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.
An investment that comes too early kills entrepreneurship in startups. The vision of building a company from the moment of its inception solely on the basis of external capital distorts, in some way, the sense of its functioning. The founder, having funds on a tray and security for several months, often forgets that the business is to earn money. They foster and cherish the product, go to conferences, build a narrative, arrange a strategy for acquiring another investor, without dealing with the foundation – sales and generating revenues.
In the long run, this leads to a certain aberration, because it changes the way of thinking. Risk and financial pressure can determine creativity. Then, the team looks for answers to the question about what customers need and how to deliver it. External capital can make you lazy in this respect, priorities change. The CEO turns into an investor hunter and hunts for the next round to provide peace of mind for the next months.
Szymon Janiak, Co-Founder and Managing Partner at Czysta3.VC
I should note here that there are businesses where this model works – these are those where huge expenditures are actually needed to build an innovative product before it can be sold.
In many cases, however, capital instead of accelerating the growth of a given company is a way to reduce your own risk by working for someone else’s money. By nature, most cases of this type occur when there is an excess of capital on the market. However, when the situation normalizes – it turns out that the pursuit of investors can be a waste of time, because in our region the key to acquiring them is traction. Startups which, instead of focusing on customers devoted all their attention to funds, in practice often fail first.
Under normal market conditions, who receives significant capital at the earliest stage of a company’s life? There are two groups. The first are people with significant successes in the past, a well-established network and position. Here we have a whole palette from founders who have successfully sold startups to top managers to ex-investors.
The second body consists of people whose companies have achieved something outstanding before the first investor appeared. It can be a situation in which you manage to build an MVP very quickly and monetize customers above average.
But there are also many whose success has a non-financial dimension – it is traction in the form of an extremely large number of users of a given solution, the intensity of using it, etc. The vast majority of people who only have an idea can forget about getting capital from a VC fund to check it.
The founder must always remember that the client – not the investor – is the most important. If you grow quickly and earn at the same time – the investor will always show up. The only difference is that the startup can realistically choose when and for how much it will let an investor in, instead of, as is often the case, taking the only offer on the table to survive.
The comment section had a few things to add:
Add to this the global media pressure showing the acquisition of a round as the startup’s greatest success. As a result, many novice founders don’t even think about sales, revenues or customers, some seem even unaware that this is part of the business 😉
– Jan Furmankiewicz, Business Development Partner at Prodensa Europe
I fully agree. Good external financing of startups from the first moments of activity totally disrupted the labor market of programmers. In the place of former enthusiasts, a lot of fat cats appeared, abandoning projects at the slightest discomfort. This is a really big challenge for the IT market.
– Rafał M. Gęślicki, Transformation Program Manager at IFS
I think that the post’s theses are too generalized. I know from my own experience startups that after their first VC round delivered a product and continue to live on revenues. The problem is the founders who finance internal Babylon from the first round. Top Apple equipment, offices in expensive locations, which is already a problem for investors who can’t see their money getting burned for nonsense.
– Ryszard Brudkiewicz, Partner at Kancelaria BSSK
Szymon Janiak is an investor and a business-driven Managing Director at czysta3.vc, a Venture Capital fund located in Poland. He has over 10 years of experience in the technology sector. Szymon is also a Member of the Supervisory Board at stockbroker Grupa Trinity S.A.
