Financial

Why do startups wear their capital raises like a badge of honour?

By Fiona Anson

Yesterday I was reading an invitation to an event for startups.  It looked like a great event.  The company running the event apparently runs these regularly as, on the bottom of the invitation, they mentioned previous presenters they have featured.

It went something like this – “Joe Bloggs, raised $XM,  Fred Nurk, raised $XM, Jane Smith raised $XM”.  That got me thinking.

It seems to me that the measure of “success”, in the startup community anyway, is not the number of customers you have, not the turnover you have, but the funds you’ve raised.  Call me cynical, but since when is this true validation of a successful business?

I question whether some of these businesses are just drinking their own Kool Aid, caught up in the hype of startup world where the more you raise the bigger the hero you are.  You’re paraded around on startup stages about your superhero status, without anyone looking behind to see if you have a viable – or sustainable business – and possibly giving other starry-eyed startups the idea that you don’t have to have a solid business, you just need to be able to raise money – over and over again.

I saw this Kool-aid drinking in person several years ago on my first trip to Silicon Valley.  My Co-Founder, Alli and I, had just won our first ever pitching competition (before it, we didn’t even know what a pitch was) and the prize was a trip to TiECon in Santa Clara.

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One Comment

  1. Paige,

    Successful raises are one of the important success measurements of a start-up or early stage company. Presenting and successfully defending your technology and business model to professional investors who do, in most cases, ask tough and valuable questions is an important early victory.

    Start-ups and early stage companies do not yet have their product or technology readily available to the market so the other traditional success metrics you mention; sales and market acceptance are not yet possible and may not be for many years into their development.

    Kool-Aide investors are not your friend as they frequently are not adequately validating your business and will undoubtably we disappointed when you miss any one of the many milestones you define in your plan. Ridiculous valuations also do not serve in the best interest of the new company as it inevitably leads to a “down round” and unhappy investors.

    In conclusion I do believe that a successful raise, if done properly with sophisticated investors, is a mark of success for new and early stage companies. But to your point, too much fundraising success can also be the seeds of failure.

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