Why Raising VC Funding Does Not Equal Success

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Why Raising VC Funding Does Not Equal Success

 

My startup, HubSpot (which provides online marketing for small business) recently released the news that it has closed a Series B round of VC funding of $12 million, bringing our total capital raised to over $17 million. In response to this news, I received many messages from friends and colleagues congratulating me on my success. To all of those well-wishers, thanks! It is indeed an exciting time and I'm thrilled to have hit this milestone.

However...

Raising VC Funding <> Success

Getting a round of funding from venture capitalists is not really "success". Sure, it provides resources to build a great company, but it's not success. Sure, it demonstrates that some really smart people think the opportunity is big enough to invest money in it, but it's not success. Sure, it provides some credibility that will help recruit employees, get customers and sign-up partners -- but it's not success.

VC Funding = an opportunity to create success

Success is different for different startups. For HubSpot, success is building a real, sustainable and significant business that has lots of delighted customers. For others, it might mean being bought by Google/Microsoft/whoever someday. Regardless of what you think of as success, it's unlikely that simply getting some outside funding qualifies. It's just a step down the path -- and even then, it's not the only path.

Having said all that, it's great to have received the vote of confidence from some super-smart people (our investors) and the cash in the bank is nice too. [smile].

Now that this milestone has passed, it is time to get back to (real) work. For me, that means increasing TDC (Total Delighted Customers). Right now, TC (Total Customers) = 401 and I'm not foolish enough to believe that TDC = TC.

Hopefully, we'll make all the folks that have believed in HubSpot (customers, employees, investors) look brilliant. In fact, that's not a bad definition for success.

Success = Make Those That Believed In You Look Brilliant

Cheers.

Posted by Dharmesh Shah on Tue, May 20, 2008

COMMENTS

well said mate !!

posted on Tuesday, May 20, 2008 at 3:52 PM by vinu


Agreed. I see a lot of CEOs and entrepreneurs who see getting featured in the press as success. Your thoughts?

posted on Tuesday, May 20, 2008 at 5:18 PM by Mike


You make it sound so simple!

posted on Tuesday, May 20, 2008 at 6:26 PM by Bhavana


Good insights!
Most startup companies should be very wary of taking on venture capital.
Why? The VC model almost requires that companies take a Ruthian swing in the bottom of the 9th.
If you connect, you're epic. If not, you're done.
The reason for this is clear: the VC returns model is built on a few, big home runs and a lot of strike outs. And so, by taking on venture capital, you have put your company on a certain track: you have 3 - 5 years to make it big. And the hidden message is that you ought to spend as much capital as aggressively as possible in order to do that.
But that model isn't necessarily the right one for most startups. Most would be better playing small ball in the top of the first inning and grinding it out through nine. If you truly believe in your business, you'll be prepared to play the game into the deep innings. Spending very judiciously and treating every customer as golden -- as if you have no cash in the bank (because typically you don't), is the right formula for most.
That means a funding source from the founders or friends or an ability of the team to work without income for at least a couple of years -- while the model is being proven. With the low cost structures required to build web-based businesses, this is much, much easier to do today -- and that means there should be many more startups that live to tell about it.

posted on Tuesday, May 20, 2008 at 7:06 PM by Bobby Martyna


Thanks for pointing this out... VC funding is a means to an end, not the end itself.

posted on Tuesday, May 20, 2008 at 11:12 PM by Work Post


An excellent write-up.You touched the right topic.In fact, this is the impression that many entrepreneurs have; only if you have the VC investing in you, than only your startup is successful; which is so very wrong.
Also,many times, first time entrepreneurs fail to digest such huge money and this is where the next challenge is - To Built a GREAT startup with that money :)
-Himanshu Sheth
[http://thoughtsprevail.blogspot.com]

posted on Wednesday, May 21, 2008 at 1:23 AM by Himanshu Sheth


Hi Dharmesh,
Hi Dharmesh,
I am a co-founder of an online startup in India and have been and avid reader of your blog.
I must say its quite a great help to get the perspectives right.
Also, Congrats for the Funding...!!

posted on Wednesday, May 21, 2008 at 4:37 AM by Supreet Singh


I agree 100% - well said

posted on Wednesday, May 21, 2008 at 7:11 AM by Cronan


Dharmesh, I love the expression TDC. Businesses are built one TDC at a time.

posted on Wednesday, May 21, 2008 at 12:59 PM by tom summit


Couldn't agree more! Celebrating a round of funding is like being happy you have a tank of gas...it doesn't mean you have actually gone anywhere just that you have the potential to go farther, faster.

posted on Wednesday, May 21, 2008 at 7:08 PM by Ron


I love your last line (even twittered it). Nice blog.

posted on Thursday, May 22, 2008 at 2:42 PM by Ariel Diaz


amen. it always feels a little weird getting congrats for funding, especially early stage funding.
you put it well.

posted on Thursday, May 22, 2008 at 11:54 PM by nabeel hyatt


In fact, raising money might be viewed as failure! It means admitting that the plan cannot be bootstrapped, and no low-interest loan could be aquired.

posted on Friday, May 23, 2008 at 4:35 PM by JP


Well said,
Startups should be focused on sale, NOT exit strategies.
The simple fact is that once you have customers, your options are always open.. :-)

posted on Wednesday, May 28, 2008 at 10:39 AM by Uri - Pay Per Keywords


Love your perspective on success, and I'm glad to be one of HubSpot's "Delighted Customers."

posted on Tuesday, June 10, 2008 at 11:48 AM by Paul Roetzer


I've heard that more and more VCs today are unwilling to give out money unless the startup can already demonstrate that it can achieve profits (albeit on a smaller scale). Did you find this to be the case, Dharmesh? Thanks in advance.

posted on Tuesday, July 08, 2008 at 4:32 PM by Boston Bachelor


Raising VC Money != success  
 
Is how I would do it ;)

posted on Thursday, July 10, 2008 at 1:09 AM by David Saintloth


I am a new start up. It is true that I do not have great selling expierence and here is my weakness. 
 
I am though a good video producer and can be very hellpful with my talent in the production of video communications. 
 
Reading your Article sure points out how tough it can be to find leads. 
 
I believe that Video presentation is vital over the Internet and is the wave of the future. 
 
I believe that production costs for pr video must come down to fo like me as a start one must be ever so careful in the spending. 
 
Ingegrity is no problem for me for that has been my principals all my life. How to establish real relations is my question. I have in good faith taken the time to build my answer to broadcast qualilty video presentation which can viewed on my site by clicking website videos button. I want to learn here if allowed. 
 
Your article is quite helpful and encouraging.

posted on Monday, August 17, 2009 at 11:24 AM by Milton


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