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Why is fundraising glamorized over making profits in the tech startup world?

I'm constantly bombarded with junk email about investor pitch nights, or fundraising 101. You see founders who proudly list how much their past companies have raised.

But I rarely see anyone in the tech startup world talk about how profitable their company is - not how much revenue, but how profitable. Profit doesn't even really seem to be pushed as that much of a priority in any of the founder education series that I see.

I have my own theories, but am curious to hear your thoughts about why fundraising is given higher importance in the tech scene than profitability?

49 Replies

Shingai Samudzi
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Shingai Samudzi Entrepreneur
Founder & CEO at ProjectVision
This is the ad showing for me on this page right now on the right, coincidentally.
Michael Barnathan
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Michael Barnathan Entrepreneur • Advisor
Co-Founder of The Mountaintop Program, Google Alum
Conventional valley wisdom is to get the eyeballs, then figure out how to monetize them later. I suspect there's an ulterior motive in that this strategy will make you entirely dependent on continuing rounds of investment to stay afloat.
Damien Filiatrault
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Damien Filiatrault Entrepreneur
Software Architect and Strategy Consultant
I don't have an answer as to why fundraising is given higher importance, but I agree with your implied point. It seems to me that too many people are looking at short-term goals like getting funded and growing revenue, and not enough attention is focused on the long-term goal of profitability.
Burke Franklin
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Burke Franklin Advisor
Business Planning Expert, Accomplished Entrepreneur, International Keynote Speaker, Best-Selling Author, Coach to CEO's!
I was told by a VC many years ago that my biggest problem for funding was that I was profitable! (That was in the pre dot.bomb era.) If I had $0 profit, then there's no way to run a valuation formula since they factor in profits -- no profit, then no formula, then grab a number out of the air! Does that explain the dot.com crash?!? What if you could build a business without funding (you may just have to!) I did. Although, over time (27 years) I have borrowed as well as raised a bit here and there, but mostly because I was profitable! There's more to "Mastering the Fundraising Game" -- smart money isn't playing games and they want to see a plan for a sustainable business. If you're interested in that, I have apps and templates that can help! http://www.BusinessPowerTools.com
Michael Brill
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Michael Brill Entrepreneur
Technology startup exec focused on AI-driven products
Open Excel.
Enter the names of the top 25 private technology companies in column A.
In Column B, put a 1 next to the company that achieved profitability in its first 18 months
enter @sum(b1..b25) in b26
make a fist
count fingers on clenchedfist
those numbers should be equal

Premature optimization for profit is a recipe for slow growth and virtually guarantees that you'll lose against a competitor who is making massive investments using cheap capital. It's the same logic as parents who send their kids to college instead of off to work at the mill.

Ken Anderson
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Ken Anderson Advisor
Director, Entrepreneurial and Small Business Development, Delaware Economic Development Office
You have identified a major challenge in our industry. There is a direct and indirect suggestion among many that funding is equivalent to entrepreneurial success. Entrepreneurial success is principally a result of customers, revenues and profits. Take note of the Unicorn firms that are in a serious downturn as a result of billion dollar valuations sans revenue and profitability to support that valuation.There is a less than subtle reckoning taking place that is organically, and unfortunately painfully adjusting for this practice.
Irwin Stein
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Irwin Stein Advisor
Very experienced (40 years) corporate,securities and real estate attorney.
The answer is that the blind are leading the deaf and dumb. A company operating at a profit is less likely to fail which is what happens to most startups. During the tech boom someone suggested that market share was more important than profits. You can see how that turned out. Serious money ends up in serious businesses run by serious people. Can you find an angel group to fund to fund businesses that are losing money? Yes, but the angels will run out of money sooner or later.
Martin Omansky
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Martin Omansky Entrepreneur
Independent Venture Capital & Private Equity Professional
Some categories of tech start-ups eat cash like crazy, and so fundraising is important. Also, many well-publicized acquisitions are based on actual or potential revenue growth. Profits are sometimes sacrificed in favor of market share or number of eyeballs. Witness Amazon, which lost money for many years, used its cash to expand, and eventually turned profitable. The market rewarded this strategy. So, profits are good, but not sacred. Sent from my iPhone
Chris Kitze
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Chris Kitze Entrepreneur
CEO at Safe Cash Payment Technologies, Inc.
Dreams command a higher multiple than reality. That's the sad truth. As long as capital is plentiful, and greater fools available, you'll see this kind of mentality.
Barry Vial
0
1
Barry Vial Entrepreneur
Chairman, Liquid Markets
Positive cash flow is not "Man bites dog". Next.
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