I sometimes come across a question that founders pose in the context of fundraising, wanted to share my reaction and get yours.
One pair of founders are starting a really interesting, technically-sophisticated, company in a smaller (non-SF/Seattle/LA/NYC/Bos) market. They were able to cobble together $150K here, $25K there, and end up with enough runway to last them 18 months working as a duo, building the technical infrastructure that would underpin their product. As they started nearing the end of their runway, they realized they didn’t yet have the traction or story to raise a “Silicon Valley equity round”, so they started doing some consulting work on the side; they are highly creative hustlers, so were able to get a number of projects, which bought them another 6 months.
In a conversation with the CEO, he said to me, “while it may worry you that we are distracted on things outside of our business, we need accounts receivable to be greater than accounts payable. Hopefully it shows that we know how to balance our budget and be creative while getting stuff done. We’re not rich, so cashflow is king”
Honestly, my reaction surprised me. I felt total empathy, and appreciation for his honesty, but also was impressed by the scope, size, and type of consulting work they had done.
When we – or at least I – think about the successful startup archetype, there is an assumption that the founder put the business on their credit card (or savings account), and then seamlessly rolled that ‘bootstrapping’ into a friends and family round, and then rolled that into a seed round, with an uninterrupted ability to stay completely focused on the task-at-hand along the way. But in truth, it doesn’t always work that way. So my question is this: should I indeed worry that the founders are consulting on the side until they can raise? How is that different from evaluating a company while the CEO is still in business school, or hasn’t formally put in notice at her job yet? It’s easy to answer that question when the product is already taking off, or when there are other signals that there is some magic already manifesting in the company. But in most cases it’s still too early for that. Can a product get off the ground well if a founder doesn’t have complete focus on the company in the very early days?