Fundraising for the existing average business and the new and promising idea
After a startup raises money, three things can happen.
The first is that it performs well, either with its initial business idea or following a pivot, and goes on to raise more funding based on this performance.
The second is that its business does not grow, attempts to pivot do not either, and the business therefore fails.
The third case lies in the middle. Specifically, the startup ahieves some growth in its initial business idea. However, this growth is not high enough to raise more funding based on the company’s performance, and it’s not low enough to declare the business a clear failure.
Startups that experience this third scenario often come up with a new business idea that is adjacent to the initial business, and try to raise money for the new idea. When this happens, they need to decide whether to stop working on the initial business to focus on the new idea, or to continue working on both in parallel. Many decide to work on both at once, and therefore pitch new investors the combination of an existing average business and a new and promising idea.
When this happens, interested investors want to invest in the new and promising idea. However, they don’t want to pay for the existing average business, and they don’t want the team to spend any time on the existing average business.
As long as the existing average business continues, this makes it challenging for the startup to raise money.
If you don’t want to raise money, you can keep working on both businesses in parallel.
However, if you want to attract investors, you’ll very likely need to close the existing average business and raise solely for the new and promising one.
Originally published at Thoughts of a VC.