A startup’s perspective on a negative 2013 – “back to work”

I am a member of a startup community: the Founders Network.  Within the FN community, we have a variety of discussions on everything from how to hire, how to fire, how to build an app, how to raise funds, and more.  A recent discussion started me thinking and I figured I would repost my answer (with a few modifications).

Another member brought up the “Series A Crunch” talk that’s going around the Bay (world?) right now.  She wanted to hear some opinions that would provide a counter-balance to the negativity.  Her links included the following:

The main gist of these articles is this: 1. 2013 is not like 2012.  Got it, not news. There are always cycles. 2. As a startup, you better be good or else you won’t survive.  3. Sentiment “might” be heading in the negative direction.  BUT smart investors know that is the time to invest (don’t follow the herd, lead). 4. If you believe in your startup, then macro sentiment doesn’t matter.  Remember how long it took Jeff Bezos to raise his first round of funding?

One of the FN members had this to say in response:

“I think cooling in the funding markets could be good for our members for a few reasons:

  • Valuations were unsustainably high. The market needs to correct in order to prevent another bubble/implosion.
  • Too many copy cat companies were getting funding (e.g. 1,000 daily deals sites).  Less funding means less noise in the marketplace so the good companies (the ones in fn) can get the attention they deserve. 🙂
  • Less funding out there also means more engineers back on the market for you to hire!
  • A growing number of our members are bootstrapping longer, farther and some have no intentions of raising outside funding.”

Here is my reply:

  • High valuations are [generally] good for startups [if the startup can deliver].  They aren’t good for investors but that’s not my problem.  Note: the flip side is that your next round is a downround.  However, that is more a function of a) the startup not delivering, and, b) greed (albeit understandable – it’s hard to walk away from a lot of money at a high valuation).
  • Copy cats – if an investor wants to fund it and that funding enables even a modicum of innovation, that’s a good thing.  Once again, not the startup’s problem.  Of course, I’d recommend most startups think about a “big” idea and go for it but there is a reason for the copy cats – there is a market for their services (and for acquisitions).
  • Re bootstrapping – definitely great if you can do it.  Then again, startups are about growth.  Money usually accelerates growth.  If you bootstrap for too long in the hopes of receiving a higher valuation (i.e. You give away less equity), then you are making an already big risk (i.e. Your investment in your own company) even bigger.  Taking an investment de-leverages you.  Yes, you give up some equity but, in exchange, you give up some risk.  Plus, you have a better shot at growing you company faster and leaving your competitors in the dust.
  • Re the Series A crunch:  while the macro economic environment could change this, I actually don’t buy into it much.  If you are a good company, you’ll be funded in good or bad times.  Even if you are a subpar company, you probably can get funded – startups still offer the potential for much more growth than almost any other investment (of course, the risk is comparably high).
    • I view all the hype around this crashing as just that, hype.  Yes, some things may change a bit but there is a lot of money floating around.  As a startup, it’s your job to a) find the money for funding, and, b) find the money from your customers.  If you can’t do a or b, then don’t play.
      • Note: take what I write with a grain of salt… 😉

The same FN member who has the somewhat negative view ended on a very high and true note: “While it’s good to listen to industry news and commentary, I think it’s more important to focus on what you can control: building a great startup.”

I’ll take that advice.  Back to it.  Heads down.  See you in 2013.

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