To raise or not to raise(stu.mp)
stu.mp
To raise or not to raise
http://stu.mp/2012/02/to-raise-or-not-to-raise.html
7 comments
As a bit of background, Joe was founder of SimpleGeo, which raised $9.81M and was sold for $3.5M (according to TechCrunch). They were doing great stuff, but I kept wondering how they were going to generate enough value to justify a $10M raise quickly enough to satisfy the VCs...
One reason not in this post which may influence the decision to raise is how fast the industry you are in is moving. If it's a fast-growing, fast-paced industry with lots of competitors raising big warchests, raising money may be required to give you resources to sell, scale and generally keep up with the Jones'es. If you're industry is not as quick, competitive, etc, fundraising might not be as requisite.
Not the only dimension but an important one.
Not the only dimension but an important one.
> There are, of course, merits to both camps’ arguments, but, as with all things, reality tends to live somewhere in the middle.
This fallacy is called "argument to moderation".
This fallacy is called "argument to moderation".
OT, but I clicked that link expecting a discussion of exception handling ..
I thought it would be about poker.
It must be a sign of how much time I waste on HN that I expected it to be a discussion of talking to VCs.
Really timely article for for us. Don't raise means bootstrapping and maybe taking on some consulting work for 3-6 mths before reevaluating. Raising means hiring 2 more people and stepping on the gas. We are definitely at a point where we've validated the concept but the beta isn't available yet. If raising is easy, it would be a great accelerant. If raising is not easy, trying to raise may delay or even prevent us from reaching our goals.
"...You’ve built a successful business, which you have no interest in selling, and would like to extract some liquidity..."
Why would a VC put money into a company in this situation?
Why would a VC put money into a company in this situation?
The company is doing great, has a solid growth strategy and headed for an IPO. Why wouldn't you invest in a company like that?
Not all VCs are early-stage, high-risk investors.
Not all VCs are early-stage, high-risk investors.
"Headed into an IPO" says "interest in selling" to me - it's a relative rarity to IPO a company while still maintaining a personal controlling interest. I guess it's just a difference in semantics.
(updated to clarify that I meant a personal controlling interest)
(updated to clarify that I meant a personal controlling interest)
Don't the founders of Google maintain a controlling interest in the company, even now so many years after IPO?
I think a common tactic is to sell preferred non-voting stock during IPO, and retain voting stock for the founders. They get to keep control of the company, in exchange for standing last in line during a possible liquidation.
I think a common tactic is to sell preferred non-voting stock during IPO, and retain voting stock for the founders. They get to keep control of the company, in exchange for standing last in line during a possible liquidation.
Google maintain a controlling interest, but the founders themselves don't. I believe at IPO the founders controlled about 37.6% of the votes in Google and the board controlled 61.4%. So Google still got to direct Google (rather than their public investors), but the founders personally could be overrun by the board.
Facebook is one of the very few companies I can think of which is IPOing with a personal controlling interest from a founder.
Facebook is one of the very few companies I can think of which is IPOing with a personal controlling interest from a founder.
The decision to raise capital should be an intuitive one for entrepreneurs. Most founders know if they're going to need funding to ultimately reach a level of success.
That being said, there are still some good points here. It can't hurt to make sure you're examining your needs from both sides.
That being said, there are still some good points here. It can't hurt to make sure you're examining your needs from both sides.
This statement doesn't make a lot of sense to me - even if it's "intuitive", there should still be objective criteria one can use to reason out whether or not raising money is a good idea. In fact, I would hope that most people wouldn't just follow their gut on such an important decision - even if the answer seems obvious, something like fundraising is worth investigating closely and carefully.
Moreover, there are definitely some situations where people will be unsure what to do; and in those cases, knowing that the decisions "should" be intuitive is of no help whatsoever.
Moreover, there are definitely some situations where people will be unsure what to do; and in those cases, knowing that the decisions "should" be intuitive is of no help whatsoever.
In fact, I would hope that most people wouldn't just follow their gut on such an important decision - even if the answer seems obvious, something like fundraising is worth investigating closely and carefully.
False dichotomy. These things are not mutually exclusive. Absolutely, you should investigate closely and carefully; but the final decision will come from your gut. It has to, because it's ultimately a question of what kind of company you want to build.
False dichotomy. These things are not mutually exclusive. Absolutely, you should investigate closely and carefully; but the final decision will come from your gut. It has to, because it's ultimately a question of what kind of company you want to build.