Once a startup finds product/market fit and a repeatable customer acquisition process, it’s off to the races to build a large, meaningful company (see The Four Stages of a B2B Startup). Only, when it’s really, truly working, there’s virtually no end to the capital available (assuming good unit economics and a fair valuation). More money is readily available, but every additional dollar of equity results in more dilution. Enter the dilution vs. growth rate trade off.
Here are a few questions to consider:
- What are some low/no dilution options to grow faster? Venture debt? Raise a smaller round to get to the next milestone?
- What’s the competitive landscape like? How hard are the competitors pushing (this is one of the reasons scaling SaaS is so expensive)?
- How’s the growth rate now? What’s the estimated growth rate necessary to win the market? What’ll it take to close that gap?
- How promising are the expansion ideas? Geographic expansion? Industry expansion?
- Who’s gone through this before that can be a good sounding board?
Once a startup is working, it’s an amazing thing. Only, the dilution vs. growth rate trade off is real and should be constantly evaluated.
What else? What are some more thoughts on the dilution vs. growth rate trade off?
David Cummings on Startups 