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<\/a>market share became the primary goal of a company, with revenues and profitability to follow later.\u00a0 It was true for Amazon and other visionary companies that grabbed market share during the early Internet era.\u00a0 But beware. Many, many companies accepting venture capital lost it all following this instruction.\u00a0 VCs have a goal of creating extraordinary value for their investors.\u00a0 Incremental profits from companies that later sell for three to five times their original value at the time of their investment may be considered great successes for founders but relative<\/span> failures for VCs, who must hit for the fences with every early stage investment.<\/p>\n[Email readers continue here.]<\/em> <\/span>\u00a0 I’ve been involved as a board member of two such businesses, where venture investors came aboard and pushed management to immediately scale the business without regard for profitability, and without much regard for infrastructure.\u00a0 Both businesses scaled beyond what their market could absorb, and revenues did not build at nearly the rate of audience increase.\u00a0 The cost of each exercise was dramatic, far beyond what a founder-entrepreneur would order to be spent when using his or her capital or reinvesting cash flow from operations.\u00a0 Venture investors need large scale to make large exit valuations, or in many cases are not interested in maintaining marginal companies.\u00a0 To state it again, what might be a success to angel investors and to founders could be only of marginal interest to a typical VC.<\/p>\n Scaling a business is an art as well as a science.\u00a0 By definition, scaling requires the addition of fixed overhead, sometimes the kind you cannot shed easily, including leases for expanded space.\u00a0 Experienced CEOs often make it a habit to scale as a result of demand, reducing risk and mating cost to growth in revenues.\u00a0 Angel investors are more tolerant of this than VCs.\u00a0\u00a0 Typically, when you bring a VC onboard, you increase the risk, the reward, and the definition of the size for a successful exit.\u00a0 Adding to this is the extra risk undertaken by premature scaling.\u00a0 It is important for you to realize that there is a fair tradeoff in valuation between a company with less outside investment and a lower endgame sales price, and one that shoots for a much higher valuation to justify a higher amount of outside investment.<\/p>\n","protected":false},"excerpt":{"rendered":" Venture capitalists sometimes make an error in directing their portfolio company CEOs to push resources to the limit and scale the business to immense size quickly, all to seize market share.\u00a0 The logic in this is simple: once a company … Continue reading