High Growth Handbook: Scaling Startups From 10 to 10,000 People

by Elad Gil

There’s a lot more companies. We’re going after hugely winner-take-all markets. The new entrants keep coming up, the platforms keep shifting faster and faster, the half-life of the winners is shorter. It’s becoming a much more competitive atmosphere. A friend of mine described incubator graduates as the locust swarm of startups.

But the downside, the subtle difficulty of raising money, is that when you raise more money you do spend more money. There’s just no way around that, no matter how disciplined you are. And what’s worse is you move slower. You get less stuff done. The meetings are bigger, the groups of stakeholders that have to be coordinated are larger. You’re less focused as a company; you take on too many projects because you have all these resources.

For example, at $1 billion market cap, a $10 million acquisition is just 1% of your startup’s equity. If the acquisition can increase your valuation by just 10%, then it is clearly ROI positive. By the time your company is worth $5 billion to $10 billion or more, M&A can become a central part of your overall company strategy.

If nothing fails it means we are not taking enough risk.