You’re the CEO of a software company looking to grow faster and smarter. There is great opportunity before you, but also more decisions on how to achieve that growth than ever before.
“I think what you have seen over the past two years is this obsession with growth in software companies,” states Hasan Askari, Managing Partner at K1 Investment Management and AceTech Ontario Sponsor. “But it is growth at all costs – let’s just take a bunch of money and throw it at Sales and Marketing and assume it is going to have some results.”
In this growth-obsessed market, many companies will inevitably seek funding as money continues to be one of the cheapest commodity available. However, a large number of these businesses that have raised capital on their search for growth have come up short and have found themselves in a weakened, confused state wondering what went wrong. As an increasing number of fallen unicorns make the headlines, selecting the right capital partner is more important now than it’s ever been before.
There are two important principles to keep in mind when selecting considering a capital raise.
Primarily, not all money is the same. You’ve put your blood, sweat, and tears into making your company grow. Now you’re at the point where you’re going to think about raising money to continue to fuel that growth. You have a budget in place as to how every dollar will be spent and it’s just about execution at this point. So ultimately, it doesn’t matter who you raise money from, right? Wrong. Raising capital gives you the unique opportunity to bring in additional know-how without increasing your payroll. It’s important to view a raise as a partnership, not a transaction. Is that partner a “technology tourist,” dipping its toe into the industry with an investment in your company? Has that partner worked with companies of a similar size and growth rate? Can that partner help you predict future speedbumps and provide resources to avoid them?
K1’s Intelligent Operations (“iOps”) group recognized the necessity of post-investment value-add and was established with the mission of helping make great companies better. With a core focus on adding value across People, Process and Systems for B2B software companies, K1 seeks to do much more than simply write cheques. Having entered into these partnerships with over 40 software companies over the last few years, it has developed an extensive library of best practices and know-how to help its companies succeed.
Additionally, more money doesn’t necessarily lead to more growth. Money affords companies the ability to take a number of different strategic actions including building out Sales and Marketing, developing more products, expanding into new offices or exploring acquisitions. These are all exciting (and necessary) steps in a company’s lifecycle that require focus and attention to carry out successfully. While sensible on the surface, these initiatives require one very important factor: timing. And unfortunately, money has a funny way of interfering with timing. Imperatives that may not be appropriate to pursue today can be accelerated solely because the company now has the financial capability to do so. K1 is a firm believer in raising the least amount of money that makes the biggest difference for your business.
At the end of the day no matter who you raise capital from, ensure that you’re taking smart money and that you’re able to maintain your sense of capital efficiency. It’s what allowed you to succeed up to this point and what will enable you to continue that growth going forward.