• Strategy
January 31, 2024
In growth-stage companies, we push this concept to the extreme, doggedly encouraging ourselves to make decisions quickly and change course rapidly — to fail fast. But, be careful: there is one very important decision you will likely encounter as a founder where this axiom utterly does not apply. When you raise money from outside investors, there is no going back.
That last sentence does not end with diabolical laughter and does not mean that raising money from outside investors is a bad decision — in fact, in our experience, for the vast majority of high growth companies that raise outside capital, it is a great decision. One that enables and drives outcomes that were otherwise unachievable.
It does mean, however, that some things will be quite different than if you had gone it alone. Here are a few of the more meaningful differences, including a few of the questions you should be asking yourself to determine if this is the right path for you. Notably, nothing in this list pertains to the tactics or even the strategy of running the business; these are all gut-check items about who you are and who you want to be as a founder.
You will have a partner in your business in good times and bad. It’s easy to have a partner when the business is performing well — sharing ideas, celebrating wins. It can be harder when things aren’t going as well — cutting costs, eliminating roles. We can attest that having the right partner brings as much value in the bad times (as the good), provided you have built the right relationship and are open to listening and collaborating.
The company must grow. And then grow some more. 20%… 50%… 100%+ per year. After all, growth investors make their financial return by achieving growth. Even in markets like today’s, where efficiency trumps growth-at-all-costs, your investors will be focused on growth.
With growth comes change. You will outgrow your systems and processes, so you will update and replace them. You will outrun the capabilities of your managers, so you will upgrade your team (let this one sink in; upgrading your team is much more emotional than replacing your systems). You (likely) will need more capital, so you will raise more money, adding still more partners to your business. You will possibly do all of these things more than once. And, on top of this, your investors will be working against a timeline to monetize their financial return, so you will be facing an “exit” where your partners sell their equity stake, delivering the company to new financial partners or into the welcoming arms of a strategic buyer, which may even be a competitor.
You and the company are no longer one and the same. Up until now, it would be hard for anyone to imagine the company without you (or for your family and friends to imagine you without the company). Going forward, things aren’t so absolutely certain. This does not foreshadow that you will be moved out of your role, but it is important to acknowledge that this possibility now exists and to consider the circumstances in which it might happen. One such set of circumstances is the business outgrows your capabilities as CEO. If this happens, will you welcome it? One CEO told us that he didn’t want to be the founder who is replaced when his company outgrows him. Because he had already raised outside capital, we disagreed and warned him that his cautious mindset actually risks impeding growth, which ironically can lead to the other (less positive) set of circumstances where the board replaces the CEO because he or she is not growing the business fast enough.
There are no right or wrong answers to the questions above. But it is important for you to understand who you are as a founder in order to make the right decision for you. Across our careers as investment bankers and CFOs, we have helped numerous founders raise capital from all types of investors — individuals, family offices, venture capitalists, growth equity, private equity — and we have been blessed to work alongside many great founders and leading investors, doing our part to build and foster healthy relationships. We could not be bigger fans of bringing together smart investors and their capital with energized management teams. The potential is almost limitless. But first, are you ready?
