In Steve Miller’s “Take the Money and Run”, he urged Bobby Sue and Billy Mack to “go on take the money and run”.
The rock n’ roll classic came to mind last week when AppDirect unveiled a $35-million series C series. In an interview with BetaKit, AppDirect CEO Daniel Saks (one of the company’s two Canadian founders) said: “We don’t need [the money], but see so much value in the way we’re growing that we want to continue to accelerate that growth”.
So, you’re taking $35-million you don’t really need? What kind of decision is that? If you don’t need it, why take it?
Here’s the answer: never look at gift horse in the mouth. Translation: If someone wants to give you money, take it as long it you can live with the financial ramifications.
For startups, capital is the fuel needed to accelerate growth. It’s something most startups desperately scramble to attract, while investors attempt are selective as possible given the risk.
VC deals often hinge on three things happening:
1. The startup wants money from a VC.
2. The VC wants to invest in a startup.
3. Both happen at the same time.
If the stars align, investments happen, and everyone lives happily ever after. There is fawning media coverage, the startup enjoys the spotlight, and it’s all peaches and cream.
The reality is capital is difficult for startups to attract. Not only do startups need to demonstrate traction and high growth potential, but they have to compete against other startups AND have good timing.
Even the sexiest startups need to fit into this formula, although they likely have the luxury of multiple suitors.
Although it seems like a long time ago, the original dot-com was a perfect illustration of the benefits of “take the money and run” approach. A lot of startups (including those with non-existent businesses) raised a lot of capital from enthusiastic and exuberant investors. It was like kids in a candy store (a dangerous and fascinating experience for anyone who has actually seen kids in a candy store!).
At the time, it was amazing and stunning to see the money raised through private deals and initial public offerings. But when the dot-com bubble abruptly burst, many companies had lots of money in the bank.
The smart ones were able to use this financial clout to make it through the wreckage, and emerge as strong, vibrant businesses.
And while today’s economic landscape seems relatively healthy, it is impossible to know what is around the corner. Who know if the U.S’s economy’s fragile recovery hits a bump in the road, interest rates spike, or China experiences lower growth.
For startups, it means being pragmatic about their growth and financial needs. When a deal emerges that makes sense (whether it is something they pursued or get offered), it just makes sense for startups to consider all the options.
In many cases, the decision often comes down to “taking the money and run”, even if it is not an immediate need. It’s better to take the money when it’s available than being desperate for it.
More: Check out this Fortune story by Erin Griffith on why startups that want to raise money should do it now.