We Raised Too Much Money

A couple of years after closing Distil, I was having coffee with Maxx. Maxx had made the first investment in Distil. Much of our conversation was rehashing old war stories.

Then he said “the problem was we gave you too much money.” Now this statement didn’t shock me as much as you might expect. Robert, my CEO for the later half Distil, and I had also done a postmortem and reached the similar conclusion.

But it was really weird having the person who actually gave me that money telling me he had given me too much. I had always assumed VCs and investors knew what they were doing. That they possessed some magical way to divine just what a startup needed to succeed. And here was one of those magicians telling me he had gotten it wrong, that he had made a mistake and at least partially felt some blame.

Maxx no longer worked for GrowthWorks. Following the financial collapse of 2008, the seed fund he was managing had been closed and he had moved on to greener (non-VC) pastures. So we were both free to discuss how we really felt about startups and venture capital.

So what did it really mean that we had raised too much capital? First we had funded Distil for growth. Our analysis, from different perspectives, led us to the same conclusion — that game based learning would be big. The winner in the space would be the company that could scale quickest.

Obviously in hindsight our analysis had been wrong. How did two arguable intelligent people come to the same wrong conclusion? I had based my analysis on the feedback we had from two large customers we had closed. Yes, two is a ridiculously small number, but these were very respected international organizations. They were telling us how big they thought this market would be, and I was basing my analysis on their figures.

But the VC should have a different set of figures, right? Maxx had made several phone calls to prominent analysts in the eLearning space. Many of these experts felt that what was holding game based learning back was assessing the learning. This was Distil’s core, patented, technology. From his perspective it looked like we had cracked and protected the key element preventing the wider adoption of game based learning.

So that’s the why. But what would we have done differently?

We both agreed things would have been better with less money. Having the funds to scale (even having only closed two customers) we spent and grew much faster than the market (see Building a Startup v. Building a Business for more information). With less money we would have been forced to focus on the most immediate concerns, rather than building for future problems. Having too much money we couldn’t resist the temptation to grow quickly.

It was good talking this through with Maxx. Together we learned quite a bit. With my new company I’m bootstrapping for as long it makes sense. Not because I can’t raise funds, don’t know investors, or am lazy. Because having too much money is a disastrous as not having enough.

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One Response to We Raised Too Much Money

  1. Pingback: How much money should I raise from an Early-Stage Investor? | Carlos Espinal

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