Early today an entrepreneur shared with me how he was super worried that a competitor just raised $2 million. Being a bootstrapped startup still trying to find product/market fit, he felt that the competitor was going to build a large team and capture the market before he gets enough traction to become a player.
Hmm, I thought. At Pardot, we didn’t raise any outside capital and our main competitors HubSpot, Marketo, Eloqua, Genius, Act-On, etc. raised over $500 million in capital. You don’t have to raise money to build a successful business.
Here are a few thoughts on competitors raising money:
- Almost all B2B tech markets aren’t winner-take-all or even winner-take-most. How many successful email marketing companies do you know? Exactly. There are dozens of them. The same holds for most markets — find a niche and build a base of passionate customers.
- Raising money doesn’t equal success (see Quirky’s bankruptcy). Some entrepreneurs execute poorly. Some markets change. Heavy startups without product/market fit are a real challenge.
- Venture investors putting money into a company helps validate the market. Are the investors right about the market? Not sure. But, the fact they’re willing to put serious amounts of money into it is a good sign.
The next time a competitor raises money, understand that it’s commonplace and doesn’t mean there won’t be multiple winners in the space. The best thing to do: continue building a passionate base of customers.
What else? What are some more thoughts about competitors raising money?
David Cummings on Startups 
I thought you incubated the company under the Hannon Hill umbrella which I think is an important distinction from truly stating from scratch. And my understanding was that you had raised $200k? In my mind this was key to the early start up success, especially as it was not the first startup too.
Wayt put in $200k for Pardot 1.0 where we were doing outsourced lead gen for tech companies. We then pivoted into marketing automation and I bought him out for $240k since we were heading in a different direction.
I completely agree with you. In fact in the market I am in it is more about strategy, some competitors are taking on a very aggressive strategy to deliver quality content (which costs quite a lot of money but they are willing to take the risk). Sometimes it worries me but ultimately it comes down to decision making. Many companies in my field decide to invest in quality but actually have a big problem in maintaining it. They don’t seem to understand that you can’t ‘buy’ quality with cash, you buy it with consistency. Consistency is where I feel the most comfortable and therefore not so worried, as consistency is for the most part our competitors biggest weakness.
Agreed. Investment in a competitor is typically validation of the existence of a pain point in the marketplace. We too became nervous each and every time we saw a competitor do a significant raise (ex: coupons.com $168mm IPO, Ibotta $40mm, etc…). However, as we were confident we had built a better mousetrap than these companies, it became obvious that if investors (and by extension, the market) believed in something our competition was doing, then they will love what we are doing. Bottom line…..don’t look at a competitor’s raise as a negative. If anything, look at it as proof positive that you’re headed in the right direction. Most importantly, focus on how your offering is better than those that have already received funding.
Great thoughts – this situation just occurred for us as a competitor raised a big round from an A-list group (Benioff, Thiel, Levchin, and others). I’ve been involved in a situation before where when a competitor raised a big round we thought the news might hurt morale of the team. Instead, this time when we discussed this with our team it actually drove a lot of excitement and boosted morale. Your third point stuck with us especially – having this group provide a vote of confidence for our market is a great sign. Thanks for the post.