Don’t Over-Focus on Funding

Point: Too much VC funding can be just as bad as too little

Story: As a small young company, ViaWest had only $34 million in funding. But it faced massive competitors with $300 million and $800 million in war chests, respectively. These big competitors used their deeper pockets to “get big fast” — acquiring other companies, buying big office buildings, and investing in lots of shiny new large datacenters. But sales didn’t materialize and the big companies went bankrupt. In many ways, the money distracted these companies — they were looking for ways to spend it rather than focusing on their core innovation and business fundamentals.
In contrast, ViaWest used its money carefully and made positive cashflow a major goal. ViaWest focused on low-cost, efficient web-based tools to help it out-innovate — not out-spend — its bigger rivals. ViaWest also watched its asset investments carefully, only adding new capacity as needed when demand appeared. After the big competitors cratered, ViaWest bought some of the competitors’ lightly-used datacenter assets for pennies on the dollar.

Action: Use Web-based tools that let you innovate much faster at less cost. Create positive cashflow sooner rather than later. Create business forecasts for investment performance and stick to them — don’t invest more if the first investments aren’t meeting targets.

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