Do more Startups die of Indigestion or Starvation?

Today, let’s discuss a standard bit of startup wisdom that recently reemerged against some very surprising, contrasting evidence. Does too much money can hurt a startup more than it helps, or is that standard view actually mistaken or is wrong? We’ll start with the traditional view, which was supported this month by venture capitalist Fred Wilson, along with some supporting arguments proffered by a Boston-based venture firm.

Afterward, we’ll dig into some contrasting data that should provide plenty to chew on over the holidays. Ready?

Fred Wilson wrote earlier in December that he was curious if startups that raise huge ($100 million and greater) in early-stage rounds do better or worse than their cohorts that raised only smaller sums.

 Wilson’s belief is that the  “performance of the VC backed companies is just inversely correlated to how much money they can raise. This makes just good sense. And if anyone has enough of anecdotal evidence to support the view, it’s Wilson who has been a venture capitalist since the late 1980s.

The idea that too much money is bad for the startups isn’t hard to understand: startups really need to focus and run fast; too much money can lead to both bloated operations, diffuse the overall product direction 

Startups also die at the point when they have too little money, of course. But the concept that there is a midpoint between the insufficient funds and an ocean of capital that is optimal has lots of credibility amongst the venture class. So we believe this is the favorite phrasing of the concept, that “more startups die of indigestion than starvation.”;)

In the spirit of fairness, We’ve long agreed with the above views.

Our views on this question of too much money which is ruining organizations came from a different field, but are worth sharing for context. My father once told me a very analogous story about a small poetry magazine, a publication that operated on the proverbial shoestring and was always weeks away from shutting down. But it just limped along, barely keeping the lights on as it produced brilliant work.

Then, someone just died and left the magazine a pile of money in their will — but the sudden influx of the capital wrecked the publication and it eventually shut down.

In many cases, raising just too much money too early can hurt a team or cause it to lose track of its mission. But for tech startups, on average, is that really correct? There should be a balance between money influx and revenue.

startups
Share

Editorial Staff at Techlofy is a team of Digital Marketing experts led by Ashfaq Ahmad.

Share via
Copy link
Powered by Social Snap