The conventional wisdom for startups, especially in tech, is that VC funding is the key to rapid success. But what often gets overlooked is the fundamental impact that VC funding has on a company’s culture and long-term trajectory.
Venture capital operates on a ‘winner-takes-all’ model: out of every 10 investments, VCs know that six will fail, three might break even or see modest success, and just one might deliver a high enough return to offset the others.
It’s a model that drives VCs to push companies toward relentless, all-consuming growth. For the one that breaks through, VC funding might seem like a blessing; for the other nine, however, it’s often a fast track to burnout.
Over the past four years, we have managed to achieve significant growth globally without relying on the venture capital finance that typifies many emerging high-growth tech companies.
I was once given a very important piece of advice — that your world changes in managing your business once you are cash-flow positive. Since launching our new destination experience business during COVID-19, with little capital on hand, I have taken this lesson to heart, navigating the business through the toughest of times, focusing on ensuring that there was a tangible ROI on every dollar spent.
We’ve gone from a point of near zero revenue to generating over $9 million in revenue and $1 million of profits in less than three years by being absolutely brutal in ensuring that we get the most out of every dollar we spend.
It’s not as if we haven’t tried to raise additional capital to further drive our growth but the simple fact is that it was hard to fit into all the right boxes that the VCs seem to want to tick.
Ironically, we just haven’t had the time to commit to this effort, as we’ve been too busy focusing on growing the business at hand which required everyone’s full commitment.
The pressures of VC funding can warp the culture of a business in ways that harm its long-term prospects. Many early-stage companies that do manage to secure funding find themselves swept into a cycle of accumulating losses to meet the intense growth expectations VCs demand.
In terms of odds, VC funding is a steep hill to climb. The chances of securing it in the first place are slim — only about five in 10,000 startups succeed. For those that do, the chances of retaining significant founder equity after multiple funding rounds drop to less than one in 10,000.
As a result, good companies, even those with substantial potential, are often set up to fail. Founders end up chasing ever-larger funding rounds just to keep pace, sacrificing their vision and control along the way.
I know of one high-profile tourism tech company, for example, that, after a series of funding rounds, saw its valuation rise to $1 billion — yet its founders now own less than 2% of the company.
Our approach to managing the business is certainly more old school, in that we believe the overcapitalisation of many early or even growth-stage companies injects the wrong disciplines within a business.
However, I’ve seen too many companies receive a huge injection of capital far too early in their development that has resulted in a wild spending spree to achieve revenue growth at all costs to meet a target that completely ignores productivity and return on investment measures.
Over the next year, we expect to achieve a 20%+ growth in both revenue and profitability through our plans to expand our core US, European, Middle Eastern and Australian markets. This is living proof that it’s possible to scale a high-growth tech business without VC funding.
Never miss a story: sign up to SmartCompany’s free daily newsletter and find our best stories on LinkedIn.
