It’s better to have a smaller slice of a bigger pie, so you should raise as much VC funding as you can.”

The “bigger pie” pitch is a popular closing line in the funding game. C’mon, kid, bet it all. It’s what serious founders do.

When you raise big VC funding, you bet your company that in 5 to 10 years you can sell for a much higher value than you could otherwise.

Unfortunately, big funding usually doesn’t work out for the founders. It’s really rare to win the bigger pie game.

It’s not just the dilution that you know about. It’s the time and the risks you don’t know about.

The odds are against you, but nobody mentions that.

All those market changes, new competitors, fickle acquirers, and internal challenges usually get in the way of a straight line to a big exit.

Mike Kovarik is the founder and former CEO of Attribytes, a software company he started, grew, and successfully sold in just over five years.

Mike was a data analytics leader at large food distributors, where he discovered a chronic challenge with low-quality product data in their massive e-commerce systems. He quit his job, built a product with a friend, and his former employer became his first customer.

Attribytes grew steadily in the next few years, serving food distributors and retailers in the US. Mike made the first sales and slowly added new employees.

He invested his savings in the company and raised just over $2 million from a strategic and several angel investors in Phoenix, Arizona. They grew to nearly $5 million in ARR in 2019 with just over 20 employees.

In 2020, he received offers to buy the company for cash and had an LOI for a $30 million VC investment.

Here’s how he describes how he considered the decision to sell now or go long with VC funding:

“I built a little spreadsheet and I put in what our revenue was, what our current valuation was, and then what that exit would look like after taxes for me, just to see what that dollar amount was.

“I created another spreadsheet to show what would happen if we raised big VC funding and invested that lover for 5-10 years to grow. What rate of return would I get? How would we be diluted? What annual recurring revenue would we need to get to, and what valuation would that be?

“The reality is that the amount for me would be pretty close to the same if we sold now or raised a big VC round. And I’m not trying to risk everything to potentially buy a plane. I could have a big exit now and have a lake house and a place in Flagstaff, and my kids’ kids will be good. What else do I need?”

Mike Kovarik

In 2020, Mike sold the company to Syndigo, a larger data management provider that served the same industry.

He joined Syndigo for over a year to lead the acquisition of other data management companies to expand their product offerings.

That’s 5 years of hard work and risk that paid off with a major cash exit valued at just under 10X revenues. How’s that for a big pie?

When their acquisition strategy changed in 2022, Mike left to take a break and then acquire and retool another vertical software company called ShopControlller.

He’s doing the practical founder way one more time. Builders build.

Listen to this interview with Mike Kovarik on the Practical Founders Podcast.