Member Craig Hinkley Speaks: Tempted to Turn Down Funds? Consider These Risks
In the case at hand, a CEO had sufficient funds to continue his company’s current growth trajectory, but was concerned that turning down another fundraising opportunity could potentially put his competitors at an advantage. He was seeking insight into determining his next best move.
If you were in this situation, what would you do?
If I were in this situation, I would analyze my company’s growth to assess if we need the funds. To do this, I would compare my company’s compound annual growth rate (CAGR) with the market’s growth rate. While we may be growing, if we aren’t growing at the same rate or exceeding the market, we’re actually losing market share. Perhaps I’m in a fantastic position in which I’m 20% over the market’s growth rate. However, assuming I’m not in that spot yet, I would consider leveraging the funds to get to where I want to be.
I must keep in mind there are a few significant risks involved if I choose to not raise money while a competitor pursues a big round. For starters, I would miss out on the first-mover advantage. In this case, my competitor could earn the “halo effect” in which even if their technology is inferior to ours, they gain valuable publicity, which could translate into a tangible competitive advantage through higher sales and more opportunities. Something else to keep in mind is that with significant funding, my competitor could leapfrog me technologically, in which I could be left wondering if I have a viable business that could still compete.
Another important risk I would keep in mind is the impact on my team’s morale. If the other company raised the money while we didn’t, my employees could wonder why we aren’t good enough – or conclude that my competitor is the better company to work for. Finally, I would remember that there is only so much investor appetite for one market segment. If I turn down the opportunity to raise funds now, the opportunity might not be there down the road.
Considering all of these risks, I would likely choose to raise the money. Then, I must decide where to invest. I would start by inspecting my sales efforts – if my sales team is hitting all of their quotas and we are still shy of the market CAGR, I would likely use the funds to scale my sales headcount. However, if sales are not hitting quota and we are shy of the market CAGR growth rate delta I’m aiming for, that would indicate to me that it’s time to assess our product-market fit and potentially invest in market research to test and create better products. Or, perhaps there are other areas that need to be addressed like talent acquisition in the sales department.
Another way to invest my newly-raised funds is particularly exciting to me – the opportunity to revamp my go-to-market strategy. I could move in on other adjacent markets and even grow internationally. Perhaps I would consider ways of capturing a larger share-of-voice in the marketing landscape so I can amplify my brand values and reach more people through effective storytelling. I could also invest in coaching to help me strengthen my presence as a thought leader, or we could host an industry conference or even a speaker series with well-known individuals in the space.
It might not seem like an easy next step, but you have a boundless horizon of possibilities. Go for it. Best of luck!