10X Growth and funding

What if you were given 10X the amount of money you wanted to raise?

I had an interesting discussion with an entrepreneur friend yesterday. She has a consumer Internet (Curated marketplace) startup, which she has been working on since Jan. She soft launched it in May and has been seeing a doubling of revenue every 2 weeks so far. She is on the fund raising circuit and has a few interested people.

After a quick 30 min on her market segments, the traction and her supplier base, I was very keen to invest myself. She’s a very talented entrepreneur and passionate engineer, so I was a little concerned that she did not have anyone from the domain on her team. So, I demurred, asking her to connect with a few other folks I invest with.

One of the investors I talked to asked me how much she was looking to raise. I mentioned she was looking for about $500K.

“Why not $5 Million and go big”? was his question.

I started to offer some “rational” arguments as to why not – first, she did not have enough traction to justify a $8 – $10 Million valuation, she would not know what to do with the money, she was still trying to form her team, but I was thinking at the back of my head – “What if’?

What if investors did give you 10X the money you were asking for?

I understand that’s rare and largely impossible for most entrepreneurs to get, but what if?

So, I did a quick thought experiment with my entrepreneur friend and asked her to think, but not spend too much time modelling what her investments and metrics would be at $5 Million invested in the company.

At first, she was excited and said she could use all that money to hire people, expand into SF and other cities, etc.

A good 15 minutes  later, she called back, much sober and asked – what % of the company would she have to give up for that kind of money – I said I did not know but suspected it would be 60-70% at this stage given the risk. Maybe if she was lucky, 50%. Again, I did not know, but I doubted that she would be able to get away with less.

After 30 more minutes, she called again, now asking me for the metrics that she’d have to hit. I thought she would not ask me that question, but I am glad she did. As an investor I wanted to have 5X to 10X return in 18-24 months, so I said she’d have to be at $50 Million to $100 Million valuation within 18-24 months.

She was doing $1000 per month. Even if we gave her a rich valuation, she’d have to be at $2 – $3 Million revenue per month in 18 – 24 months I thought.

She then pulled back.

Nope, she said. She was happy with raising $500K. Much less money, much more control, but much less stress.

I think we learned a lot from this thought experiment.

What would you do?

I dont think there’s a single person who would not expect more money (as investment) to mean more stress, but that’s the nature of the business.

You can work your way into it, or work towards your goal. Either ways, it is a lot of work.

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6 thoughts on “What if you were given 10X the amount of money you wanted to raise?”

  1. Really interesting. What grabs my attention is the conclusion statement, “Much less money, much more control, but much less stress.”

    I would really like to know after next 2-3 years once the her vision starts achieving the goals and company requires scale, then does the statement changes from her thoughts today to a broader company’s prespective:
    Much more investment, collective control and higher business growth.
    May be…. may not be…

  2. Really interesting view. Particularly the statement, “Much less money, much more control, but much less stress.”

    I’ll be curious to know, whether 2-3 years later once vision starts meeting the goals and looks for higher scale then will the thoughts change from an individual to a company’s perspective and says,
    Much more investment, collective control and much lesser risk to achieve growth.
    May be… may be not…

  3. I believe its also important to operate at constraints, if we raise so much money sometimes we do not know how to use it.
    Also its important to keep building more traction and raise money, if she had raised money now, it would actually created low valuation.

  4. Mukund. Which marketplace she is into. Either which way even I wouldn’t take that money. It is not about not achieving the targets but building the good bottom line business. As there is a saying baby can’t be born in one month it takes its own course of 9 months.

  5. Mukund, you recall hosting a FailCon Conclave attended by VCs/Accelerators and top entrepreneurs in India. The most common “Failure” cited by all participants was “taking too much money too early”: capital efficiency goes out of the window. As the saying goes “necessity is the mother of all inventions.”

    You need to identify your growth constraints to see if it’s something you can mitigate by throwing money at. If you’re in a B2B Blue Ocean business with many low hanging fruits, the constraint might be how many deals a sales person can close per month. The logic then is to raise more capital to grow your sales force. With less capital you might need to get creative and think about how you can innovate/reduce friction in your sales cycle. The pay-off in the mid-term is probably much higher.

    We actually found a way to get paid to do our pitches and churn-out evangelists. That probably wouldn’t have happened (as fast) if we were well funded with a throw-money-at-the-problem mentality.

    If you like thought experiments, check-out whatif.io. Our business flight simulator allows you to do just that…very quickly.

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