“Entrepreneurs should raise as little [venture capital] as they can until it works for their business, then raise as much as they can to scale,” says prominent angel investor Gil Penchina. “If you raise too much before the correct formula is achieved, it can mean bad news for the valuation outcomes.”
Exitround (a hub for small tech M&A deals) recently reviewed relevant factors of 200 deals. In their study, the startup companies that had raised $3-10 million in venture capital actually ended up with lower valuations upon exit than startups that had raised $2-3 Mil in venture capital.
That conclusion matches what we have been seeing over the past few years. As specialists in accelerated growth for mid-sized companies (not startups), we have noticed that companies often had to overstate their valuations to attract $5-10 Mil in startup venture capital. They then struggled to actually become the valuation they had promised.
The leaders of those companies tend to be the people who forget that big ticket exits typically require about 10 years to happen. Therefore, those entrepreneurs end up spending an inordinate amount of their time chasing higher and higher levels of venture capital and/or glamorous IPOs…when an acquisition could have been an excellent exit strategy within five years.
What could your existing business do to deserve the infusion of $5 Mil of growth financing? Now that’s a more exciting question to ask.
Known as The Growth Strategist®, Aldonna Ambler built and grew a suite of companies to help midsized B2B companies achieve accelerated growth with sustained profitability® A Certified Speaking Professional (CSP), Ambler has addressed over 2000 audiences and hosted a syndicated online talk show about growth strategies for 9 years. As a growth financing intermediary, Ambler raised over $1 Bil dollars for midsized companies. The winner of over 2 dozen prestigious national and statewide "entrepreneur of the year" awards, Ambler is available to speak about “profitable growth during any economy” and/or serve on the board of a growth-oriented privately-held company.