In the startup world, venture capitalists can find themselves treated as demigods. Feted by startup founders, by the media and by government, VC’s wield power, influence and, most importantly, money.
Alternatives to VC rounds are rarely considered. It’s expected that Series B follows A, and A follows seed. For a young startup ‘VC-funded’ is seen as a badge of honour to attract new employees and investors.
So, on the brink of our Series B round, you would have been forgiven for expecting us to follow convention. Being honest, we very nearly did. I’m proud to say that we’d built a fast growing, profitable scale-up, with a growing market share and a track record of innovation. Our Series B funding round was the logical next step.
We started talking to VCs, which is something of a time-consuming process. But when it got to term sheet stage, we turned them down. All of them. We had more than 20 attractive offers and we said no.
We decided instead to do things a little differently and a few weeks ago we announced our partnership with Sodexo, a major French multinational and iAlbatros, a profitable scale-up. It’s already clear it was the best possible choice for our business.
Many in the industry were surprised at our chosen path for the company. The truth is, VCs are not for everyone, ‘corp-ups’ can sometimes work better. Here is why.
Why VC?
VC funding can, of course, be a lifeline for a growing business. An essential part of the startup ecosystem, VCs bring an awful lot to the table, not just funding. The very best VCs have an extensive established network and their experience and market-knowledge can supercharge a fledgling business. What’s more, their presence on a startup’s board can be incredibly useful to guide young founders.
So why would you think twice about VCs? Why did we?
VC money isn’t free money. It involves ceding a lot of control to an outside influence — one that may not have your long-term interests at heart. They will have a very clear investment horizon, which may differ from your own.
VCs may bill themselves as ‘operational’, but large portfolios mean that they don’t all have that much time to spend with their companies. It helps, at least at the margin, because you can attend their events and increase your visibility, but you get no guarantee of face time with the partners you really want.
These are both well-worn arguments, so my last point is perhaps the most important.
For some scale-ups, funding just isn’t enough to propel your company into the big leagues and this is where alternatives to VC can work better.
When trying to break into a market dominated by a small number of major players, a company may find that it needs something more than cold hard cash. It needs access to customers across the globe, it needs resources and it needs a seat at the table with large customers. It essentially needs to be propelled to the top tier instantly.
This is what we did. And we did it by shunning VC money to join forces with a corporate.
The ‘corp-ups’
A ‘corp-up’ is an organisation within a corporation that is founded to search for a disruptive and scalable business model. Big companies are not as nimble as startups and they will never…