There has been plenty of talk recently about how venture capital activity has been slowing down. While this development has, naturally enough, been most noticeable in Silicon Valley, even secondary markets like Austin and Denver are starting to show signs of strain.
With investors increasingly being less generous about backing early stage companies and fresh startups, entrepreneurs need to think even more carefully about seeking capital. As Danny DeMichele has pointed out in a recent blog post, there are often very good reasons to prefer not to raise money at all.
Staying in Control and Working Toward Profitability Early On
The venture capital mania of past years tended to focus on a very particular style of business. With startup founders targeting nothing but growth for the first few years and ignoring profitability altogether, plenty of capital was always needed.
In some cases, following up on that strategy can be an effective way of building a large user base quickly. Particularly when a startup introduces an entirely new idea where the advantage inherent in moving first is critical, that can still be important.
On the other hand, even many of the businesses that have accepted significant venture capital funding in recent years have not really come out of this mold at all. In fact, quite a few of the highest-profile cases were essentially very traditional businesses with perhaps a few digital features. Failing to focus on becoming profitable because of a generous venture capital cushion has turned out to be costly for some of these companies.
Truthfully Answering an Important Question Before Making Assumptions
Entrepreneurs today do well to ask themselves whether the companies they are committed to nurturing will truly benefit from an early infusion of capital. While it can still be sensible to plan on burning investment money early on, this should never be assumed to be the best option.
Startup founders who decide against raising investment money, after all, retain more control of their companies as a result. That can make it much easier to build strong foundations for a company to build and grow upon into the future, and this can easily make long term success a lot more likely.