Raising money <> making money
<> is excel syntax for “does not equal”.
Creating a business is about choices. Whether or not to pivot, whether or not to raise. In 2014 and 2015, money was the commodity, so “Uber” for anything raised money.
Businesses are not commodities. And while I am the other side having chose not to raise, I feel some solid businesses that just aren’t 10x startups will be forced to make difficult decisions that will likely increase prices for customers and decrease compensation for the workers that “Ubers” depend on.
For example, Instacart has raised its delivery charge from $4 to $6 for many items while lowering its pay for some of its workers 40%.
The company has raised $275 million from people expecting a 10x return. That’s a do or die IPO track given few strategics could afford that. Will the engagement that got it that funding continue to work with prices going up and pay going down, I am not sure?
This is not to disparage Instacart, they’ve built an impressive company. The question is could they have built that company with $27.5 million. I mean it’s a tech company right, not a lot of overhead.
Instacart, and many of the on-demand apps are great ideas, solving clear inefficiencies. But San Francisco doesn’t reflect America. So the market for many of these apps is smaller than people may want to believe.
My point, raising money and making money aren’t always correlated. Add the pressure of a 10x return, and I’d imagine it gets harder to balance returning value to investors, customers and workers.
Spoonrocket, an on-demand meal delivery service, just closed after failing to raise more money. And it had a positive contribution margin! Spoonrocket had raised $13.5 million and maybe doesn’t get to positive margin without it. But if it could have maybe got there a year or two later while raising less, then it may not of been at the risk of the fundraising game and found another path. We’ll never know, but if you’re an entrepreneur with a great idea, at least ask yourself that question.