Money Dive
I wanted to do some reading on venture capital after our conversation in class today and came across this great article on TechCrunch. The author, Eric Paley, makes the argument that raising less money or money later leads to better companies and richer founders. He uses Zappos vs. Wayfair and TrueCar vs. CarGurus as case studies to prove his point that capital raised is not correlated with better outcomes. Founders should definitely consider these case studies before jumping into bed with the first venture capital firm that looks their way.
Great article Michael! It reminded me of the show Silicon Valley where the company asks for less from its VCs after speaking with a company that struggled after raising a large sum of money earlier. The failed company’s founder talks about how the pressure to gain financial results with the large investment crippled the company. I think the advantage of less funding is that it allows a company the ability to grow naturally without excess pressure on revenue or profits early on. When companies have large investments their expected results become greater and corporations can often hurt the long-term strategy of the company by trying to meet these lofty expectations. Whereas with less investment, growth can happen naturally and the company can execute the strategy instead of modifying it out of necessity.
I’m not too sure correlation equals causation here. It could be that the businesses most likely to succeed have simple, practical ideas that just don’t require as much start up investment. On the contrary, ideas that are too complex may both more expensive and less likely to fail. Maybe companies should focus on simplification in order to minimize start up costs.
One of my concerns with this article is that it has a small sample size to attempt to make its point. There can be solid correspondence but without more data, I am yet to be swayed.