The whole SVB crisis this week was about VCs and VC-funded startups.
There’s a place and time when VC funding can be a good thing for both software company founders and their big VC investors. But that’s the exception. Always has been.
Founders and investors winning together isn’t the most common scenario with VC-funded companies.
But those few win-win examples are usually all we get to hear about.
The more likely scenario is a misalignment between the Get-Big-Fast expectation of VCs and what founders achieve in their businesses.
Imagine creating one of the fastest-growing companies in your market AND having steady profits. That would feel pretty good.
Unless your powerful VC investors expected even more growth, a plan to exit quickly, and less disagreement from a stubborn CEO.
Like Jon Nordmark experienced as the CEO and founder of his first successful tech company called eBags dot com.
Jon founded eBags dot com in 1998 as one of the first Internet e-commerce companies and grew it into a best-in-class online retailer of luggage, bags, and travel accessories.
Here’s how Jon described this disagreement with his biggest VC investor:
“After many years, we were growing 27% profitably. And I was told by my investor, ‘This is not good enough. We would rather have you go bankrupt than grow at this rate.’
“They’ve got to deliver money back to their investors. I get it.
“But this is the only company that me and all my employees and my co-founders are in. It’s 100%. This is not going bankrupt. That is not an option for me.”
This disagreement caused a lot of grief and distraction for Jon when he was growing eBags. It also prevented some great early exit opportunities.
When Jon started his second company in 2011 called Iterate.ai , he chose to avoid this situation by not raising any VC funding.
He started with funding from founders and some services revenue. Then a little angel funding and eventually a small strategic investment.
Now it’s customer-funded and profitable with growing software sales of over $10 million ARR.
Jon and his co-founder want to run Iterate.ai their way, at their pace, without asking investors for permission. To build the right product for the right customers without concern for selling the business quickly.
VC funding isn’t always bad or wrong.
When investors are not aligned with what serious founders think is the right path for the business, it usually doesn’t work out well for anyone.
Check out this interview with two-time software founder Jon Nordmark on the Practical Founders Podcast.
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