Startup YOLO: Raise Money You Don't Need Just To Get It While You Can
This week when Nextdoor, the social networking app for neighbors—a retrograde cross between a neighborhood watch and a neighborhood billboard—announced that it had raised $60 million, CEO Nirav Tolia made certain the tech press knew his startup didn't actually need those millions.
The new round comes just eight months after Nextdoor raised $21 million, and CEO Nirav Tolia says that he hadn't planned to contact investors until early next year. "We had $30 million on the balance sheet and only were burning a million and a quarter million per month, so this wasn't a need-driven round," he explains.
Dan Primack compared Nextdoor to both Pinterest, which recently raised $225 million in funding only eight months after raising $200 million, and Snapchat, which is rumored to be raising at a $4 billion valuation a mere four months after it picked up $60 million.
Fab.com also follows that rapid-raising pattern. But as Primack explains, Nextdoor, Pinterest, and Snapchat have three things in common: (1) a short time between rounds, (2) new financing at "significantly higher valuations" and (3) not actually needing the dough.
Just last month, Fred Wilson argued that "Less money raised leads to more success," at least when it comes to seed rounds and Series As. So why has the fundraising process swung so far from the "lean startup" method of yore? Primack has a theory:
One possibility is that these quick follow-ons reflect early-stage investor concerns that we're nearing a market top for consumer-facing Internet companies, and therefore are encouraging their entrepreneurs to take large rounds while still available. After all, if growth multiples were to remain constant, then each of these companies should be better off raising their next round in six or twelve months.
Raising fast doesn't necessarily correlate to a company's ultimate success or failure, and every situation is unique. But I've got a sense that this current land-grab is being driven by more than just immediate opportunity. We should know pretty soon if I'm right, or just a worrywart...
In other words, Winter might still be coming and lean is not a good look.
To contact the author of this post, please email nitasha@gawker.com.
