Fundraising = Pivoting

How fundraising forces your startup to pivot to a different industry: the fundraising industry.

We live in a venture capital world. All the aspects of being a tech entrepreneur have been affected by the business model of this industry.

Venture Capital has bent and reshaped what being a tech entrepreneur means.

Nothing screams venture capitalization like the celebration of fundraising that we see every day.

TECH = FUNDRAISING

These days in the startup world, press is all about fundraising; the first thing out of a founder’s mouth is how much they have raised; the first question potential hires have is about funding; same goes for the first question potential investors have. Funding, funding, funding.

The result of this is that founders are confusing fundraising with business progress.

Securing capital is not a business milestone and should not be celebrated.

An epic switch from business metrics to fundraising metrics

Tech is the only industry where the dynamics of business construction have adapted to the funding source. There is no other industry where key metrics and major milestones are not defined by business dynamics but by the source of the capital. For those of us in the industry, this is normal to the point that we no longer even realize it. But when we describe this phenomenon to someone outside our industry, we can see how we’re playing a completely different game.

For the tech industry

GROWTH = CAPITAL = SUCCESS

For the rest of the world

REVENUE — COST = PROFIT = SUCCESS

Simply put, tech startups operate with fundraising metrics while the rest of the world uses good old business metrics.

Business metrics: Metrics that measure the progress of the business based on a positive financial return and its sustainability in the future. They differ slightly from business to business, but can be summarized in a concept:

Sustainable growth = growth that can be sustained because even if involves a period of negative financial returns, the business could decide at any moment to get to profitability and survive.

The goal of an entrepreneur should be to have a business that grows in a sustainable way.

Fundraising metrics: Metrics that allow you to raise your next round. Completely independent from the sustainability of the business and the impact on the customer in the long run.

Fundraising metrics are the same regardless of the business. The reason why these metrics are always the same is: because they serve the VC.

Let me repeat that: the fundraising metrics that you are pursuing are not serving you but your VC.

The classic fundraising metrics are:

• Growth: we are talking about absolute growth. This metric only considers how fast you are growing, with no regard for the source or the sustainability of the growth. Unit economics not in the picture.
• Capital committed: which other VCs are involved.
• Market: (out of your control)
• How big is the market
• How fast is it growing
• How much money is being invested (how cool is it)
• Team: how big is your team (how many PhDs)

FROM CEO to CAP TABLE SALESMAN

The consequence of this singular focus on fundraising metrics is that the job of a VC-backed startup CEO is completely different from the job of a “traditional” CEO.

The CEO of a VC-backed startup is not working on building a business, she/he is working on selling his cap table. She/He is building a fundraising machine, not a business.

A business: An organization that through its products/services impacts the customer’s life. You are serving your customers and only they can fire you.

A fundraising machine: An organization that has the goal of raising the next round. The impact of your products/services on your customers is a byproduct of your fundraising activity. You are serving the VC and they can fire you.

Did you become an entrepreneur to change the world or to play the VC game?

Did you start your business to get fired by a VC or to impact the life of your customers?