Investment VS Revenue by Szymon Janiak

The post was originally published in Polish on Szymon’s LinkedIn profile. Szymon kindly agreed to republish what we think is of great value to our readers.

A startup approached me asking for assistance with raising capital from VC funds. Instead of a clap and an offer, they were told to give up on investors and focus on making money… The reaction was quite uncanny as the surprise was in its climax. It was a textbook illustration of the word ‘stunned.’ I asked what caused such strong consternation. They said that this was the first time they heard from someone from the VC side that they should give up funds.

On my part, it was not a form of more or less sophisticated coquetry or the so-called reverse psychology to encourage more cooperation. One of the key lessons I’ve learned as an investor for a decade is that VC funds aren’t for everyone. They are created to support the best companies with the greatest potential. Only then does this business model work for both parties. Others should realize that for them, chasing investors will be a waste of time. In many cases, this becomes a means to an end, and instead of building a business, the CEO is constantly running after funds. They collect instead of earning, dreaming of spectacular successes. And this logic makes no sense at all.

I also reflected about why this was happening. On the one hand, it is a matter of human nature, i.e. that everyone prefers to consider themselves the best, or at least exceptional, and it is difficult for them to accept mediocrity. On the other hand, it is the fault of the system. Over the last few years, we’ve had too much funds and too much money on the Polish market. The funds had to be spent because it was required by public institutions through agreements concluded with VCs. As a result, the capital went to average companies that would never receive it on the private market. They, in turn, believed that this was the direction for them and… FInally, many of them thoughtlessly destroyed their own businesses, forgetting about customers. A side effect of building a mature ecosystem on public funds.

The bottom line is that there’s nothing wrong with a startup not having the potential to be a unicorn. Not everyone has to be on the top. Not everyone will be the next Musk. Being good in your niche can bring a lot of satisfaction and benefits, but you need to build a business with skill, that can earn a million or two in any way.

Earn money instead of chasing investors. Paradoxically, if you start doing this, at some point they will start chasing you.

The comment section had to add:

Great approach – sometimes the greatest value is the ability to reject common patterns. Not every business has to be geared towards conquering the world – some of the greatest successes are born where passion meets pragmatism. Instead of chasing investors, it is worth focusing on providing real value, it is key here. Think about it: the best ideas are those that change reality in small steps, not big dreams. Sometimes it is the stable development that welcomes the most exciting opportunities.

– Dr Paweł Pawlak, CEO at Impulse Management Group

It seems to me that talking about the ‘best’ startups in this context would mean that those operating in a niche and focusing on customers and not funds are somehow worse.

It seems to me that it is rather a matter of matching the financing model to the business model. Niche ones can often offer more margin solutions and enjoy organic growth, while leaving founders with a much larger piece of a smaller, but tasty pie.

– Dr Lukasz Tync, COO and Managing Partner at sinapi

The lesson for startups is that they are not a camouflaged version of socialism, and it may be painful. And how many so-called investors think so maturely? A small share. Besides, the name for the investment sector is somewhat fake, it has little to do with investing, but is simply another form of business. Rather safe, but also looking for talented, naïve entrepreneurs on whom to make money. There is no major difference between a bank that risks an insolvent loan and a fund that also wants to make money on a creative entrepreneur and provides capital. Investing, just like raising children, is not just another version of business and getting rich, it has a non-business mission, e.g. in a given industry or a given country, and is aware of the risk. Investing, like entrepreneurship and capitalism, are states of mind. All of them are needed to build a mature leader. And everyone still has to be aware that bankruptcies happen., while some CEO of a startup might find out about it at a meeting. The entrepreneur earns and does not borrow. And if they borrow, they have to pay back more.

– Zenon Waldemar Dudek, President at ERANOS Foundation Institute of Psychology and Culture

I, on the other hand, think that many startups have two other, simpler mechanisms at work:

1. A human being doesn’t act rationally, but uses the available resources. And they usually take more than they have to. This mechanism works in many areas of human life – from loans (capacity vs real need) to all-inclusive choices at a buffet table (how much I eat can vs how much I’m allowed to eat). So it’s just that startups use what’s available.
2. A cheater’s way of thinking. Many startups presume their development as only one of the options, keeping in mind other various ways to make money. One of these other ways is to take out subsidies or someone’s capital, especially since VC funds are there for this – they give money to startups. And since investing involves the risk of loss, a possible failure is theoretically justified in advance. Here, in principle, very often a VC bears a greater risk than a startup, and this encourages some people to reach out.

– Tomasz Królikowski, Sales Manager in Poznań at AB Industry