Big VC and PE Funding is Often Viewed Negatively by Customers and Markets

It used to be bad news for a bootstrapped software company when a competitor in their space raised big VC funding. Now, there are plenty of examples where bootstrapped SaaS companies can do just fine or sometimes even win bigger.

It’s an old story in the software business. A crazy founder finds a new market opportunity, builds an innovative early product, and starts growing frugally.

After the market is started, VC-backed competitors jump in and spend more to build products and acquire customers faster. It’s a speed race to be the leader–to dominate the market and win the big prize.

It used to be that companies that raised the most and spent the most were the most likely to win the prize of being the dominant market leader.

But VC-funded upstarts with big funding are no longer just stepping in and taking over their markets quickly.

It’s not a sure bet strategy like it used to be 10 or 20 years ago.

I talk to practical SaaS founders every week who are facing off against VC- and PE-backed competitors and doing just fine, including many on my podcast and in my CEO peer groups

Here are the conditions where competitors with big funding don’t always win the day:

  1.  Most vertical markets don’t tip very quickly.Industry-focused software companies that serve very specific customers are often started by an expert in that industry who built a savvy product, supported their community, and built a trusted reputation.It’s harder than it looks for their competitors to throw money at niche vertical markets that don’t change very fast. Savvy practical founders often watch their over-funded competitors waste money and frustrate their customers quickly.Savvy solutions and customer love can often win the day. Vertical users are not just looking for simple software–they want integrations, support, education, services, and niche features.
  2.  Buyers of all types distrust the over-funding game too.It’s common to hear, “_____ company just raised $50 million in VC funding (or a big PE acquisition), so we know prices will go up, support will go down, and their savvy employees who love our industry will leave.”B2B software buyers often perceive big funding will be negative for their solutions in the short run and long run. And they know VC funding doesn’t mean the company will be supported forever if it doesn’t meet its higher growth expectations.
  3.  “Spend More Fast” on digital marketing and lots of salespeople doesn’t work as well as it used to.The growth tactics you can ramp up quickly and spend millions on this year are less efficient and effective than they used to be, including paid search ads, outbound sales, big trade show booths, and paid social ads.Efficient marketing and sales tactics take more time: trusted reputations, key relationships, savvy content and search ranking, loyal user communities, and partnerships.

Beware of your competitors with big funding, but don’t give up or give in.


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