Raising The Most Money Doesn't Mean Your Company Will Become The Most Valuable

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Editor’s note: Guest writer Jules Maltz is a General Partner at Institutional Venture Partners (IVP), a late-stage venture capital firm based in Menlo Park. You can follow him on Twitter @julesmaltz.

One of my favorite recent blog posts is Seth Godin’s “Getting funded is not the same as succeeding.”   Whether or not we’re in a bubble, it’s a sign of the times that this post has to be written in the first place.   As Josh Elman tweets, we’ve gone from RIP Good Times to funding a grilled cheese company in less than three years (Sequoia was involved in both interestingly).  Instead of focusing on the companies that are creating the most value for their customers, we’re talking about who raised the largest round or who’s part of the billion dollar valuation club.

And this is dangerous.  It’s dangerous because we’re celebrating the “success” of fund raisings rather than the success of building truly valuable businesses.   Fundraising success does not always predict long-term success, and the data shows it.  Below are the largest technology venture fundraisings from 2004 to 2008 according to VentureSource (Note: I purposely excluded data from the current bubble and from cleantech, which I imagine only further supports the point).

While many of these companies have had good outcomes (IVP invested in HomeAway, Cortina, and Vonage), it’s surprising how few lasting, quality multi-billion dollar companies are on this list.   Having a successful mega-fundraising is a lot like being an NBA lottery draft pick.  It can feel great at the time, but just like for Darko Milicic, Michael Olowokandi, or Sam Bowie (drafted ahead of Michael Jordan), it doesn’t guarantee success.

So while much of the tech world gets caught up in the hype around valuations, I think we should all get back to business—the business of building great, lasting, sustainable companies.  The kind of companies that pay less attention to joining the billion dollar valuation club and pay more attention to joining the billion dollar revenue club.