO of Switchboard, and Jennifer Brandel Co-founder and CEO of Hearken, coining a new term, zebra, to denote a sustainable approach to growth.

A year ago we wrote “Sex & Startups.” The premise was this: The current technology and venture capital structure is broken. It rewards quantity over quality, consumption over creation, quick exits over sustainable growth, and shareholder profit over shared prosperity. It chases after “unicorn” companies bent on “disruption” rather than supporting businesses that repair, cultivate, and connect. After publishing the essay, we heard from hundreds of founders, investors, and advocates who agreed: “We cannot win at this game.”

Adam Eskin, founder and CEO of expanding restaurant chain Dig Inn and a former private equity associate at Wexford Capital puts it this way,

“Having a background in private equity, we don’t just want to grow this business for growth’s sake, lose passion for what we do, or the reasons why we’re here. I think that’s what some folks can end up doing when they raise this kind of capital.”

As a tech person, who has been seduced into believing that valuation is everything, why should you listen to an outlier or non-tech founder, let alone a couple of women?

Perhaps you’ll be more inclined to listening to the guy whose tech generates raves and may even be the source code of your company.

DHH (David Heinemeier Hansson), creator of Ruby on Rails, Founder & CTO at Basecamp (formerly 37signals), writer of best-selling books and winning LeMans racecar driver.

There is no higher God in Silicon Valley than growth. No sacrifice too big for its craving altar. As long as you keep your curve exponential, all your sins will be forgotten at the exit. (…)  The solution isn’t simple, but we’re in dire need of a strong counter culture, some mass infusion of the 1960s spirit. To offer realistic, ethical alternatives to the exponential growth logic. Ones that’ll benefit not just a gilded few, but all of us. The future literally depends on it.

Image credit: HikingArtist