I recently spent the two weeks in South East Asia, meeting startups in Malaysia, Indonesia and Singapore with potential.vc.
We did a couple of panels/AMA sessions, loads of startup/investor lunches and many of one-to-one meetings. We probably met 50–100 different startups and I kept hearing myself repeat the same thing:
“You don’t have to raise money.”
The wealth of seed capital in the ecosystem has seemingly devalued what it means to raise investment. People are underestimating how important a decision this is and what it truly means when you take other people’s money.
This fundraising frenzy is demeaning to both founders and investors. Founding teams are becoming expectant and demanding of investors, with some believing it is their divine right to raise a seed round. On the other hand, investors see startups like a commodity, just a number on a spreadsheet.
Everyone seems so obsessed with raising capital that people have seemingly forgotten that business can be built without Seed rounds.
Just because every startup we read about in the tech press raises cash, doesn’t mean that every company should.
When a company raises money they don’t just give away equity. They give away control and lose options that they had before. The dynamic of the business changes as soon as investment is raised (particularly VC).
When you raise money:
- You often lose a level of actual board control (depending on the amount raised and terms)
- You can’t be a nice profitable ‘lifestyle’ business. Investors want the business to be a 10x return because that’s how they make money
- You can’t just change what you do
- You can’t just stop
- You can’t quite just do what you want. There is always some level of reporting/requirements that you have to adhere to (such as monthly management accounts)
- You’re on a particular path: one of high growth and an exit
This all seems so obvious but I feel like people genuinely don’t fully understand the implications of taking investment. I suspect this is particularly prevalent in first-time founders with less real-world business experience. Fundraising is certainly glorified by the tech press and perhaps this has devalued its true importance in the eyes of many founders.
Raising investment puts a business on a certain path, and as a founder you must be 100% sure that this is a path that you want to take.