Easy venture capital diffuses focus and makes pivoting to profitability dangerous
Sarah Tavel · 20VC: Benchmark's Sarah Tavel on Why Investing Success Lies In Small Markets Adjacent To Very Large Ones, Why You Have To Be Judicious On When To Pay Up vs Be More Price Sensitive & Why Crypto Investing Is Like The Early Days of AdTech Investing · Sep 24, 2018 · at 17:31
Sarah Tavel is a General Partner at Benchmark. She addresses the risks faced by startups that over-capitalize and prioritize growth over operational efficiency.
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“When companies are able to raise a lot of capital easily, they naturally take on more of a growth orientation. Yeah, I kind of think of it as you can turn the wheel towards growth, and you, or you can turn the wheel towards profitability, and all these companies are turning the wheel towards growth, and so they're saying yes to those 10 things, and inevitably, what that means is that you raise more capital to grow, often at pretty big valuations that you've underwritten with Aggressive growth expectations. And at the same time, you're not actually being your best self as a company because you've diffused your focus. You're not focused on those three things. You're trying to do 10. And the danger when the music stops is that you start to realize that you're getting close to the end of your capital. The capital markets have changed, or you just aren't able to continue to raise money at an ever increasing valuation. And then you try to turn the wheel towards profitability and find that that's really, really hard to do. That's a dangerous place for a company to be in.”
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