ELIAN D. ALVAREZ

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Is Funding Your Startup with Venture Capital Always the Right Choice?

Oct
13

With the rapidly growing tech-world, it has become quite common for startups to fuel their ideas with funds injected by venture capitalists (VCs). Whenever you pick up a business newspaper now, there is mostly something written about VCs or the early stage businesses that were funded by these investors.

  • But is it always the right choice?

In today’s fast pace environment, everyone wants to make huge profits as soon as they possibly can. However, as the old saying goes, “haste makes waste.” This is also true for businesses.

Although, venture capital investment may be a good choice for some businesses, yet, it comes at a cost of coping with high expectations held by these investors, which also results in many startups to fail. The fact is, new ventures do not need such investments all the time. Besides, simply because you are a tech-company, doesn’t necessarily means that you have to have your office in the Silicon Valley. There are many companies in the world of technology that grew organically and made it big. Though, the progress was slow, it was steady and made them even stronger as they made it to where they are today. One such success story is of the MailChimp. Started as a design consulting firm, providing email service as a side project, the company touched a revenue of $280 million last year in 2015.

Dan Kurzius and Ben Chestnut started the company in 2000. Some of their clients were demanding a solution to engage their customers by email, so they tweaked some old codes that were used for an unsuccessful online greeting card business. For the next few years, this project was run parallel to their main business. In 2006, however, they started having reservations. Having the entrepreneurial family background, both the founders were passionate about helping small businesses grow. Despite being in a critical state of its growth, they knew MailChimp was a low cost marketing channel for small scale business firms. So, in 2007, they packed up their web design business and shifted their entire focus to email service. So, what made it such a huge success?

 

Valuing What Your Customer Needs

Even when the company was fully focused on providing email marketing service to its clients, they faced a host of larger and better funded competitors, including Constant Contact.

  • What kept MailChimp retain its clients?

It was the trust their customers had placed in them. Chestnut said that it was their close connection with the customers that their rivals didn’t have. They knew what their customers wanted. They offered affordable services, which also allowed greater customization to cater the customers’ needs.
Learning to Make Money is More Rewarding than Spending it as a Startup

Co-founder of Basecamp, Jason Fried, said that you learn bad habits from raising money, for example, if you have some cash in your bank account, it makes you good at spending it. But on the other hand, if you have to earn it yourself, it makes you good at making it, which is a good habit for an entrepreneur to learn sooner than later in running a business so as to survive without relying on other people’s money. For MailChimp, learning to make money instead of spending it were just the essentials to keep their business running.
Understanding A Small Business is the Key

Although, MailChimp was approached by many potential investors from time to time, but Chestnut says that every time they had rendezvoused with investors, they failed to understand the gist of small business. They wanted to see the company at an enterprise level with a large number of employees
Chestnut further said that they were often told that they were sitting on a gold mine, but something about this idea never felt right to them. For the founders of MailChimp, it was all about proving to small businesses that they can do it just like Chestnut and Kurzius made it happen. Being a small business itself, this mail service company could understand the requirements of other small businesses fairly well. Despite the high level of uncertainty that persists in the tech-world, both of them feel that the company will run better if they control it rather than the outside investor.

Therefore, a startup doesn’t always have to let venture capitalists control them by fueling their ideas with a large amount of debt. Instead, they can be the pirate of their own ship and sail it through highs and lows the way they desire.