In fact, it might even hamper the startup’s growth
As a startup, it is very understandable why a company would want to have extra funds from investors. Some want it to accelerate business by acquiring professional talents, or putting more assets for marketing purposes. But raising too much capital at the early stage can also jeopardise a startup if it isn’t handled properly.
Upfront Ventures General Partner Mark Suster explains in a page that there are too many possible risks faced by a startup if it focusses too hard on funding at the beginning. Instead of accelerating its business, it may end up bringing negative impact for the startup.
There are several points that Suster highlighted in this issue. The first is about no matter how big the funding one has secured, a startup will run out of it within 12 to 18 months. But in many cases the well will actually lasts longer. In this case, what really matters is the management.
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As a startup, which certainly has great ambition, to raise a great amount of funding at the early stage triggers the desire to do business acceleration. For example by recruiting professionals, paying for marketing fees, even hosting mega events. If all these were conducted hastily without market calculation or idea validation, then it will be in vain, or a waste of money.
The next issue will be the burden and responsibility that come with it. The bigger the funds raised, the bigger the demand to develop the business in the future. Investors certainly have expectations; the higher the funds he invested, the higher his expectation would be of a business. If a startup receive big enough amount of money at the early stage, it certainly becomes a burden of its own to develop. This might end up becoming a problem, except for those who genuinely enjoy this form of pressure.
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There is an argument that says limitations can trigger creativity. For startups, being at the early stage with limited fundins, will lead certain founders to push themselves to cut off spending by paying attention to detailed costs. For example by recruiting a professional talent with decent salary or owning a marketing channel that actually works, instead of just being a waste of money. Founders need to be creative in finding solutions and certainly it isn’t just money.
Suster believes that some people need to “miss” a big amount of early stage funding for several reasons. For a startup, winning the market or at least securing a certain position at the market without having to move back-and-forth between venture capital firms is way better for the startup’s own value. So think carefully of the amount of funding that you are going to raise. Because what determines your business is the market and the customers, not how big your capital is.
The article Mendapatkan Terlalu Banyak Modal di Awal Tak Menjamin Kesuksesan Startup was first written by Prayogo Ryza and published on DailySocial.
Translation by e27.
Image Credit: Pixabay
The post Raising too much capital at the beginning doesn’t guarantee a startup’s success appeared first on e27.
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