By Zeus Dhanbhura
In today’s start-up world, you will read a lot of articles and countless twitter threads selling you on how capital is a ‘commodity’ and access is no longer restricted to the selected few. Yes, Venture Capital has changed the way capital was provided by almost ‘robin-hooding’ it to the ones brave enough to dream, wake up and execute. You will hear a lot of what it has provided, little of what it has taken away – your control over your dream. In fact, you signed off on that in something arguably so unassuming and so perfectly located in your SHA that you were too tired to care – Reserved Matters.
You had a dream, you executed it, you achieved product market fit, you gave away a little of your company for Capital, it felt good – the valuation felt validating, you got hooked, wanted to do it again and then all of a sudden before you knew it– you gave away too much. How much is too much? In your case the answer is clear – its 51 per cent.
It didn’t just stop there though, did it? No, it never does. Then came along something that determined which airport lounges you access, the right swipes on your Tinder profiles, the increased twitter followers – your valuation. When I say yours, I mean your company’s but considering how intrinsically yourself and net worth are tied to it – it might as well just be yours. Now, what they don’t tell you about your valuation is that it is not something you are worth today but rather something you are about to work really hard justifying.
There is nothing wrong with hard work but what you are about to do in the good name of hard work is burn a lot of cash in order to showcase growth. This growth at all costs strategy justifies you burning cash you would ideally never do in your right mind. Especially if it wasn’t made so easily available and that strategy encouraged by the very people who give it to you. Sounds crazy? Well, that’s because it is. But we’re here to tell you the growth at all costs involves another cost you didn’t take into consideration – how long can you keep this up? How many more valuation and growth cycles can you rinse and repeat before you can’t? What’s the end goal? You run or are asked to run all the possible stats in the world to showcase growth in your valuation bundle. Some are very creative too. But how do you miss out on arguably the most crucial? What’s your company’s % of success using this strategy?
Again, what they don’t tell you here is that you are never going to find a way to turn a profit for a long time. Those excel sheets showing profitability in 3,4,5 years are nothing more than a Band-Aid you will eventually have to rip off. Why? Because the way you’ve been growing was never meant for profit – it was meant for trading you up as an asset. Now, I’m sure you’re asking yourself what’s the difference between me and the hamster on that treadmill? Good question. I’ll tell you what it is – the hamster almost always is given the cheese at the end by their pleased master. You are not. Less than 2 per cent of companies make it this way but the ones that do justify the means and the ones that don’t are collateral damage.
Why are we saying all this? I mean get to the point, right? Right. Because not all business models were made to ‘grow at all costs’. Some of the greatest businesses in history were made on the backs of incremental growth. Yes, you heard that correctly. Explosive growth works for some but not for all. Sometimes you just want to build slowly but you want to build to last. You didn’t want to be part of the ‘rat race’ that you so infamously quit when you decided running your own company was better than selling your time. But what did you do after that blaze of glory? You joined another one. Much more financially giving but a rat-race none the less.
Now, this is by no means a hit piece on venture capital. VC is probably the cause of the greatest systemic shift in wealth of the 21st century. It works for a lot of companies and has changed multiple lives. Venture capital pre-revenue is still very important. It just doesn’t work for all. For the ones that it doesn’t work for, there are companies that provide non-dilutive financing and those companies aren’t necessarily an alternative to venture capital but a complement, if you would like to use them that way.
If you are a founder who understands the true cost of capital of your equity. You value your time, your control, your decision-making power and are not shilling hustle porn, I want you to know you have options out there. They can help you build your company the way you want by providing you instant access to non-dilutive capital.
In days gone by, you would call this going to the bank, creating a relationship with the bank, putting your house up as collateral for money and then building your business out of that. That is debt. These financing companies don’t need your house, in-fact they don’t need any collateral and you can do all this sitting anywhere in the world at the click of a button.They believe in your company not because of the 4 slides in your deck you have dedicated to your TAM, but rather because of your existing customer base and the revenue they bring to you. They can help you capitalize your contracts, your revenue streams, your customers, your subscriptions in order to provide you capital in a way that allows you to run your own company, your way. The capital is lesser, but it also comes at a far lesser cost. Do the math.
(Zeus Dhanbhura is the CEO & Co-founder of BridgeUp)