The Value of Preserving Optionality

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"We're going to raise $2–3 million, sell 5–10% of the company, and then try to exit in the next three years."

I listened as the client in front of me described her plan for the business. There was a lot I admired. She knew what she wanted and wasn't afraid to say it out loud or pursue it. She also wasn't caught in one of the common fundraising binaries. She wasn't chasing the traditional venture-backed path, nor was she attached to the story that she had to bootstrap forever.

As I listened, though, I found myself wondering where certainty about the path might eventually become a limitation. The reflection came as much from my own experience as from hers.

Early in my last company, it was incredibly important to me that we raise venture capital. Looking back, I think that desire had as much to do with ego and social proof as it did with what the business actually needed. Somewhere along the way, I had absorbed the belief that venture capital was simply how great entrepreneurs built great companies.

If I could go back and coach myself, I wouldn't tell myself not to raise venture capital. I also wouldn't tell myself to bootstrap.

I'd simply remind myself that a business is a process of de-risking a vision over time.

At every stage, there are uncertainties to resolve and milestones that either validate or invalidate your assumptions. As the business evolves, so do your options. There is often no reason to decide today how you'll finance the company three or five years from now.

One of my biggest mistakes wasn't raising venture capital. It was becoming attached to the identity of being a venture-backed company.

When the fundraising market tightened and we needed to become cash-flow positive, the shift felt enormous because I had unconsciously ruled out other paths. Looking back, I would have thought about financing the business one stage at a time.

I would have raised the capital needed to reach the next meaningful milestone while building a plan that could also get the company to cash-flow positive. Then, once we reached that point, I would have asked a fresh question: What is the best way to finance the next stage of this business?

Maybe the answer would have been another venture round. Maybe it would have been growing through the company's own cash flow. Maybe it would have been bringing on a private equity partner. Maybe it would have been selling the company.

I simply wouldn't have wanted to make that decision years earlier.

Founders have the most power when they have the greatest number of options.

Particularly today, when technology allows many businesses to build more with less capital than ever before, I think optionality has become even more valuable. Being cash-flow positive doesn't mean you can never raise capital again. Having raised venture capital doesn't mean you have to keep raising it forever. Selling a majority stake isn't failure. It's simply another way of financing the next chapter of a business.

The best founders I've known don't become attached to a financing philosophy. They become attached to building a great business while preserving as much freedom as possible along the way.

That freedom is often worth far more than certainty.

Wherever you find yourself in the journey, you are not alone. Sending a huge hug from my desk in Los Angeles.

—Matt

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