There has been quite a bit of chatter over the last couple years about a tech bubble -- increasing hype which drives increasing valuations and increasing funding rounds beyond what the companies are actually worth. This article is a natural reaction to that. In it, the author questions whether funding announcements are actually a mark of success or of failure:
"I'm concerned a little bit with the culture of celebrating the fundraise," he said. "My dad taught me that when you borrow money it's the worst day of your life. We didn't clap for Red Rover [who spent time raising revenue instead of funds] because they didn't raise $6 trillion, but I was sitting here like, 'Good stuff!'"
Clearly, building revenue is the goal of any startup. But we mustn't overlook the fact that funding in this environment matters for two reasons: validation and expertise. To a certain extent, receiving a funding round from either an investor or a syndicate of investors gives some credibility and visibility to a startup by saying, "Hey, we like your business model and think it has a chance to succeed." As they say, success begets success; scoring a financing round from serious investors is like a badge of honor that can be used to grow and raise additional funds. It is not a guarantee of success, but it certainly helps.
But even more important, investors will take an active role in the company to protect their investment, which can be both good and bad for founders. The bad side is giving up a chunk of equity ownership and control of the company, but the good side is that you now have an experienced partner to add to your team.
That being said, it can certainly be a two-edged sword. The effectiveness of your relationship and the quality of that guidance is only as good as your new investor partner. I know of horror stories of investor relationships that sour and cause headaches (or worse) for founders. But under the right circumstances, investor funding is an infusion of credibility and guidance, in addition to the capital, and that, indeed, can be something to celebrate.