By Nick Tomaino
Compiled by: Zombit
One of the most unexpected discoveries I’ve made since founding 1confirmation is the negative correlation between initial funding size and long-term success among early-stage startups.
As a founder, you tend to want to make a splash and announce that you've raised a lot of money. This gets media attention and makes you feel important. As an investor, you tend to participate in these types of transactions for the same reasons. We did some of that in the beginning.
It turns out that the three failed projects we backed all raised over $10 million before reaching product market fit (PMF). And the 46 projects we support started with less than $10 million in funding, and all of them are still operating, and many are thriving.
Why is this happening? There could be many reasons, but if I were to pick two, it would be that a large amount of money can lead to a lack of focus and motivation until you have product market fit. Once you raise a lot of money, you hire too many people, invest in too many different areas, and spread your focus. Staying focused will become more difficult. And you may feel that you have succeeded and lose that drive to succeed.
This taught me to always bet on underdogs who are focused and hungry to succeed, rather than complacent front-runners who can convince a few people to give them a lot of money.
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