Fundraising is Your Competitive Advantage

If you’re a startup founder, are you focusing on becoming a skilled fundraiser? If not you are doing your company irreparable harm. Why? Well besides the obvious potential issue of not having enough money to keep the lights, you are losing out on a huge competitive advantage.

Tomasz Tunguz, venture capitalist at Redpoint and all around smart guy helps us break down the importance of perfecting your pitch in order to secure as much funding as possible.

According to his analysis, you have two hypothetical founders who are building identical businesses, and founder one (F1) is able to secure funding with a 15% better rate of success than founder two (F2) meaning that F1 will raise 15% larger rounds than F2.

While at first glance a 15% larger round may not seem like that much a competitive advantage, let's not forget the power of compounding growth. As explained by Thomaz “compounding this 15% advantage over six years results in a 50% larger business for the more skillful founder” as can be seen in the chart below.


The information in the chart assumes that both businesses start at $1M in annual recurring revenue (AAR), and then grow by 300%, 200%, 100%, 100%, 75% and 75% for those six years.

This extra money leads to a few small advantages such as being able to “hire additional salespeople who close more customers, deploy incremental dollars in marketing to build a brand faster, hire more engineers to develop the product a little bit faster.”

The big advantage though is that due to F1’s skillful fundraising her company will now be viewed as the “winner” by the market and investors. This will hurt F2’s chances of raising more money in the future, further hampering its potential for success.

So while you would probably rather be back building your business, it is important as a founder to put an emphasis on fundraising in order to “create enormous leverage for their business and develop unassailable competitive advantages. This is why it’s critical for early stage founders to invest time to perfect their pitches.”