Misplaced obsession with venture capital funding ‘hurting’ early start-ups

Start-up companies’ obsession with chasing venture capital funding at the expense of focusing on their customers could be jeopardising their long-term future by not setting the right foundations for success.

Some newer firms aspire to reach a misplaced benchmark of success by chasing such outside funding, according to Pubble chief executive, John Dineen.

The Cork-based co-founder of the increasingly-popular messaging platform says that while taking on venture capital (VC) funding is sensible once the business is established and has found a strong market fit, there is too great a focus on it among early-stage start-ups.

“The agenda with start-ups is they only become newsworthy if they raise either angel money or VC money and it’s almost presented as if that is the end goal; that’s the benchmark of success in a start-up whereas very little credit is given to start-ups that try to bootstrap and do things on a budget at the start, win new customers and then use customer money to build out their value proposition and grow their customer base. I really admire people that do it the old school way with a compelling product,” said Mr Dineen.

“It’s different when you’re scaling out an operation… but there’s an obsession with delaying contacting customers and selling. If you’ve got something compelling they’re willing to pay you for it.” 

Pubble’s own experience bears out that point, according to its co-founder, having seen the University of Limerick become one of their early customers despite the product being a shadow of its current incarnation.

Since, the messaging service has teamed up with the likes of Jameson, Dublin Airport and UCC, domestically as well as Elon Musk’s Solar City, and America’s Test Kitchen in the US.

His own company isn’t the only one pursuing the customer-first, investment-later strategy with the likes of project management website, Basecamp and Cork company, Teamwork having done so to great success.

Pubble too will go down the VC route eventually but only once it feels it has the requisite groundwork done with its product and customer base first.

“Venture capital is a really expensive way to fund your business. The cheapest way to fund your business is to use your customers’ money, so get building something that people are willing to pay for and at the end when you spend that money you don’t have to give anyone a percentage of your company or repay them. You’ve delivered your service and that’s the kind of philosophy that we follow in Pubble.

“As long as it’s the correct business decision for us we’ll continue to fund the business out of charging people for what we do and then when we get to the point where we feel that we have a real market fit and if we were to take outside funding and could use that to grow the business really quickly then we’ll make a decision but we feel as though we’re not at that point just yet and we’ll cross that bridge when we get to it,” said Mr Dineen.

In total, Irish venture capital spend surpassed €400m in 2014 with the bulk of investments centred around the Dublin tech scene.

Irish Venture Capital Association figures show that 69 tech start-ups based in the capital received venture capital funding compared to six in Cork. Limerick and Galway firms received a combined €31m and €30m respectively last year while Cork firms attracted €7.5m.


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