Money Raised is a Terrible Comparative Metric for Success

Giff Constable startups

Since Steve Blank publicized the findings of the startup genome project, I have seen references to the study in multiple places.

The one thing that drives me nuts is the recurring phrase, “startups that did A raised Bx more money”, like this is such a great thing.

I would love for our ecosystem to purge the notion that how much you raise should be a valid comparative metric for success. Speaking as someone who has worked for quite few well-funded companies, I know that it is not.

Statistically it is true that companies that raise money have a lower failure rate than those that don’t, but beyond that I am a skeptic that there is a broad correlation between money raised and success, and i think that success should really be counted as the return taken home by the actual founders and employees.*

Raising money is not success. It is an enabler of success. It is supposed to make success easier, but I have seen situations where the opposite has happened. I have also seen plenty of situations where the outside investors were the only ones who really benefitted from an exit.

If we want to talk comparative success metrics, there are lots to choose from with more validity:

– amount the founders and employees got to take home after an exit
– exit size and revenue/earnings multiples
– EV/R or P/E if eventually publicly traded
– growth rate and profitability

Just not “raised X more money” please.

* any analysis should prevent outliers like Facebook and Google from distorting results (ie medians are more relevant here than averages)