Why You Shouldn’t Raise Huge Rounds Before You Launch

What Clinkle, Airtime and Color Have In Common

When your startup has layoffs before it even launches, you have a problem.

22-year-old Lucas Duplan made history when he secured $25 million in seed financing from some of the best investors in the business. Pre-launch.

$25 million. For an unproven product. By a first-time founder. Yikes. Perhaps we shouldn’t be surprised that a young founder would experience a few bumps getting his product to market, but when you raise $25 million pre-launch, every struggle your company has becomes the headline of the day.

When I first heard about the round, I had a déjà vu moment. In 2011, I wrote about the launch of Color, the now-defunct mobile photo-sharing application founded by Silicon Valley veteran Bill Nguyen and a team of founders and engineers most companies would fight to the death over. A lot of attention around the startup focused on the $41 million it raised pre-launch.

If Color had raised just a few million, its pivots probably would not have been constant front-page news. Instead, it received an overwhelming amount of scrutiny that affected its operations, reputation and most importantly the team’s morale. In Color’s case, less would have been more. Y Combinator’s Paul Graham knew this — it’s part of why YC decreased the amount of money it gives to each startup team last year.

Remember Color?

The same is true in my opinion for Airtime, the reinvention of Chatroulette founded by Shawn Fanning and Sean Parker. Like Clinkle, it raised $25 million pre-launch. And like color, its launch was a complete flop. While Airtime has not shut down, the company hasn’t (publicly) launched any new products in at least a year.

The weight of expectations and the hype unfortunately doomed Airtime from the start.

I’m not suggesting that Clinkle will suffer Color or Airtime’s fate. Honestly, I have nothing against any of these companies. I consider Bill Nguyen a friend and one of the smartest and kindest people I’ve ever met, and I sincerely hope Clinkle figures its shit out and succeeds.

But it doesn’t matter who you are: if you raise an excessive amount of funding in your seed round pre-launch, the weight of the hype and expectations will cause self-inflicted wounds.

As Color has shown, these wounds can be fatal.

I hope startups take away a few very important lessons from Color, Airtime and Clinkle’s struggles:

1. The faster and cheaper you can launch your product, the better.
2. It’s harder to test, iterate and pivot with bigger teams and large amounts of money. Don’t raise large amounts of money until you have some amount of traction.
3. If you do need to raise a large amount of money pre-launch (in finance, medicine, etc., it’s sometimes necessary), do everything in your power to keep the amount you raised a secret. Letting that number be public doesn’t help you in any way.
4. Don’t try to attract a lot of attention pre-launch. It’s useless because you can’t convert that attention into users or customers.
5. Never over-hire.

Figure out the right amount of money to get your product to market while giving yourself enough wiggle room for iterations and pivots.

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