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Elad Gil: Too Many Founders Raise Money When They Shouldn't

By Elad Gil · Investing · 2 min read

Gil says the venture community's incentive is to tell founders to raise. The reality is if you have a rapidly growing profitable company, why would you dilute?

Key Points

Too many founders raise money when they shouldn't — the default is broken
Microsoft only took money because someone went to business school with a VC — Dell bootstrapped until right before IPO
A friend raised a ton of money for a profitable company, hired 70 people, and it went to zero

On average, too many founders actually raise money when they shouldn't. The venture community's incentive is to tell them the opposite.

Small Teams Build Giant Things

Gil: We've long had a history of small teams being able to build giant things. Zapier only ever raised a seed round and never raised again. SurveyMonkey never raised external money until quite late. Notion was profitable for a huge chunk of its existence.

On average, I think too many founders actually raise money when they shouldn't. The venture community's incentive is to tell them the opposite. But the reality is — if you have a rapidly growing profitable company, why would you dilute?

Too many founders raise money when they shouldn't. The venture community's incentive is to tell them the opposite.

Microsoft and Dell Bootstrapped

Gil: Microsoft actually famously only took money because Ballmer or somebody went to business school with somebody at a venture fund. That person convinced them to take money right before the IPO. Dell bootstrapped until literally right before the IPO.

There are lots of examples from 40, 50 years ago and lots of examples now where people should never raise money.

It Blows Up the Company

Gil: During social gaming in the early 2010s, there were companies generating 10, 20, 30 million of revenue a year with like four people. A friend of mine was running one. I said don't raise money, it's a terrible idea. Just dividend out the cash.

He ended up raising a ton of money. They hired 70 people. They burned through it all. They bought three other things. And it went to zero. As founders, they would have done dramatically better from a financial, control — every perspective — if they just hadn't raised money.

They hired 70 people, burned through it all, bought three things, and it went to zero.

I Try to Talk Them Out of It

Gil: There are very legitimate reasons to raise money — you need capital to accelerate growth, take the market, build something that needs a bunch of GPUs. There are good relationships with investors too.

But you have apps on the App Store that are pretty simple that have raised $100-200 million. Why? I feel like I'm one of the few people that founders call to fundraise and I try to talk them out of it. What are you thinking? Why would you raise money right now? It's a terrible idea.

Founders call me to fundraise and I try to talk them out of it. Why would you raise money right now?