Are you sure you want to raise a VC round?
Our friends at 7percent Ventures have a wonderful line on their website:
“Why take our money? Maybe don’t.”
Most founders will feel the allure of venture capital at some point in their first years. It promises exponential growth, a solid valuation, and the intoxicating feeling of being in the VC club.
But the allure doesn’t mean VC funding right for your business.
First, face yourself in the mirror and ask yourself the tough questions.
Are you chasing funding, or chasing validation?
Is VC funding a means to an end, or a goal for you?
Can your business scale without VC? Should it?
The pitfalls of the VC-backed club
When we ask seasoned, multi-exit founders what their biggest business mistakes were, this answer comes up a lot:
“We got into bed with the wrong people.”
And in the VC world, that regret can last for about a decade.
That answer is not only about getting the right funder – one founder’s nightmare supervisor can be another founder’s accelerating partner. It’s also about:
the right timing for your business’s organic progress
your operating environment and market appeal to private investors
your personal maturity as a founder
your team’s readiness for outside influence
your company’s operational culture
Acknowledge the drawbacks of VC funding – to yourself and your team. If you can’t justify VC funding as the right decision to your most sceptical star employee, stay a little longer on those tough questions above.
Some of the pitfalls:
Loss of control
Often, VC funding means ceding a significant amount of control. Your once solitary company vision will be assessed and challenged and doubted.
So what? All sounds good to you, the most feedback-receptive founder on the planet.
And maybe then your vision starts to feel a little diluted. Your investors weigh in on senior management hiring decisions, on product direction, on strategic goals. Many investors are great at adding value, but they’re not employees, and they’re not hired advisors. They have their own interests to protect.
Hypergrowth and exit pressure
VCs don’t just want growth – they want explosive growth. Yesterday. By taking VC money, you’re agreeing to grow (too?) quickly, no matter what. And then sell, or go public.
So what? You’re ambitious. You’re doing all of that anyway, bootstrapped or not. You can do it without compromising your business or customer best interests. You close your eyes at night and see your pitch deck’s growth trajectory slide, and it’s beautiful.
A few months or years down the line, your can-do attitude will have to face potentially unsustainable practices, misaligned priorities and burnout – for you and your team. The basics you’ve got right so far are building a sustainable business that serves customers meaningfully. That’s why you’re a great investment.
How well do you think you keep that identity and chase hypergrowth?
Distraction and tension in company culture
The culture of a VC-backed company often shifts to put growth above everything else. Frequent complaints are that employee satisfaction, company values, client experience and long-term sustainability are less valued than hitting the next milestone at any cost.
So what? There’s always something, and as the company leader, you fully trust yourself to hold all those things dear to the last breath. You listen to your team, you mould your culture consciously and masterfully, and you hire people who fit and grow it. Funding doesn’t change that.
Trust us: even the attempt of getting VC funding will change your culture, and it’s not something you can or should avoid. The whole company gets a taste of the pressure when they’re pouring three years of work into three weeks for investor due diligence, trying to close the gaps they’ve been frustrated by for ages but never got round to dealing with.
Despite all these drawbacks, startups need capital. Don’t be put off, but do be thoughtful. VC funding is not the only option. Other ways include:
Going it alone: Many successful companies (see Basecamp, Mailchimp, Patagonia, etc) have bootstrapped and organically grown to success. At Pitchwits, we build Bootstrapping Blueprints with many of our clients, whether they’re working on their fundraise or not. We help you build your cash flow, organic growth and headcount plans in a way that either shows a robust approach without funding or confirms the need and urgency for VC funding.
Grants: A frequently overlooked funding option for startups, but if you’re right for it, grants are a capital injection without giving up equity or control. At Pitchwits, we have experience winning $100m+ in grant funding from agencies in the UK, EU and US. We check for live and upcoming opportunities, write your application, and – if you win – help manage your project execution.
Craft the right fundraising strategy for your business with Pitchwits
