Are You Building a Startup or Company?
10th July 2012 · 0 Comments
As the managing partner of a seed accelerator, I’m often asked how we’re doing. We were recently ranked in the Top 10 by Forbes for the second time. It’s an easy way to answer the question, but what does it mean? I was quite surprised at the criteria for ranking accelerators. The only two valuation numbers used were latest investment round post-money or exit value. As for the companies that generate revenue, but delay or never take a venture round…well, their millions in revenue and profitable status are given a valuation of $0 (and investors say the founders were “raised in a dark box”).
So, what are we advocating here? What does it mean to build a successful company, and how is that different from building a successful startup? A successful company figures out how to have more cash in the bank than cash being paid out…and it’s sustainable and growing. A successful startup? That’s a bit less concrete. They raise millions of dollars, get written up in big tech blogs, attend the hot tech conferences, win awards, and make big announcements. But we know the statistics. Only one in 10 is expected to hit it really big. At least half are expected to die without returning a single penny to their investors or founders. In short, being a successful startup means you have a small chance of actually becoming a successful company and making any money.
What should founders focus on then? Should they first be a successful startup, then work on being a successful company? That’s one path, and it is the way to go for many founders. You can also focus on building a successful company from the beginning. Some of our most successful mentors built companies that have revenues in the hundreds of millions of dollars, and started with only $1000 of founder cash and a whole lot of sweat. Are they are worth $0? Many of the angel investors and VC’s that we all know and love also bootstrapped their way to success.
It’s your choice. You can design your startup to be a quick flip to a strategic buyer, which is pretty risky, or design it to be a successful company. Neither answer is right or wrong. Not making the choice in the beginning will lead to failure just about every time, so begin with the end in mind.