Many times over the past two years I’ve been asked why we haven’t raised money from VCs. There are a number of answers to that question but one of the big reasons is that once money is raised it has to be put to work as the goal is to grow revenue as fast as possible. For us, that involves hiring tons of people and spending more money on lead generation. It’s easy to spend money on lead generation but much harder to significantly increase our hiring rate and still maintain our corporate culture standards, which we’re going to maintain at all costs.
Startups need to consider their hiring speed when raising money and building an expected budget for investors. Too often the model shows hiring numbers for each department (e.g. X engineers, Y sales people, Z support people, etc) with too short of a time horizon to hire the right people. A financing round is often viewed as raising enough money to last 18 months with the idea that 12 months will be for reaching the next milestone and the final six months will be used for raising the next round. Well, if the round is large, and you plan on hiring 50 new people, and it’ll take at least six months to find those people, six months for them to ramp up, and then six months to see results, you’re already 18 months out, thus you need to adjust the model and expectations with investors.
Entrepreneurs need to consider their hiring speed when raising money, especially when raising money from institutional investors.
What else? What are your thoughts on paying more attention to hiring speed when raising money?
David Cummings on Startups 