Venture capital should come with a warning label. In our experience, VC kills more startups than slow customer adoption, technical debt and co-founder infighting — combined. VC should be a catalyst for growing companies, but, more commonly, it’s a toxic substance that destroys them. VC often compels companies to prematurely scale, which is typically a death sentence for startups.
Venture-backed startups face great pressures to perform. The more money raised, the more pressure. One of the challenges well-funded startups face is defining performance. For mostly good reasons, the metric that matters most to VCs is usually revenue growth rate. Particularly for an early-stage startup, this is the right metric, because it is the most basic answer to the question of whether customers care about the company’s product and the company has the potential to become a large business.
Growth at what cost?
Unfortunately, growth without context quickly becomes more of a vanity metric than a success metric. The question that needs to be considered is growth at what cost? Few would dispute that growing 3X and adding $10 million in revenue by consuming $1 million in investment is terrific. Likewise, most would agree that growing 3X and adding $10 million in revenue for $100 million in investment is appalling.