If The Shoe Fits: Too Much Money?
by Miki Saxon
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
