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In the sea of VC-funded startups, a few notable companies flourish exponentially without any external funding. One successful case in point is Pagely, which now serves Fortune 500 corporations, like Visa, Disney, and Time Inc.
In this article, we’ll discuss the myth surrounding VC funding and how startups can grow exponentially without it.
Now, let’s begin.
The most popular myth out of accepting venture capital funding is receiving the instant boost to grow faster. Since the VC package also comes with business expertise, including management, legal, taxation, and other business advisories, a startup can expect to gain exponential traction within a very short time, leaping over 3 to 5 years in early development.
However, this arrangement comes with a price: the founders would likely need to release control, at least, to a certain extent, which is necessary for the VC expert team to provide hands-on advice and execute with the so-called “tried and true” approaches. Depending on the size of the company, the VC could control more than 50%.
Naturally, releasing control can be quite daunting to some founders, especially those whose vision and business philosophy revolve around providing the best value to customers and creating a unique corporate culture.
Let’s discuss our case study briefly.
Husband-and-wife team Joshua Strebel (CEO) and Sally Strebel (COO) started Pagely as Flare9 in Scottsdale, Arizona. They founded this first-to-market premium managed WordPress hosting provider business in 2003 when the landscape of the industry was in its babyhood.
They started out with web design, SEO, and light development services. However, some clients requested for more services, which gave birth to the idea of managed WordPress hosting. At that time, by mid-late 2006, the only competitor was GoDaddy, which served a completely different target market.
Today, Pagely’s main competitor is WordPress VIP, which is part of Automattic founded by Matt Wullenweg. Unlike WordPress VIP that has received Series C last stage venture funding, Pagely openly rejects VCs.
Cited from their Investors page,
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“At Pagely, we call them (investors) customers – and we exist only to serve them.
We enjoy treating our customers right and don’t see them solely as cross-sell targets to boost our top-line for a higher valuation in the next round. We actually turn a tidy profit and are not burning cash. We answer only to our customers and ourselves.
Now that we have railed against the man appropriately to keep our street cred; if you are an investor and interested in speaking with us, please reach out so we can firmly tell you no.”
Based on the Pagely’s case, there are several other arguments that debunk the myth that every business needs a VC, in addition to the cliche arguments that VC funds dilute ownership and restrict the founders’ control and managerial involvement.
First, growing fast is good, but growing at a steady pace organically is actually better.
Is growing as fast as possible good? It would depend on various factors, including the business model, the revenue model, and the product offered. If these variables are have been adequately established without other issues, then growing speedily might be acceptable. Otherwise, growing organically is a responsible choice.
Second, past successful experiences elsewhere isn’t a guarantee of present success here.
It goes without saying that every business is different. With market and consumer circumstances continue to change, events need to be approached specifically every single time. This explains why even experienced professionals sometimes fail in managing a startup.
Third, focusing to serve one “master,” which is the customers, can potentially bring out the best of the founders and the employees.
With the customers’ interest placed at the top of the agenda, the founders and the employees can focus on wholeheartedly in ensuring customer satisfaction, regardless of the cost. However, when a company must respond to the investors in addition to the customers, conflicts of interest might occur, since what’s best for the former might not be good for the latter.
Fourth, guidance can be received from other sources and sometimes neutral voices are better.
Business and technical advisors can be consulted from various sources, not necessarily from those who are transplanted by investors to work on-site. Internal advisors might not be the best choice and external ones could be more objective due to having no direct interest in the bottom of the company.
Fifth, corporate culture might change as VC-transplanted people bring their own culture.
Cultivating a corporate culture based on the founders’ vision and business philosophy requires 100% commitment from people who are culturally fit. And it would require a good size of such employees, to ensure the culture could be sustainable. Transplanted VC team members might shift the cultural direction in a way that can be irreversible.
In conclusion, the decision to accept or reject VC funding solely resides in the hands of the founding team. There are pros and cons to accepting or rejecting, which should be weighted conscientiously. Many successful businesses continue to be vocal in rejecting investors and they have proven that it’s the best thing that doesn’t happen to them.
