Earlier this summer, Chris Dixon wrote a blog post titled Shoehorning Startups Into the VC Model where he argues most startups aren’t appropriate for venture capital (similar to the 4 Reasons to Raise Venture Capital). Joshua Baer, founder of Capital Factory (startup accelerator program) and several successful startups, wrote a comment on the post outlining his strategy to grow the Austin-area startup community:
The first thing I usually do when I talk to a startup about raising funding is to try and talk them out of it and provide alternative options (customers paying in advance is the best!). At Capital Factory, we are focusing on tech startups that can reach $1mm in profitable annual revenue on less than $1mm of funding. They can get all of that from Angels and many won’t ever need to raise more funding from VCs (and many will go raise more money).
This is a great strategy and applicable to Atlanta as well. With so few startup exits in Atlanta each year, we need more focus on building companies that are profitable on $1MM in annual revenue with less than $1MM in funding. Once a tech company achieves profitability on $1MM in annual revenue, there are many more options available like growing organically without raising more money, raising more money (money is easy to raise when you’ve derisked the model by hitting the $1MM in revenue mark), or paying dividends to owners (something that should happen more frequently in markets that don’t have many exits).
Atlanta needs more $1MM in annual revenue profitable tech companies with less than $1MM of funding to help grow the startup community.
What else? What are your thoughts on the value of $1MM in annual revenue profitable companies?