There have been lots of great posts about “how much should you raise” going around the blogosphere these days. Dick Costolo of FeedBurner Google has an excellent one up this morning titled Series A Financing: How Much to Raise? In addition to a great rambling essay on how much to raise, Dick also reminds all entrepreneurs about the reality of revenue ramps:
“First, let’s address the hypothesis that the company will make money soon after launch. Irrespective of whether we’re talking about profits or just top-line revenue here, I would caution that it almost always takes longer to ramp your top-line than you think it will. Everybody walks into a venture pitch with their three year financial projections that have a lousy first year, a strong second year, and a monster third year. The truth is that even most ultimately successful tech startups have a slow first year, a slow second year, and then you get your spectrum of third year results ranging from really-taking-off to continued-doldrums. It just always takes longer than you think to launch, grow, ramp sales, close deals, etc.”
Posted in: Fundraising | Posted by: Brad FeldCOMMENTS (2)
Just in case anyone is confused, the quickest way to not raise money is to go into a VC pitch and say "we're going to flatline for 2 years and then maybe grow a bit in the 3rd. Any questions about the bookings forecast, therefore?" Remember this about VCs who have yet to invest in making your baby less ugly: they just can't handle the truth. In the same way that if you knew in advance how much it would *really* cost to dig the Channel Tunnel, build Concorde or excavate a bloody great hole in Boston then no one would ever do it, telling VCs up-front the reality of what will happen will leave them no room for that factor so crucial to successful investing: the ability to believe that, despite what has happened countless times in the past, "this one will be different".
It's just selling when you come down to it.
I made essentially the same point that Dick made with regards to raising too much - if you set the bar too high, you effectively cut out a number of otherwise nice exits - things that might not be attractive to a seasoned guy like Mark but could be very attractive to a first time entrepreneur.
http://urltea.com/y7i
I tell you this much, it is good hearing someone like Dick validate your point :)