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Do you really want funding?

My monthly news roundups invariably feature a number of companies that have received funding from venture capitalists and other types of investors. Going through funding rounds – which was pretty much non-existent during the first few decades of the industry – is now a popular rite of passage, a way of flaunting your company’s ‘value’ to the rest of your competitors. It’s definitely a marker on the road to success – or so these companies hope.

If you’ve never received outside funding during the startup phase, you may ask yourself: why not? Why doesn’t my great idea that will revolutionize recruiting deserve millions of dollars?

The answer is: maybe it does deserve funding. But first you should ask yourself: do you really want funding?

On the positive side, funding can provide some significant benefits:

  • Accelerate existing growth: Let’s say you’ve launched well, you’re acquiring clients, everything is going fine – and you’re growing at 20% a year. Funding could double or triple that growth rate. Depending on where you’re operating (say, perhaps, programmatic…), you may want to accelerate your growth to gain market share and preempt competitors. So time may be ‘of the essence’ and that extra cash from ABC Investment Group could be exactly what you need.
  • Launch successfully: Or let’s say that you’ve got a great service, a sharp team, and you’re moving out of beta. But you don’t have the cash to launch successfully. Again, that extra cash from your friends at ABC Investment Group could be the difference between a slow, painful – and possibly unsuccessful – launch, and a strong launch that shakes up the recruiting world.
  • Fix a problem: Or your startup is ready to go – except there is one expensive problem, such as a partner that needs to be bought out, or a technical issue that only cash will solve, etc. Outside funding can make that problem go away – and again, set you on the path to startup nirvana.

But…on the other side, funding can pose some challenges:

  • Loss of control: If funders give you money, they expect something in return – and inevitably the cash comes with a certain loss of control. Sometimes this is ok – and sometimes it isn’t. Always better to ask yourself the ‘how am I about loss of control’ before you take the check, though.
  • Timeline: Startups work on timelines that seem to contract and expand – but I can promise you that once you take outside funding, the timeline will grow more rigid. Investors can be impatient or patient, but their timeline may well not line up with your timeline. Again, this may be a blessing in disguise – or it may lead to frustrating compromises  or even outright failure.

So consider this post a companion piece to one I wrote earlier this year about how you might use funding if you got it. Ask yourself if you really want funding – and if you do, be clear why and how you will use it. Then…go for it!

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