Australian startups’ fetish with fundraising is the French Bulldog equivalent of artificial insemination
As an avid aspiring dog owner, I have been researching puppies lately and I came to an abrupt realisation about dog breeding that mirrors the industry we live in. French Bulldogs could not and should not exist in nature. Their hips are too narrow to give birth naturally so they need a C-section for every litter. Their heads are too heavy for them to mate in the, let’s say, ‘traditional’ way as their top halves would literally topple over. They are born with respiratory problems because of their short snouts. French Bulldogs have short lifespans that we keep unnaturally extending with medication, artificial breeding and designer dogfood. Yes, they are cute to look at, but the result of this cosmetically-driven overbreeding has resulted in delicate, greatly expensive, almost mutant animals who could not survive on their own. They are unnatural and should probably be put down to take them out of their misery.
A lot of the startups in our local ecosystem are French Bulldogs.
Let me explain why.
The Amazon rainforest is an ecosystem, for example – it is a thriving, organic, robust, complex system of living beings that exist in equilibrium and interdependence with each other. An ecosystem is, by definition, complex and naturally occurring. It thrives on natural selection and survival of the fittest. Only the best survive and the weakest perish. There is no place for overbred, designer species in this kind of environment – they would be eaten, beaten and extinct before they could say ‘Darwin’. Our local startup industry has long positioned itself as the ‘innovation ecosystem’ – but what we have instead looks more like the Westminster Dog Show.
Our local fetish with funding rounds is the French Bulldog equivalent of artificial insemination. We are keeping companies alive that perhaps should not be around. With over 100 incubators in the country, we are fast reaching saturation point for synthetically created companies. I’m not saying that we should stop incubation or acceleration programmes. I am saying that we should be careful about creating patterns of glorifying achieving a funding round as the main endgame of running a startup.
Funding in and of itself is not a goal. In fact, if we look at cases like Ninja Blocks, a recently shut down company with a product that investors were only too happy to invest in, we can see that funding is not necessarily a sign of future success.
You are in the hole
Our industry glamorises the alphabet rounds to the point of fetish. We see it in the media, we read about it in the press. Hell, we now see it in movies!
The latest generation of wantrepreneurs has been emboldened by multiple viewings of The Social Network, a movie where the protagonist comes alive upon raising millions of dollars worth of investment out of product that had, at least in the movie, no sustainable revenue stream. Those of us who have been around know that The Social Network is not so much a biopic as much as it is a move that could easily be classified as science fiction.
Raising of capital does not endow you or your business with cinematic superpowers. In fact, it means the opposite: you are now in the hole. Even calling it “raising” capital is misleading – it implies a certain elevation above your current unfunded state. The truth is that you are borrowing money, you are in debt to people outside of your organisation. There is no way around that.
Let’s explore what that could potentially mean for you and your startup.
‘Don’t raise money, make money.’ – Aaron Tait from Spark
In this aspect, we could learn a lesson from our social enterprise friends. I got the chance to listen in on a university lecture. Students were introduced to the wonderful spirit that is Aaron Tait as part of a programme called Interchange. In this lecture, Aaron encouraged students to concentrate on making money, not raising money.
His business, which he co-owns and co-founded, invoices in the millions of dollars and does not need to worry about boards, approvals and due process that would slow him down. Interestingly, traditional donation-based charities and funded startups share the burden of running operations on someone else’s money.
You now have a boss (or bosses!)
This brings me to the most concerning point, at least from the human point of view: you are no longer your own boss. When I ask founders why they decided to take the leap to startups, the most common answer is ‘to be my own boss’.
Once you have funding secured, a board assembled and milestones set, you are on someone else’s timeline and, more dangerously, this new chain of command no longer has you at the top of it. Typically, between an angel round and a Series A, you will be bringing external people to join your board.
While many founders have thrived with glowing boards and have strong bonds with their advisors, take Jodie Fox and Blackbird Ventures for example, many run the risk of folding under the new layer of pressure.
What it means to your team
Newly-funded companies tend to become top-heavy very quickly. This is mainly due to our risk-averse human nature, which is understandable. We want as many people in charge as possible. However, any of the new pressures discussed above will be passed down to your team, exponentially.
Deadlines will tighten, risks will seem steeper, experiments harder to justify. You are now reporting results against money and your people will need to be taken through change management process that many of them may not have signed up for.
As much as I’m sounding like a negative Nancy, all I really mean is that you should take the human side of raising funds into consideration before you, as a startup founder, decide to jump into that bandwagon.
If you want a more practical lesson on this, Seth Godin released a free podcast series on Earwolf called The Startup School. There, he explains over and over again that you should let your customers pay for your business because, if nothing else, you don’t have to pay the customers back! That’s one less French Bulldog to worry about.