Startup funding strategy follows your growth and exit strategy

I was on an accelerator panel this week to give feedback to the founder of a marketplace startup.

Her company has already generated over $500K in net revenue with no outside funding. Happy customers and providers too.

She quickly presented her story and her growth plan to the group.

Great startup progress. Wow! And lots of questions about where to go from here.

As usual, I offered a different perspective than what she heard from the others.

Different than the typical “Go as fast as possible and raise as much funding as you can” approach.

Going fast and getting big funding is just one way to do it. Been there and done that four times.

But betting too early on the “Go big or go home” strategy usually doesn’t work out well for founders.

Mostly it’s a waste of effort trying to raise serious funding before you seriously have proven you have a scalable business.

And the odds of success–for founders–actually increase A LOT when you take time to develop clearer confidence in:

  • Your product market fit
  • Your business model
  • Your primary target customer
  • Your customer acquisition strategy
  • Your likely exit path
  • Your ability to lead a bigger, fast-growth company

Real investors are waiting for you to figure these things out and prove them too. And they are much pickier right now than they were last year.

It’s OK to bootstrap, self-fund, or take some friendly angel funding to take time to learn what game you are playing and how to play it to win.

So here’s what I suggested to this founder:

  • Keep testing to understand everything
  • Don’t waste time with big funding yet
  • Figure out what growth and exit game is really best for you

Figure out if you’d rather grow this efficiently to $10M revenue and sell it for $50M+ in 5 years.

That’s actually possible for her with some form of efficient capital, including customer (self) funding. Or light investment from the right partner.

90% of savvy, hard-working, passionate founders I know would take that bet instead of raising big VC money and betting everything on creating the big dominant global market leader with a billion-dollar exit.

Funding decisions follow your growth and exit game strategy, they don’t drive your strategy.

It’s the founders’ job to figure out what game they want to play.

It’s OK to get a lot of advice from experienced folks to figure this out. Folks who aren’t investors selling you money.

Founders are the drivers, not funders.

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