In_the_Market_for_VC_Funding_David DeWolf_1200x675

In the Market for VC Funding? Start Here.

1024 576 David DeWolf

I’ve had the good fortune to lead 3Pillar through a few significant investment rounds over the last 10+ years. Investors in our business have included leading venture capital and private equity funds like NewSpring Capital, CIP Capital, and most recently H.I.G. Capital.

While the process of taking on funding is taxing and frequently all-consuming, the infusions of capital we’ve received have come at critical times for our business. They have undoubtedly fueled growth that would have been impossible solely organically, and they have enabled us to invest in both personnel and acquisitions that we believe have 3Pillar poised to be a force in our space well into the future.

Looking back on what I’ve learned from going through multiple rounds of funding, these are a few areas that I’d recommend anyone in the market for VC funding seriously consider before they leap into anything. 

Make Sure Outside Funding is Really What You Need

As I’ve written about in the past, VC funding is great, but only at the point when you actually need it. I 100% stand by my advice to bootstrap until it hurts. This not only requires the discipline to figure out the countless things it takes to run a company, it requires you to get strategic about what products or services your company can provide that will sustain you over the long haul.

It’s not uncommon for entrepreneurs to get so starry-eyed at the idea of raising massive funding rounds that they don’t stop, step back, and ask, “Should we take on outside money at this point?” A capital infusion can be a powerful tool, but it is not the ultimate success metric that many make it out to be. In my experience, it only makes sense to seek funding when you have a deliberate and purposeful need for the capital that is fully aligned to a long-term vision.

Sooner or Later, You’re Going to Have to Make Money

It never ceases to amaze me how many companies receive massive amounts of funding at astronomical valuations without ever having come anywhere close to turning a profit. Uber, just to give one example, has raised $24+ billion over 12 funding rounds. They lost $6.77 billion in 2020, a successful outcome only in that it A) was an improvement over 2019’s $8.51 billion loss and B) could be whittled down to a loss of only $2.53 billion after some extremely creative accounting around EBITDA.

WeWork is another notable example. Their spectacular crash from a $47 billion valuation to being rescued from going bankrupt by Softbank should tell you all you need to know. Uber, WeWork, and other companies of their ilk aside, investors are going to want to know your strategy — and a timeline — for delivering a return on their investment. Raising money doesn’t give you a free pass on figuring out how to turn a profit. If anything, it does the opposite. 

Look for Investors Who Bring More than Money to the Table 

Money is valuable. Know-how, experience, expertise, and connections are invaluable. When 3Pillar took on a Series A round that was led by NewSpring Capital in 2013, we chose NewSpring over a number of other VC firms that were also interested. One of the main reasons we chose NewSpring is that they invest in companies that were at the exact inflection point and in industries that 3Pillar serves. An obvious advantage was that Marc Lederman, who sat on our board for a number of years, was highly knowledgeable about scaling technology services companies. An added benefit was that being in NewSpring’s portfolio of companies gave us access to tap into the expertise of a broad range of companies that are squarely in 3Pillar’s sweet spot. 

None of NewSpring’s portfolio companies were in the business of selling to one another. We were, however, encouraged to share industry insights with our peers, brainstorm how macro trends would impact our businesses, and tap into the collective expertise of our peers. The connections we were able to make with leaders at NewSpring’s portfolio companies were extremely valuable in helping inform our long-term strategy.

Wrapping it Up

Taking on outside funding has huge implications for any business. There’s no such thing as no strings attached venture capital. Whether that means giving up a certain amount of equity, adding new board members, running major spending decisions past someone other than the CFO, or all of the above, you’ll be well-served to follow the 3 points above as you get started on the funding journey.