3 Key Lessons on Entrepreneurial Finance from Gautam Gupta, Partner at M13 Ventures
The Founder Learning Series is part of the Gold Rush’s biannual accelerator program. Each week, industry-leading advisors deliver keynote presentations on topics ranging from growth and branding to fundraising and product development. The following feature recaps our seminar featuring Gautam Gupta, Partner at M13 Ventures.
Gautam Gupta started his career as an early-stage investor at General Catalyst, joining the firm when he was only 18 years old. After spending time growing the firm and helping open the west coast office, Gautam founded and ran NatureBox given his personal passion for nutrition.
As Founder and CEO of Naturebox, Gautam raised over $70m in venture financing and served millions of customers. Gautam has been an investor in over 25 companies including The Honest Company, Grammarly, The Pill Club, and others. Here, we summarize three key lessons every founder must keep in mind when raising capital from the seminar Gautam led for Gold Rush Founders.
1. It’s true — More money, more problems
When Gautam founded NatureBox, he was still a full-time employee at General Catalyst. Gautam was able to raise money before even starting the company due to his network within the venture community. However, he noted that the saying “more money, more problems” has some truth to it, the more money NatureBox raised, the higher the expectations of growth.
Once on the hamster wheel of paid acquisition, it became incredibly difficult to debark. In hindsight, if they raised less capital early on, the team might have considered channels of organic growth with a lower rate of cash burn. For founders, Gautam believes it’s important to hear that raising money is not the be-all-end-all.
The caveat is, of course, that once your company achieves product-market fit, a lack of capital can constrain the growth of the company. In a world where competitors come from all directions, being able to strategically scale is a necessity. That said, venture funding may not always be the right fit, and founders may consider other avenues such as bootstrapping or debt fundraising.
2. Instead of asking when do I need to raise capital, ask when am I best positioned to raise capital
After working with hundreds of founders, Gautam notes that a better question to ask than “When do I need to raise capital?” is “When am I best positioned to raise capital?”
As Gautam advised Gold Rush founders, experienced CEOs do not think about cash in terms of the number of months of runway but instead, in years. If the goal is to build a truly sustainable business, no amount of cushion or safety is too much. In addition, raising money when the company still has runway is a stronger position from which to negotiate with potential investors for a subsequent round.
3. Think of venture financing as a marriage
If you’re considering raising venture funding, an important consideration is to gauge whether your investor believes more strongly in your vision or the metrics of the business. After you secure funding, you will not only spend a lot of time with your investors discussing day-to-day business operations but also lean on them to help you raise future rounds of financing and develop the business’s long-term vision. Thus, an apt way to think of the founder-VC relationship is as a marriage. Every startup has its periods of turbulence. Will your partner be there to support you? Upfront diligence matters.
Something that surprises Gautam is when founders do not ask for references for their potential investors. Although sometimes difficult to access, conversations with CEOs the VC has invested in whose businesses haven’t worked out can be most valuable in understanding how an investor behaves when businesses hit roadblocks.
Key Takeaways
Raising money is not the be-all-end-all, and should be thought of as a means to an end. If your company is considering raising capital, be sure to research the types of funding available and which is the best fit for your business model.
If you decide to raise venture funding, ensure that you familiarize yourself with potential investors’ track records of working with founders and establish that their vision aligns with yours. For resources on how to evaluate term sheets, check out those available on the NVCA and YC websites.
The Gold Rush Learning Series is part of our 12-week accelerator program. This insight was part of our Fall 2020 program, if you’re a founder interested in learning more about our program, check out this post or visit our website at www.goldhouse.org/goldrush/.
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