Fund-raising is the holy grail for startups today!
Whether it should be or not, is a different matter altogether. But sometimes it’s hard for startup founders to separate the chaff from the wheat. They tend to get swept away with the media gold standard for success – fund-raising! But for everyone who believes that ‘once you’ve raised funds, life will be sweet’, let me be the one to give you the bad news! It is not.
Why is fund-raising such a big deal?
I personally believe that for most founders, fund-raising is about 2 things – survival and validation. Ok, that’s pretty much everything!
But we have been a boot-strapped startup for the 1st two years of our 5-year life. This was before we got exited to strategic investors. And I can tell you that like poverty, the initial experience (read trauma) of boot-strapping never really fades from your mind. No matter how much money you raise.
So when we raised our seed round and finally had access to funds to scale our product-market fit, I was so sure that life would be so much easier. That since we now had money to spend, we would be able to do everything. And give life to everything that we had wanted to for so long, but couldn’t!
We soon found out that life post fund-raising is just as hard and much, much more stressful than a boot-strapped environment. And before you cry ‘oh, you poor lil funded startup’, let me give you three reasons why.
Expectations increase, wisdom doesn’t.
You are a startup. By the very definition of a startup…you are searching for a repeatable, scalable business model. You don’t have the answers. But now you have money. That you must use to find the answers. Easier said than done!
The expectations of results & growth from a funded startup rise dramatically. And rightly so. But so does the pressure.
Building a team, utilising their expertise to building the product and business in the best cost-efficient manner and then scaling your product-market fit – these are all activities that take time. And doing any of this under pressure only leads to silly, costly mistakes that take more time and money to fix. Pressure doesn’t help. And once you’re funded, the clock really does start to tick faster.
Too much choice confuses.
When you’re a bootstrapped company, there are very few feasible options…for marketing, for hiring, for product. You do what you can afford to do. And squeeze every paisa till it begs for mercy. It’s hard but its strangely easy. The choices are made for you.
When you’re funded, suddenly, a lot of options are available to you – for marketing, for your team, for business models, for partnerships…And very few will actually yield the right, long-term, cost-effective results. But you will have to try a lot of them to figure that out. And if you don’t bet on the right choices early enough, then media sites are littered with the stories of startups that didn’t make the cut.
Easier to chase growth than profitability
Money can buy you growth. But it can’t buy you the right business model. It can’t tell you how to build a sustainable business with the right unit economics. And the temptation to use the money to buy growth is overwhelming at times.
To resist that temptation and save money for what is actually needed, to grow through low-cost, sustainable methods, that requires not just strength of mind, but also supportive and clear-headed, long-term investors and mentors, which we are blessed to have.
Having crossed the fund-raising barrier and having access to money is infinitely better than not having it. But trust me, when I say that fund-raising is just the beginning. It gets much worse before it gets better, if ever!