Hello and welcome back to our regular morning look at private firms, public markets and the grey-headed gap in between.
Today, we’re count a standard bit of startup prudence that recently reemerged against some surprising, contrasting testify. Does too much money hurt a startup more than it helps, or is that standard notion actually mistaken? We’ll start with the traditional judgment, which was re-upped this month by venture capitalist Fred Wilson, together with some reinforcing contentions proffered by a Boston-based venture firm.
Afterwards, we’ll dig into a grip of distinguishing data that should provide plenty to chew on over the holidays. Ready?
Fit to burst
Union Square Ventures‘ Fred Wilson wrote earlier in December( citing an excellent Crunchbase News piece by occasional TechCrunch contributor Jason D. Rowley) that he was curious if startups that parent immense ($ 100 million and greater) early-stage rounds work better or worse than their cohorts that developed merely smaller sums.
Underpinning his question is Wilson’s idea that” performance of VC backed firms is inversely correlated to how much money they elevate .” This determines common sense. And if anyone has fairly anecdotal indicate to support the view, it’s Wilson who has been a venture capitalist since the late 1980 s.
The idea that too much money is bad for startups isn’t hard to understand: startups need to focus and lead fast; too much money can be achieved through both bloated runnings, propagate concoction tack and useless dalliances in cruft.
Startups also die when they have too little money, of course. But the concept that there is a midpoint between insufficient funds and an ocean of fund that is optimal has lots of credibility amongst the venture class.( I imagine this is my favorite wording of the notion, that” more startups die of indigestion than famine .”)
By examining the technology IPOs of the past five years, we found that the enriched( well profited) business do not meaningfully outperform their efficient( thinly profited) peers up to the IPO event and actually underperform after the IPO.
Raising a huge sum of money is a requirement to join the unicorn herd, but a close look at the best outcomes in the technology industry suggests that a well-stocked war chest doesn’t have linkage with success.
In the spirit of fairness, I’ve long agreed with the above views.
My considers on the question of too much money destroy parties came from a different discipline, but are worth sharing for context. My father formerly told me an similar narration about a small poetry magazine, a publication that operated on the proverbial shoelace and was always weeks away from shutting down. But it tottered along, scarcely preserving the illuminations on as it raised bright work.
Then, someone died and left the magazine a accumulation of money in their will — but the sudden flow of fund ruined the publication and it eventually shut down.
In many cases, developing too much money too early can hurt a unit or cause it to lose track of its mission. But for tech startups, on average, is that really correct?
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