.Why is Getting Funding More Impressive than Generating the Same Amount?
Listening to the audio cast of my talk at the Future of Web Apps Summit I confirmed something that struck me at the time and something that got Shanti’s attention too.
In my talk’s introduction I explain how Dogster, Inc. achieved profitability in July 2005 and that we were (and still are ;) on track to generate over $1,000,000 in revenues in 2006. These aren’t earnings mind you, but a million in revenue is still a pretty good number for a young company and I thought there might be some crowd appreciation. But there wasn’t, so I moved along to my topic which was discussing that Dogster, Inc. had just closed a $1,000,000 Angel Round, to which the audience of about 800 breaks into a spontaneous applause.
Why is it that a young business generating $1M in revenue in a year isn’t impressive, but raising $1M from investors - in a growth market nonetheless - is? It’s as if the crowd did not realize that by generating $1M means we in effect built our own fund, and instead of diluting our equity position we increased it significantly. Don’t get me wrong, we cherish our Angels and they are helping us make great things happen. Yet I suspect all of them would have passed on the investment had we not shown how Dogster and Catster were both real services and real businesses.
Take care entrepreneurs and engineers. No matter what the talk, this is still The Old Economy. Making a successful business is still much more work than just having a good idea or making a killer product. There’s room for many winners, but you have to make it to the finish line first. Even in our crazy-fast industry, an overnight successes still takes about 4 to 5 years. Your customers, your product and your sustainability have to always be your top concerns.
UPDATE: Old friend David Galbraith wrote an excellent piece on why sustainable companies matter now more than ever just hours before I penned this entry. You should read it.
Great point, Ted! And great reminder. I was at Future of Web Apps and I think it just took a minute (at the time) to sink in: hey, Dogster has some *serious* revenue! But by that time we’re applauding the investment. Because that’s the holy grail. Investment. It never really occurs to any of us to make money the old fashioned way :-)
Dogster/Catster is truly a success story - maybe if the rest of us hear the revenue story enough, it will eventually sink in!!
Cheers .. kate
Kate makes a good point.
Maybe it was a combo applause for both your revenue/earnings as well as your VC.
Either way it struck me as odd =)
Congratulations on all your success
I remember some old posting somewhere about when you were first getting started trying to monetize the site, and had tons of pageviews but AdSense just wasn’t cutting the mustard alone.
I too have found that selling your own inventory can skyrocket your earnings 10x over or more.
It really happens just after I stated the funding, before I even had a chance to pause.
Maybe the meaning of my words had not sunk in right away as people may have still getting settled and it was a combined applause, but from the thumbs-up and significantly increased attention I got after mentioning the funding, I’m not so sure ;>
Funny…it was one of the things that I brought up to my business partners when I was telling them about the conference. We are going on 2 years of business and continue to be self funded. People continue to be surprised and disappointed that we do not have angel/VC backing. No one ever seems to comment on the fact that we are strong and growing without it!
As an over-educated CFA/MBA financial analyst type, I’ll play devil’s advocate for a minute here and take the other side of this — although I see the point and I’m not sure the attendees were in fact thinking like this.
For me, I’m running under the assumption that the pre-bubble days of valuing a tech/Net company are basically over. If that assumption holds true, I think $1M in funding actually does tell more about the company than $1M in revenue does because I don’t think financiers would invest any money at all unless they thought there was potential for a lot MORE than $1M in revenue (e.g. revenue growth).
I’m not sure angels would invest if they thought revenues would decline or stay flat, so getting funding by a group of investors that have clearly done their own due diligence is a big nod in my book. Also, $1M in revenue (by itself) tells me nothing about the management of the firm, and not that $1M in funding tells me much more, but if I know anything about the investors themselves, one can deduct in all likelihood that they also are giving a nod to management or they wouldn’t have given you a $1M to spend in the first place.
Additionally, it broadcasts to me loud and clear that you guys were not in a position to grow in line with your potential, or as fast as you might have liked to, without the funding. So, the fact that you did get some funding tells me that revenue growth is now more likely to increase in the future, whereas if you were still unfunded, my guess would be that revenue growth would have been less steep.
Now granted, in the prior days of the bubble, one might not have been able to infer some of these things, but in traditional finance and VC circles, the fact that you got funded “signals” (or implies) a lot more than a simple $1M in revenue factoid (not to trivialize that enormous accomplishment by any means).
Anyway, I see your original point, and I think it’s a valid one, but I thought I’d share my take on what might be driving some people like me to put more weight on the funding achievement than the revenue one (although at the end of the day it’s going to come back to earnings and free cash flow). Basically, getting funded tells me some really smart, mostly outside, people did a whole bunch of due diligence and liked what they saw enough to invest, which (superficially at least) gives me more reason to believe that $1M in revenue is likely to get much bigger in the (hopefully) not too distant future!
– Swerb
Let me take this time to give a nod out to management! Well done Ted, John, and Steven!
Being long time friends of all 3 I had known about Dogster/Catster since it’s inception but always thought of it as a ‘hobby’ website. I then joined the company in February and my impressions immediately changed. I could see how much they cared about this site as a business and that passion is infectious! It really is a joy to work for such dedicated and passionate people!
I applaud all of you for succeeding to the point of $1mm in revenue as well as securing the same amount in funding!
To greater success!
- Greg
For a lot of people in Silicon Valley, getting VC funding is like being knighted by the Queen. It’s validation from the outside world that they’re not pathetic, badly dressed losers (I read your blog post on “IT workers being the most poorly dressed). And now they are ever closer to that ultimate Silicon Valley wet dream: Flipping The Company.