Skin in the game

"With all this extra stressin', the question I wonder is after death I feel my last breath." 2pac

For a long period, both entrepreneurs and VCs were happy members of the pretend startup family, where investors spawned endless content as if they ran the companies in which they invested, farming fame instead of creating platforms for their portfolio. “It’s all about the deal flow, bro.”

Junior associates with no real-world experience would preach to founders: "Do this, not that", the senior partners were distracted, considering how to cash out on the last vintage portfolio, stuck as private valuations soared and public markets soured. There were no differentiators between good and bad advice because as long as the money was free, frankly it didn’t matter. And who wanted to ruin the vibe?

But now the markets have turned and everyone has gotten a reality check. The tune from VCs is different: profit, not growth, deep tech, and AI, not SaaS and Fintech.?

I greatly respect the role that capital allocation and VCs play in creating great companies, but for 99% of investors out there, you should ignore their advice for one simple reason: They don’t have skin in the game like you do.?

It’s other people’s money, and as interested as they might seem in your company, in the end, you are just a number in a spreadsheet.?

I wanted to share a few observations from the last 15 years of raising money in bear and bull markets as a founder. The experience is hard won, and I’ve probably made every mistake you can make, but I still managed to raise over $1bn in equity and debt.

It’s the people

The choice between bootstrapped and VC-funded is often a false dichotomy; in reality, it’s far more about being able to keep focus as you scale. No matter what you are doing, you should never overfit to VC KPIs. Instead, focus on having customers and a team that loves what you are doing. This will always be the ultimate leverage, not needing to explain how you differentiate following a cookie-cutter rule of 40 growth template from a BS content farm. Like you, your team and customers have skin in the game; listen to them.

You always have leverage (even when you don’t)

The first battle in any negotiation is always in the mind; don’t give up any terrain or belief in your idea just because the investor on the other side is famous, powerful, or someone you badly want. The reality is that most money is just that: money. I can’t count how often we have hardballed with a few days of funding left. Ultimately, we held the line and got the best result for the shareholders, employees, and customers.

There is always another way.

This is 2024, and there are ten times as many sources of capital as a decade ago. Go global, corporate, family office, or use a syndicate or a combination of the above. Create prepaid plans for your customers or double your prices (this is almost always true). The reality is that VC funds need the winners and that’s only a select few out of each fund, but a large number of unicorns and winners are outside the A+ VC funds. It will be grit, execution, and long-term survival that decides if you make it, not the name of the fund. While the right funds can potentially make a big difference, it’s you, your team and customers that's the real differentiator.

Tomato, Tomatho?

Every VC in the world preaches capital efficiency, profit, and lean startup now. It’s good advice. It would have been even better advice five years ago, but better late than never, I guess. The problem is what is unsaid. Growth is still king. The VCs just want all the other stuff too. Why? Creating a good narrative for LPs and partners without growth is simply too hard. So when you hear profit or lean preached as a core KPI, just remember it’s GROWTH + PROFIT, and no matter how everyone seems to have changed their tune.

You are never doing enough, and that is ok.

Trying to follow all the VC and founder advice in the public domain can feel like being a new parent reading every piece of advice for raising a kid. It will drive you insane.? You will end up stressing if you should have implemented the newest version of OKRs or created your Rule of X strategy, now that Rule of 40 is out. This is just like stressing about whether the other parents noticed that your homemade sandwiches weren’t organic at that birthday party you organized last minute.?Just let it go. Ignore the noise and focus on those with skin in the game, your team, customers, and family.

Now, you can go back to the hustle, build something great, ignore the noise, and remember it’s a marathon, not a sprint.

And to all my VC friends, investors and partners, I love you dearly, relax there will always be a need for you.