That’s why startups are raising so much money.
I was casually talking to my co-founder of Uncover, Mike Potter, yesterday about all the large seed rounds we’ve been seeing over the past few years. They’ve been getting larger and larger every month, it feels like. Two of the reasons often talked about by the media are that there’s just more money to be invested than ever before and that engineers and designers are more expensive because of such a high demand for them. Those answers seem perfectly plausible, but I’d like to add a new one to the discussion. I think it’s that startups just take much longer to get off the ground post 2010 than they did in the previous decade – there’s too much competition for peoples’ attention.
You can have a successful launch, get written up in TechCrunch, VentureBeat, and all the other tech blogs. Maybe the WSJ and NY Times will cover you too, but with so many articles being posted about the latest tech startup, press is becoming less and less effective in driving people to your startup. There are a couple hundred other articles that readers could be reading. You’re one startup out of hundreds of thousands, whereas once you were one in tens of thousands – or maybe better.
The pure volume of startups trickle down to whatever market you choose to approach. With more startups, it goes without saying that there are more in your market. There’s probably at least one, if not a dozen startups, doing the same thing (or similar) to what you’re doing. So, again, you need to raise more money to buy more time to get out ahead of your competitors in your market.
To me this is a sad state of affairs for the tech startup industry. It’s not going to end well. It doesn’t seem like it’s going to work out for any party involved – entrepreneur or investor – and we’re already starting to see the fallout. Startups are shutting down left and right, acquihires are the only sub-$50m deals I’m seeing, and only the few are getting rich with big deals.
Sales become a much bigger deal than they once were before too. New startups can no longer rely on organic growth. You need to put dollars and man power behind acquiring customers. The days of being “found on Google” or through “word of mouth” within the first few months of launch are far fetched at best. That takes time and time is why companies are raising so much money these days.