Enough! Can startups raise too much cash?
Enough! Can startups raise too much cash?The perils of fundraising, a busy start to 2024 continues, GuardDog’s debut investment, Dmitry Belianin talks mentoring +More
Who needs to go to work to hustle for another dollar. Too much, too youngGimme, gimme, gimme: The pitfalls of raising money for a startup or a scale-up business are all too apparent in the failure rates for any type of growth company. A simple Google search will tell you that anywhere upwards of three-quarters of all startups fail. No wonder many view money raises in and of themselves as a sign of success.
Talk the talk: Andy Clerkson, partner at Tekkorp, says that though it is unlikely in these more restrained times that any startup would raise more money than is necessary, “no doubt some founders love raising money and talk about that more than the business.” That, he suggests, is a “worrying” sign if you are an investor. Read all about it: Against the more realistic fundraising backdrop of 2024, where the outright pessimism of last year has been replaced by a more cautious and more muted optimism, there is still a place for grabbing some limelight by announcing a (perhaps modest) raise.
Taking the biscuit: Clerkson agrees that a large raise, particularly if it is based around a concept rather than, say, a founder’s track record, is “not a marker of inevitable success.” “In fact, the opposite,” he argues. “The money may have come in for a reason apart from the greatness of the pitch deck and total belief in the business.”
The need for speed: Rather than the size of the raise being a factor in persuading more investors to get on board, however, it can sometimes be the speed at which a deal is completed that can act as a spur, Clerkson adds.
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Get in touch at opticodds.com/contact. The art of raising cashWhat are you having? Gauging the amount that a company has to raise is more art than science, suggest the experts, though clearly to obtain capital investment plans will need to have moved beyond the back-of-a-napkin stage. Etch-a-sketch: Restivo points out that every founder should be smart enough to know “there’s some kind of model” that applies to their business but such plans might be somewhat sketchy through early-stage, pre-seed and seed levels of investment and even through to Series A. “I mean Series A is when we really first start to build a model,” he says.
Opportunity knocks: The ‘how’ of raising money is perhaps different from the ‘why’. Raising cash “opportunistically,” as Danzig suggests, is sometimes a recommended route – the equivalent of putting money aside for a rainy day, perhaps – but he adds that others will advise on “raising only what’s necessary to reach key milestones.” Watered down: A key element will be how a cash raise affects the cap table. As Cherniak suggests, an “astute founder” will be looking to raise only the capital needed to achieve “well-thought-out goals” while minimizing dilution.
The right pathJam tomorrow: That said, the current backdrop – and certainly the paucity of deals seen in 2023 – suggests not many companies on the fundraising path right now are trying to get in more than they need. “In this market, there's not a lot of people out there raising more money than they can,” says Restivo. “Valuations have come down and they are a little more realistic.” Putting the time in: Restivo points out that fundraising is a “really time-consuming process” and Clerkson agrees that “it’s valid to not want the distraction” of multiple fundraising events. “But If you’re on the right path, the equity you give up now is the most costly to you,” he adds.
Danger signsPower relationships: It’s an obvious point that those raising money are the ones going to the investors and rarely is it the other way around. It means the power in the discussions is all but guaranteed to be unequally distributed. Stand firm: But Clerkson says if a company is “just raising money” and not bringing in people to help the company succeed, then his advice is to “hold firm” over the likely demands.
Do you remember the first time? Danzig says the pitfalls for those raising cash for the first time, in particular, include setting unrealistic expectations, approaching the wrong investors, being underprepared, over-embellishing progress and forcing a one-size-fits all pitch.
Much obliged: Moreover, he adds, the moment a founder takes VC capital they then have an obligation to “serve the best interests of those investors, to communicate with them, accept some guidance from them and generally have those key investors alongside your journey as a valued partner in business.”
The home frontDisruption, but not in a good way: None of this happens in a vacuum. At the stage of raising cash, startup companies will likely be well on the way to being complex organizations with staff members and management teams that will likely be well aware of whatever fundraising processes are under way.
Tell all: “It is a founder’s responsibility to ensure raising capital is not a disruption to the staff at large,” says Cherniak. “If handled properly, there is no reason for a fundraise to create a lack of focus within the organization.”
InclineBet provides performance-driven digital marketing services to the global regulated iGaming market. Our team bring unrivalled expertise in digital marketing, online casino and sports betting to deliver high-performance UA, CRM and Creative services. iGaming isn’t merely another market we serve, it’s the only market. Click to learn more about what we do and how we can help. +More startupsFebruary funding: While not hitting the heights of January’s $34.5m raised from eight deals – with six deals happening in one week – last month continued to see activity, with five deals completed – four new funding and one sale.
Regtechies: Notable among the rounds were the investments received by two regtech providers on either side of the Atlantic. US-based AML provider Kinectify saw it onboarding Aristocrat as an investor in the business, while ClearStake also saw a number of executives from the space stump up a seven-figure sum. Dog watch: This was followed by news just yesterday of Underdog Fantasy’s GuardDog initiative making its debut investment in the single-customer-view tech solutions provider idPair.
Investor focus – Belianin.comMe, myself and I: Dmitry Belianin, formerly with Parimatch, has set himself up as an investor and startup mentor with a specific focus on the gaming affiliate space. “In the world of affiliate marketing, there’s a ton of room for growth and improvement,” he says.
Let me tell you how it will be: Mentoring, Belianin says, is central to his investment proposition. Having banked years of experience working in the space, he feels he has “learned a lot of lessons” and he wishes to share the fruits of this with others.
Shake some action: That also means being willing, as Belianin says, to “shake things up,” adding that people within the industry tend to stick with what they know.” But he says he is “always on the lookout” for new ideas and believes that he is well-placed to bring innovation to affiliate marketing. Off the mark: Belianin has already made investments in five companies in the affiliate and marketing areas, putting in ~$500k per opportunity. “It’s a pretty good amount to work with, and it gives us the flexibility to really support the companies we believe in,” he says.
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