The startup and entrepreneurship ecosystem is an incredibly exciting movement. With so much activity and no single clear path to an exit: failure, pivot, acquisition, IPO, etc… we enjoy a flurry of news and enthusiasm. In a recent Linkedin Post and Twitter survey, I proposed an informal question:
“Which is more significant of an event – a $50M exit or a $50M raise.”
Of course, it depends. The answer requires more information and is complex. However, here were some categories of thoughts and takeaways.
Risk & Reward
There’s no doubt the higher the risk, there should be an opportunity for an even larger reward. Having the raise at a $50M level, you’ve added greater risk and expectations for to return significant reward. Consider that it can be significant in two ways, runway extension or tailwinds. The prior being a worrisome event.
For an exit, while there is a risk in the deal, by in large you’ve ended your risk and opportunity for greater reward. This does open the doors to reset and reshuffle how to proceed next, however, then comes the opportunity cost.
For most people, an exit is the end of the journey. While that may be the case, it can also serve as an basis into the next startup. Alternatively, the funds could be used for a portfolio of investments. The challenge here is that after taxes, payouts and fees, you’ve reduced the overall power of the funds at your disposal by cashing out.
For a Raise, while dilution will come into play for everyone involved, you still have the power of the entire $50M, minus the cost of the raise, to invest toward magnifying a multiple value. Also, you have momentum behind you versus overcoming the momentum of starting something new. In this case, the significance has a stronger value, but still on paper.
Assuming both are positive outcomes, between the two, the opportunity cost depends on whether you’re ready continue to build. If so, the raise is a more significant event.
I’m glad this question came out of the discussion. While we didn’t address this in the question, we immediately think about the founders and next the investors. Lets also think about the team, customers or partners?
Assuming both are positive outcomes, the underlying understanding of which is significant comes back to the founders. Considering the availability of late stage money and fewer startups raising at that level, it’s not as difficult. A raise for a founder is more that is owed. However, we can lean toward the exit as more than the founders are gaining a tangible return. Also, it’s marked as a successful win.
Perception & Consensus
With a flood of news, honestly we all skim the news and react. It’s human nature.
It was interesting to pit two types of milestones. Rather than skimming the next time, I imagine we’ll end up in critical thinking mode.
Regardless of any opinions, both milestones come with an incredible amount of hard work with celebration in order. As a former mentor once shared with me, a celebrating a raise is like celebrating a mortgage.
However, the underlying consensus was:
We should temper when we label a success, unless an entrepreneur / startup completes of a full cycle.