The Common Mistake

One commonality I see in a lot of seed stage companies is a mistake immediately after closing fundraising.  I have heard and read it from other VCs as well so I suppose it’s not new.  However, it’s something that cannot be stressed enough.

Focus on activities that bring you revenue at an early stage.

I know the old way was “build the network, worry how to monetize later”.  For some businesses that can be true.  They are few and far between.  In the spots we invest, B2B Fin Tech, a focus on revenue is paramount.

Why?

Because you are generally solving a problem that people will pay for.  It’s a big enough problem that you can do over and over again.  If it’s really big, you can build a gigantic valuable business out of it.

However, I have seen the same thing in B2C plays.

They do a big round of fundraising after a friends and family and the CEO’s eyes grow as big as saucers.  Instead of focusing on what brought them there, all of a sudden they want to engage in new initiatives.  They want to build cool sexy stuff.  Most of the time it distracts the team and tears focus away.  Top line revenue suffers.  Pretty soon the fundraise is being dried up as burn rates increase without corresponding top line revenue growth and the CEO finds themselves in a real pickle.

It doesn’t matter how much money is raised.  It gets burned up.  Without top line revenue growth and month over month growth, you cannot raise the next round.  You will be faced with a severe down round and cutbacks of staff.  It’s painful for you, your team morale, and it’s painful for investors.