Is It Really Newsworthy When a Startup Raises Money?
Is it a sign of success when a startup raises outside investment?
I mean, I get it. I understand that if a new and unproven company can get some press coverage that clearly shows real cash-money faith in that company’s product and business model, that coverage could lead to a number of new sales leads and maybe even follow-on investment interest.
But does it really? Is anyone doing the math on how often the dominoes fall the right way such that one risky raise isn’t just a precursor to more risky raises?
This post isn’t a rant against outside investment for startups — far from it. Rather, it’s a call to every single founder to keep their focus on pinching pennies so they can maintain runway.
Maybe together we can make that as “cool” as selling huge chunks of a founder’s dream for a few million bucks.
Here’s what we should be doing instead.
Bragging about burn rate
I had an intro meeting yesterday with a fellow founder who, like me, had raised venture capital in the past but was now trying to get a project off the ground by bootstrapping. We got along well right away, and eventually talk turned into a discussion comparing — bragging, really — how little we were actually spending “this time” on things like software development, hosting, third-party services and everything else.
For each of those categories, one of us would throw out a monthly number and the other would try to top it (or undercut it, as it were). She beat me on almost every single line item.
Yes, we’re constantly monitoring revenue and the forward-looking metrics for growth. Yes, we’re spending money to explore new markets, find fit and gain traction. But we’re also perpetually on top of monthly burn, and we have been from day one.
As it turns out, we both had watched large amounts of investor money get burned through with the expectation of more investor money to follow. This is the classic “building the runway while the plane is taking off” model, and it works — in certain situations.