For years, many investors have advised all startups to take all the money they can get.
The last 12 months have been tougher for all startups, including marketing technology companies. The darling among marketing technology companies and IPO candidate – Snapchat – raised a more-or-less flat round last year despite a growing advertising business and Foursquare raised a down round (a round with a lower valuation than its previous fund raising round). Noted financial services firm Fidelity cut its valuations on a number of marketing technology companies, including Domo, Turn and Taboola.
That’s why I’m encouraging marketing technology companies to right-size their funding rounds and valuations and raise the money that they really need because both taking too much funding and not taking enough funding can hurt a startup’s chances of succeeding.
Raising Money and Valuation
For the Seed and A Round, a startup needs to think strategically regarding its needs for the coming two – three years before embarking on the fund raising round. Taking too small of a round might require raising more money before the company is ready, and raising too much can dilute the founder’s stake in their Startup.
And for the A Round and beyond, startups that raise a lot of money based on strong sales targets use the funding money to ramp up sales and marketing expenses in order to achieve those targets. But if initial sales are less than expected, many companies find it difficult to make the necessary cuts to right the course or buy time until they can recalibrate. Or they might hire the wrong kinds of people and take too long to rectify their staffing. That’s why startups need to act strategically and be proactive with their teams and their board to ensure that expectations are correctly managed.
One of the potential challenges that can…