> When Mattermark was just a tool for VC deal sourcing our total annual revenue opportunity could be measured in the tens of millions. For six months from October 2013 to March 2014 we held headcount steady at 9 people, even as MRR tripled, because it wasn’t time to pour on the gas.
> It was frustrating getting push-back on market size from investors, and somehow we knew if we suspended disbelief just a little longer we’d have a breakthrough… it just took time to see past the initial thrill of making money to the even bigger opportunity. Conversations from the fundraising process clarified our next vertical, which gave us the confidence to triple the team size over the last 6 months. MRR tripled once again.
> Ask Yourself: Am I spending like we’re chasing a big market, when it’s actually a small one? If you’re getting a lot of feedback that the market seems small and you don’t agree, you might need to re-frame your vision. (old vision: Bloomberg for startup investors, new vision: Google for B2B)
The OP believes she had a total annual revenue opportunity of tens of millions of dollars with her original vision but instead of holding true to that vision and executing against it, she apparently decided to change ("re-frame") her vision so that she could appease investors who were telling her the opportunity wasn't big enough to justify an investment.
While some startups really do need capital to fuel their growth, the need for capital can also be a function of one's mentality. Here, it's pretty clear that the OP is more interested in pursuing the largest, broadest and most nebulous opportunity (Google for B2B) than she is in providing a well-defined solution for a well-defined customer segment or segments (Bloomberg for startup investors). In short, the OP's need for capital is the product of her decision to manage her vision based on "bigger is better."
Per my comment, "...she apparently decided to change ("re-frame") her vision so that she could appease investors who were telling her the opportunity wasn't big enough to justify an investment."
The CEO of a company is ultimately responsible for setting the company's vision. Period. If the OP changed her vision to win over investors, she doesn't own that new vision any less. She had the ability to pursue the original vision.
There are lots of startups in Silicon Valley that have the potential to be profitable small and medium-sized businesses. They'll never get there because they are run by founders who are drinking the kool-aid and trying to turn their companies into businesses they will never realistically become. But this isn't the fault of the investors. It's the fault of the founders who lack the ability to recognize that the VC path isn't a fit for the type of company they're building.
I think it is really hard to resist the "dark side" that investors want CEOs to follow. You also have consider what happens to the company if the investors force a buyback on the founders if the company is not meeting their growth targets. Once you sup with the devil and accept outside money you really have no choice about the path you are on.
Yeah, they need capital because they're pissing money away at an amazing rate, and as someone who has, y'know, actually done this, and built a business (well, several) from scratch without funding which works and profits and grows, I might know something about this, rather than some pundit who runs a startup that has never, and probably will never, be an actual business.
If you're not filling an efficiency gap, and you're not making money, you're not a business. You can fail one of those criteria and be either a parasite or a charity, but you need both to be a business.
You make some good points, but your analysis would be stronger if you compared apples to apples. By your own admission, you are bootstrapped. This conversation is about venture funded companies. A VC's business model is dramatically different from your model in investing in your own company - VCs rely on outliers which can achieve truly massive exits and 20+x returns. Outlier companies will do outlier things, perhaps to achieve outlier-esque growth, or perhaps merely to signal that they could be outliers...
The dollar bills on Sand Hill Road don't have magical properties. When a venture firm invests in your company, it adds cash to your balance sheet. Nothing more, nothing less. Spend that cash too quickly, invest it in the wrong things or don't get far enough with it and you're eventually going to die unless you find another source of cash.
And that's where we have a problem: the crazy burn rates you see in venture-backed startup land are based in large part on the fact that founders are by and large taking for granted their ability to raise more capital.
Just look at the OP's company: it's burning $150-200,000 every month despite the fact that it couldn't raise a traditional Series A and instead had to cobble together $2 million from "4 institutional investors and dozens of angels." The OP spins this as an "unconventional second seed round" but if and when she has to go back to the feeding trough, she shouldn't be surprised to find that many investors will treat her company like a Series B prospect subject to a much, much higher bar.
Bottom line: raising venture capital in and of itself doesn't make you an outlier and no founder should run his or her company like it's an outlier until there is demonstrable proof it is one.
The arguments are beyond asinine, but they happen. Consider leasing an office in San Francisco - how many venture funded companies lease space assuming that their headcount will grow exponentially? Actual exponential growth in staff count is relatively uncommon, but the assumption of exponential growth leads too many companies to pay for empty space. This is stupid and results in many potentially strong companies failing miserably, but these sorts of assumptions actually happen.
This is very true. I would argue that no founder should ever run their company like an outlier as the risks this induces are far greater than any reward. The hedonistic value of money decays at an amazing rate.
Because you can only spend money you have. If you have lots in the bank then you can spend a lot - most bootstrapped companies can't afford to have any burn rate without soon being out of business.
