Traction vs. Financing

By Steve Masur

I’ve been thinking about all the time and attention early stage companies and the press devote to raising money. I think too much attention is placed upon financing, and too little upon success in the company’s chosen business.

As you reflect on whether to push for more investment capital, or beef up your biz dev effort, please consider focusing on making money instead of raising more money. You might be pleased with the results. This thought may sound foreign now, because very few people in the early stage start-up community (especially the social media community) think this way. So at first, it may feel as though I am suggesting that you make a big pivot in strategy. But actually this bizdev focus is directly in line with your investment goals, because your A round investors will be looking for real traction and demonstrated revenue. Also, pay attention to your local environment. Everyone knows what Silicon Valley has. But if you are in New York, play to the strengths New York has. Immediate access to brands and agencies is a strong one, and it is directly in line with many social media concepts.

When I observe our active financing round clients in the last two years (and these include those who have successfully raised convertible note rounds in the $750+ range, A rounds in the $1.5MM-$5MM range, multiple follow-on rounds, and even some reverse-merged public company work), once they go through the money raise cycle of between 6 and 18 months, they often seem to end up back at bizdev traction square one, pitching the same 25 bizdev leads they could have pitched a year previously, and building much the same business, only much later with a bunch of money partners to whom to report.

As a result, you often see the serial entrepreneurs go for the revenue first, because it takes the exact same human energy, and is often the easier road. …and once you have 5 more Nokia, Target, Hugo Boss, or Interpublic deals under your belt, believe me that the money will be calling you for a meeting, instead of vice versa.

Final thought: Pay attention to where you are in the cycle. It has been relatively easy to raise money for quite some time now, but this window will close, and that will be driven by risk in the public markets. Once the music stops, it sucks to be left without a chair. But if you have good revenue supporting you, you’re fine, and the

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ad spending never seems to stop, at least as long as people continue to buy products. In new media, ad spending is increasing. That’s where we are in the current cycle.

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One Response to Traction vs. Financing

  1. Matt Myers says:

    Nice post. Good bookend to our call today!

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