Don’t Celebrate External Investments, Investments are Obligations!
By: Omar Billeh
Tags: Startup, Fundraising, Founders, Opinion, Investors

Photo by Luis Villasmil on Unsplash

Yes, I know, getting an external investment means that a company is doing well, and that third parties believe that the company is onto something. However, being able to fundraise is not a success story yet.

For the past two years, every time a company fundraised, everyone starts exploring their success. “Wow, they were able to fundraise four million dollars for Series A round, go check them out, they must have something.” Well, I have a few issues with that. 1) Not all investors are smart investors; some investors have horrible portfolios. 2) Companies should now be focusing on scaling their product and dominating their markets and not be listening to all the noise around them. So, let us explore these issues together.

Not all investors are smart investors

Founders, please understand that not all investors are smart or even strategic investors. There is a reason why some accelerators and venture capitalist are more famous than others; it’s because they have achieved success in the past. This might sound absurd, but many people have the extra cash to invest in new companies that have new ideas. However, those investors might not understand your industry well, your potential to scale, the importance of you as founder, your competitors, and many other things. Therefore, having extra cash in the bank does not mean anything in terms of your success; you still need to go prove yourself in the market and give your investors high returns to show me that they are great investors. It is better to celebrate getting a strategic partner onboard than an investor. That is why many successful companies turn down investors that do not add value to the company, capital is arguably the least important thing.

Ecosystem players, it’s clear that you should not be excited about every investment that occurs. Some startups raise weird capital.

Focus on scaling, not celebrating

Founders, you now have a huge obligation to your investors to make back 10X their money. You should not be hanging around and taking this money as a cushion for your runway. You did not succeed yet and your company is not worth the valuation you raised on! Now, it’s time to work and think twice as hard since you are spending other people’s money. This external investment should actually cause you more stress than comfort. Also it is definitely not for you to get a salary raise! An investment is an obligation!

Ecosystem players, you are to blame too. If a company has already closed a funding round, do not try to support them now and act as if you were always there for them. The last thing a company needs is an outsider trying to let them lose focus on what they are building. Let the company be, and let it scale. They will for sure be able to do it with or without your support, so stop trying to ride on their train to success so you look good. As ecosystem players, your goal is to better the ecosystem, not feed off the companies that doing great already. Therefore, stop celebrating fundraising so much and focus on helping the struggling companies grow.

It is also really important to mention that fundraising is one of the easiest things a founder could do. Therefore, let us celebrate scaling, expanding to new markets, and acquisitions more often, that is where the true success of a company shows.

Yes, a company fundraising does mean that someone else believes in the company other than the founder. It also means that the company is doing well so far. However, the fundraise is not so impressive, it is what they do with the money that proves a good company from a bad one.

Ending (random) thoughts:

Many funds start off by claiming that they will invest in post seed /pre-series A companies with their ecosystems. They believe that is an opportunity for them since barely any funds invest in this stage. They are closing the ecosystem ‘gap’ and helping good companies reach the Series A stage.

In theory this makes sense. However, after some time (usually their second fund) these investors become series A investors because they want more proof that a company can succeed and make them money. Therefore, I believe the ‘gap’ between seed and series A investments should exist. That is the period where the bad startups die out and only the good companies survive.