Raising Startup Capital is an Achievement, But Not the Most Important One

HubSpot recently raised $16M dollars in a new funding round. The total capital they’ve raised to date: $33M. That’s a huge amount of money. Dharmesh Shah, one of HubSpot’s founders isn’t in love with the idea of raising venture capital (but he did it, and explains why too.) He considers himself a bootstrapping guy.

After raising all that money, Dharmesh tweeted:

Startups: Closing a funding round is not value creation. It’s the *opportunity* to create value.

So what’s the deal?

The reality is this:

Raising capital is extremely hard. So you can’t deny that it’s an achievement, and one that very few startups ever accomplish. And if one of your goals is raising money, you should recognize the success.
But where startups fall flat on their faces is when they think that getting investment is THE achievement.

It’s not. But it sure is easy to think that way. Someone hands you a big, fat check (sadly they don’t do it with those really big checks that lottery winners get photographed with, although that could be fun!) and tells you to go spend the money.

But as Dharmesh points out, raising money by itself isn’t real value creation. It’s just one of the tools in your startup toolkit that can be useful. And as much as startups say, “We know this is just the beginning…” it’s clear that there’s an obsessive focus on the importance (some say necessity) of raising capital, and once done, an over-indulgent sense of success.

The biggest challenge for any startup isn’t raising money, building a product, acquiring customers, marketing, hiring, etc. It’s focus. Focus is so hard to accomplish for startups – both in terms of what to focus on and how to focus properly. It’s so hard to take a macro-level focus on prioritizing everything that has to be done, and then be able to get into the insane little details as well.

And when everyone obsesses too much about raising capital it enforces a disproportionate amount of focus on the process and need to do so. And that creates a disproportionate sense of success from getting it done (or the opposite if you don’t.)

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October 26, 2009 Posted in Startups by Ben Yoskovitz

http://www.patrickoden.com/ Patrick Oden

Very smart post. Sometimes I think it's hard not to be worried about capital. That worry can lead to obsession. And the obsession makes it so that when the big investment does come in, there's a huge sense of relief, and that relief is mistaken for success. It is a kind of success, of course; but unless the business is soliciting a never-ending stream of investment capital (which some startups seem to be, particularly if the ideas aren't all that great), the focus really does need to be on the business rather than the immediate financial worries. You can't operate without funds now, but too much of a over-focus funds now also doesn't bode well for long-term survivability.
http://blog.adsdevshop.com Robert Dempsey

Another great post Ben. I started ADS with $0 dollars and am glad I did so. It forced me to focus on the most important parts of the business, and how to do things (marketing, biz dev, advertising) with no money. I also started with 0 staff, contracting out all the work until we could hire on full time employees. Granted, we are a services company, however we now have products, and have taken the same tact – running with as little startup costs as possible. I agree that focus needs to remain on the forefront of startups minds, otherwise, all those investment dollars that they might get will burn away and no value will come of it.
http://twitter.com/startupcfo Mark MacLeod

Having raised lots of capital for lots of companies, I can say that for sure raising capital is an accomplishment. However, we usually feel a mix of dread and excitement (about delivering on all the promises we just made to investors) rather than a feeling of success.
http://www.instigatorblog.com Benjamin Yoskovitz

Absolutely. The intention behind this post wasn't to diminish the accomplishment of raising capital, or its importance for startups. But I do think it is important to pull back from the intense focus on raising capital as the #1 goal of a startup, and make sure objectives / goals / etc. are clear.

Thanks as always for stopping by and commenting Mark.
http://www.instigatorblog.com Benjamin Yoskovitz

I agree: “Relief can be mistaken for success” — because the process of raising capital is SO hard and SO intense. It can quickly dominate a startup's life.
http://giffconstable.com giffc

totally agree with Mark's comments, and with your intent Ben. It is not uncommon for startups to raise a significant round and all of a sudden *lose* focus, because now they have the financial resources to do so much more, place more bets, etc. rather than stay laser lean. It is done with the best of intentions — gunning for the growth you just promised an investor — but can be quite dangerous.
http://www.simplyzesty.com/ Niall Harbison

I have been around the start up scene for a couple of years and with very few exceptions I have seen companies who raise money get lazy. What they don't realise is that it is only getting started and that irrespective of the comfort the money brings there is still more work than ever to be done to get the company of f the ground and that the money won't last forever. I especially worry abotu companies raising money and as soon as they get it start talking about the next round. You have to start building the value at some stage!
http://www.testranking.com Emanuel

I am just in the process of preparing my pitch. And I perfectly agree, when you raise a huge sum, you don't get money, you just get the opportunity to make money. This opportunity will be hard earned and one must be cautious to put it to great use.
Btw, I love your internal links, I just spent 4 hours of reading and summarizing all the amazing posts you have about raising capital. I highly value the insight you provide me in the whole funding process. Thank you very much!
http://www.instigatorblog.com Benjamin Yoskovitz

Emanuel – Thank you for the positive feedback, I'm glad the content here was of value to you. Best of luck in your startup and fundraising.
janiejohns

40billion.com is a good option for business owners seeking financing and resources. Small businesses and startup entrepreneurs raise money through personal connections online (a.k.a person to person, peer to peer, social lending). This elevates access to funding, increases transparency, reduces costs, and lowers risk.

Entrepreneurs connect with their social networks (friends, family, friends of family, community members, colleagues, alumni and others) to raise up to $99,000 in capital by requesting loans and gift contributions. Funders can get product discounts and freebies, as well as the ability to track how the funding is spent.

Visit http://www.40billion.com for more info about people funding businesses.
http://www.heathrowairambulance.com/ P. Veazey

You should publish this in major business mags.
hala

<H1>????? ????</H1>
Andy1x1

The idea of no money is just dove in the sky. Find capital for invetitsy great achievement. Find tens of millions of free money at this time!
Andy1x1

The idea of no money is just dove in the sky. Find capital for invetitsy great achievement. Find tens of millions of free money at this time!
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Ben Yoskovitz

I'm VP Product at GoInstant.

I'm also a Founding Partner at Year One Labs, an early stage accelerator in Montreal. Previously I founded Standout Jobs (and sold it).

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