There are plenty of headlines these days about eye-popping rounds of venture funding for tech startups. But a group of top Seattle VCs told an audience at GeekWire’s Startup day that they shouldn’t put the cart before the horse when it comes to building a sustainable business.
“I think there’s too much of a mentality around congratulating someone when they raise a round,” Maveron Partner Jason Stoffer said. “The people I congratulate most are the people who are able to build a business in a sustainable way. Raising is often the right answer, but it’s not always the right answer, and I think too many people think it is.”
Stoffer said that he made two seed investments years ago in CourseHero and Everlane – companies that bypassed the traditional Series A and Series B rounds to go directly to a growth round and push towards building a sustainable business.
Ignition Managing Partner John Connors said that he looks for entrepreneurs who are good at not using a lot of money when making investments. He pointed out that raising a lot of money can come with an important drawback down the road for a company: investors will be the first to cash out of an exit, which could leave employees and founders with little to show for their equity stakes in the company.
“Because at the end of the day, the investors are going to get their money,” Connors said. “But the people that end up getting squeezed when you’ve raised too much money, the exit isn’t what you hoped, it’s the team and the founders that end up usually suffering. And unfortunately, too many companies don’t realize that until the event is going to occur.”