This is a guest blog from Joe Skorupa.
I’m fortunate enough to work with a number of exciting startup clients. While we spend a good deal of time on product and go to market strategy, we often also discuss and assist with raising venture capital. Some teams just care about the valuation and dilution. They want to hold on to as much equity as possible. After all, “Isn’t all the money the same, It’s all green and spends the same way.” No way, not even close…
I’ve led an “A round” effort and have worked with numerous VC firms over the years and I see it very differently. To me, there is a big difference between money sources. While dilution matters, to me it’s a secondary concern – getting the right money (smart money) at a fair valuation is far more important, especially in networking. The reason is that networking is an infrastructure business and in general, the market moves slowly. Large incumbents have strong customer relationships, market power and can slow adoption. Even when things go well, the time from initial funding to successful exit (IPO or acquisition) can take 7 years or more. In this market, there will unexpected delays, missed opportunities, partnerships that don’t come together. When these things happen, having the right money makes all the difference. VCs that have a history in infrastructure have a patience that is required. They don’t expect a social media or mobile app schedule – 18 months to sale or shut-down. And they know how to help your team work through the tough times.
So, money from an infrastructure-focused fund is important, but you also want a partner/board member that has experience in infrastructure, preferably with connections that you can leverage as you build your company. In my book, this is far more important the getting the maximum initial valuation. And don’t forget that an inflated valuation can make the next round harder to raise, especially if the economy starts to look shaky.
So, is all the money green and a does it spend the same? Yes, but money from the right VC with the right partner can make the difference between you ringing the bell at NASDAQ and you sitting on the sidelines as your company is sold in a fire sale. Yes, you still have to execute, but having the right backers tips the odds more in your favor.
Does this matter to buyers of technology? Yes, absolutely. If you’re an end-user of technology looking at emerging vendors for things such as SDWAN, Intent or our upcoming Cool vendors research, put your money on the smart money.
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