Founders, Stop Obsessing Over Venture Funding

Illustration of large hand giving a coin to a man

By David Kolodny

There has never been more venture capital available to entrepreneurs. In the first half of 2021, startups raised $288 billion in venture funding, shattering the record set in 2020 by almost $110 billion. Private companies with a valuation over $1 billion were originally dubbed “unicorns” because they were so rare; thanks to generous funding, there are now around 1,000 unicorns at last count.

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If venture funding is so widely available, shouldn’t you be raising a round? And shouldn’t you raise as much as you can, as early as you can?

Not necessarily. Venture funding is the clickbait of the tech world. Funding announcements saturate newsfeeds, conditioning founders to believe that venture capital is the only path to growth and success.

This obsession with funding can lead founders to make decisions that aren’t in the best interests of their employees, customers and shareholders. Raising capital isn’t an achievement—it’s an obligation you make to investors.

When my co-founder Phil Santoro and I left Google to launch Wilbur Labs, a startup studio, we declined funding offers even though that made building our company harder in the short term.

We worked on Phil’s couch for six months and prioritized revenue from the beginning. For many companies, including ours, funding can create more problems than it’s worth.

David Kolodny of Wilbur Labs

Venture firms raise capital from limited partners who expect large returns within a certain number of years. Founders who bring on VCs inevitably optimize for venture-scale valuations and lose the flexibility to think and execute long term. They dilute their ownership and often commit to growing faster than they realistically can.

To be clear, funding isn’t bad, and sometimes, venture funding is crucial. If you’re building a self-driving car company, you will need significant funding, likely from VCs with high risk tolerances.

However, countless companies that raise venture capital don’t need it. Even when startups do raise money, they often still fail because there is more to building a company than funding.

Before you trade equity and autonomy for capital, legitimacy and connections, consider some alternatives.

First, focus on business planning and getting customers to vote with their wallets. “Revenue solves all known problems,” as former Google chairman and CEO Eric Schmidt has said.

Funding, on the other hand, might solve your problems today but create new problems tomorrow.

Second, if you do need funding, consider all available options. While venture funding dominates headlines, raising money is not a one-size-fits-all endeavor. For example, Wilbur Labs offers non-dilutive capital to our portfolio companies that reach certain milestones, leading to fewer meetings, less founder and employee dilution, and fewer distractions for the management team.

Consider non-dilutive options like a term loan, credit line, or revenue-based financing. Although they don’t make headlines, they do protect your ownership, increase your independence, and are often the most founder-friendly funding options available.

Third, remember that VCs do not have a monopoly on credibility or relationships with potential employees, partners and customers. Strategic advisers, for instance, can provide equally valuable guidance and connections without taking a big chunk of your company.

When funding seems like your only option left, work backwards from your goals. “If you had $10 million more in funding, what would you do?” is the wrong question.

A better question is: “If you wanted to grow faster, what would that look like? How much capital would you need (if any), and what is the best source for it?”

Funding rounds create a lot of noise. If you can drown that out and focus on what’s best for your business, you’ll solve bigger problems than the average founder.

David Kolodny is co-founder of Wilbur Labs, a San Francisco-based startup studio that identifies big customer pain points and builds businesses to solve those problems. Since 2016, the studio has built and invested in 15 technology companies, including VacationRenter, Vitabox, Joblist and Barkbus. Prior to building Wilbur Labs, Kolodny was a product specialist on the Customer Solutions & Innovations team at Google.

Illustration: Dom Guzman

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