The New Fundraising Culture
Nowadays businesses and entrepreneurs are resembling banks more than ever. People aren’t building actual businesses anymore. In fact, many founders are being applauded for raising money and not actually building sustainable businesses. Some of them even manage to lead their companies through an IPO and cash in fortunes, without ever having generated a single dime of profit.
Uber, Snap and Spotify, among others, are examples of the new kind of companies. Even though they all accommodate great ideas and are treated as Unicorns, none of them has actually managed to build a a real business. With “real business” I mean an organisation that is able to create and output a specific and recognizable value in the market, while generating profits, thus being self-sufficient.
Today’s funders and fundraisers don’t really care, if a startup is actually making money. Nowadays the most important numbers are users and growth rate. But what do you get from having 100 million users and customers but not being able to make money? Of course, being able to gather such a customer base is none other than impressive, but should funders and fundraisers just be looking for that?
What To Invest In
Why invest in a company that doesn’t make any money? I understand that the growth rate and accomplishments of a startup can be very alluring, but for me, putting money in an yet unprofitable company and hopping that they will somehow manage to make money, is like marrying a good looking woman or man with bad attitude and hopping that the person changes afterwards. Of course a company can manage to become profitable afterwards just as a person with bad attitude can change after the marriage. In both cases, don’t forget that you are gambling with fate.
From my point of view, people shouldn’t invest in ideas or just because of the incredible growth of a startup. A good funder should always bet on practicability and implementation. What do I mean? If an entrepreneur is able to generate profits without funding, what will refrain him from doing the same if he has even more money? An idea is important, but without proper execution, an idea is worthless.
To sum it up, for me a sane fundraising culture should always include imply following points:
- The quality of an idea (Is it innovative, does it have potential, how big is the market?)
- Is it a new idea or not? Are there competitors?
- History of the company (Accomplishments up to now and the time window in which they were achieved)
- User and customer numbers, growth rate and sales up to now.
- Is the company already generating money? Can the same processes be replicated elsewhere?
Remember money usually doesn’t change anything, it only amplifies what is already there.