This Aussie founder raised $2 million from Blackbird Ventures but has 3 reasons why big rounds are startup poison

Australian startup AffinityLive, which automates time sheets and the billing process, has closed a $2 million seed funding round led by local VC outfit Blackbird.

Founded in 2012 by Australian Geoff McQueen, the venture has been bootstrapped for the past three years and is currently bringing in more than $1 million in annual revenue.

Also getting in on the latest round was Rothenberg Ventures and a number angel investors.

The startup has developed a dashboard, which combines elements of project management and time billing, so workers can see what everyone’s up to, making profit forecasts more accurate. It also integrates with calendars and email accounts so time sheets can be generated for meetings, phone calls and time spent corresponding.

McQueen is now based in San Francisco, chasing the tech entrepreneur’s dream of hitting the big time, and has 40 staff spread across Wollongong, to Sydney’s south, and San Francisco.

Taking such a small seed funding round for such a well-established startup seems a little odd given the tech funding market’s eagerness to invest, and belief that you should raise as much capital as you can, before you need it, but McQueen’s got some very clear ideas on why raising too much capital is a bad thing.

1. Raising capital is kind of like buying dinner.

“When you sit down to dinner, one of the first questions you ask yourself is ‘how hungry am I?’. If you’re only a little bit hungry, you should only buy an appetizer – even if the restaurant is offering you a deal on a 9-course degustation menu, getting a lot more food than you can eat is crazy. Some people convince themselves they’ll take it home for left-overs, but how often does it just get wasted in your fridge?

The lunacy of this approach becomes even more stark when you consider, in this analogy, you’re not buying the massive meal you don’t need with cash, or even with funds you’ve borrowed: you’re buying it with your equity! You can only sell equity once – so the idea of using the most expensive form of capital in the world to buy a meal you can’t eat without making yourself sick is super crazy!!!”

2. Spending capital is a lot like putting on weight.

“As anyone who’s tried to lose weight will tell you, it is much much easier to put it on than take it off! The same is true for companies – once you’ve increased your spending, it is very difficult to reduce it. While increasing the rate of spending (more people, bigger offices, more servers) is natural and healthy as the business grows, the risk for companies that raise big buckets of cash is that they don’t just get taller – they also get fatter.”

3. Sky-high valuations can turn a founder into a stunt car driver.

“Raising a lot of money at a big valuation can end in disaster – when you go to raise a lot more money later (which you’ll probably need to do because you got fat), you’re going to need to execute perfectly to earn the next big valuation (and so on in a repeating process through to exit).

“The entrepreneur who’s raised too much at too high a valuation becomes the stunt driver, with the company the stunt car. Dramatic and death-defying, the stunt driver risks it all to justify the valuation the didn’t deserve last time, and to reach for the next valuation and big raise before they run out of money. This challenge of skill and luck is entertaining to audiences (the media, the public, envious entrepreneurs) and hopefully gets a great return for the promoters (investors).

“But, if the stunt driver crashes out or hits a wall – perhaps there was a bump in the road they didn’t see, or there was a change in the conditions (capital markets) that caused them to crash – the audience sigh and go home, and the promoters call their insurance company or look to one of their 20 other stunt drivers to perform tomorrow. However, the stunt driver goes to hospital and the car is written off and sent to scrap, and while the audience and promoters are back to it the next day at the fairground, the stunt driver isn’t making it back for a while, if at all.”

You can read the full blog post here.

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