Stop Celebrating Fundraising

By August 6, 2015Strategy

Before I begin, I know not everyone is going to share my sentiment, but with the environment becoming what it is I feel that it needs to be said.  Entrepreneurs need to stop celebrating their fundraising.

This culture has built over the years, in the start up and tech world, that a fundraise means a company has become successful.  Most who have been through it know that this is not the case.

The success of a corporation is defined by profit.  I would say there is an exception here, and that would be a profitable acquisition where investors, founders and teams make a return on their time and money.

A fundraise is a loan. You owe that money back.  Whether it is structured as a note or an equity deal with a preferred return or whatever. Once you take the money you owe more than that amount back.

When someone closes a home mortgage they do not go to the club and buy bottles with that money.  When you finance a car you don’t book a vacation to celebrate.  Only in this aspect of the start up world is an investment or loan celebrated as an accomplishment.

The problem is not celebrating progress.  Having money you need to grow your business is an exciting thing.  The problem is when founders and their team start believing that they have reached a success milestone.

The start up and tech world have started to celebrate funding series as the defining characteristic and milestone in the business.  Seed, Series A, Series B, Series C, these are the things that are discussed as the “stage” of a company.

Most entrepreneurs from the mid 90s (and before) that grew up without the funding hype, laugh at this.  A company is successful if profitable.  How much money your company generates AFTER expenses is the milestone.

So next time someone lends you money, whether it is $50 to pay for your dinner or $5,000,000 to fund your company, be careful to celebrate too soon and make sure you can pay that person back.

In the venture capital world you aren’t only taking advantage of the actual VC, but also all of the investors and LPs who have put their pensions, savings and trust in the fact that you are being responsible.

 

 

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