Why raising VC shouldn’t be sexy

As of this writing in November 2019 venture capital dollars are cheaper than they have been in a while. Partially as a result of that, there’s a growing trend among early-stage founders to chase too much capital too early and above all else. My perspective is, while it might seem super sexy to raise big venture capital dollars, money is just one tool to achieve your true end goal: GROWTH.

I meet with founders all of the time where it seems like raising money isn’t so much a means to an end but in fact the “end” itself. This is not something any founder would openly admit to but their behavior, their choice of words, and frankly what they prioritize when speaking to investors make it abundantly clear what their true perspective is.

In my opinion the question you really want to answer when speaking to an investor is not “how big of a check will you write me?” it’s “what can you do to help my company grow to the next level as quickly as possible?”

Those are actually two very different questions. If they were the same it would mean money is the only thing that will allow your company to grow. The reality is, money is often a necessary but not sufficient ingredient for quick growth.

Perhaps the most common circumstance I see this happening is when a founding team is trying to raise too much money at too high of a valuation without any first hand supporting data behind their growth plan. In many ways the business is entirely theoretical at this point and the founders have convinced themselves that there’s no risk of their plan not working so all they need is a big fat investment check and the company will start taking off like a rocket. If they somehow are able to convince enough investors to write checks at this point, more often then not all they end up doing is accelerating the company off a cliff to it’s demise.

The underlying driving force is really two fold:

  1. It’s really easy for founders perceptions of how far along they are to get way ahead of the reality.founders too often only care about the size check an investor is willing to write and not nearly enough about what else they can bring to the table to help the company get to the next level faster.
  2. Raising money under either circumstance is a bad idea. At best you’ll spend a lot of money learning what doesn’t work the hard way and at worst you’ll cut short the life of a company that might have otherwise had a chance. Instead of focusing on the check size, focus on the total value being added by each person you’re considering adding to your cap table. Capital is definitely an important part but getting to the next level takes a lot more than that.
James Shomar
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