Funding signals

I met with the founder of a mid-stage startup recently. The company is  profitable in the Turkish market where it operates and is looking for funding to expand abroad.

During our conversation, the founder shared that the owners of the company paid themselves a sizable dividend from the profits which the company achieved last year. The dividend represents over half the company’s annual profits, and about a fifth of how much the company is currently looking to raise. This money could have been reinvested in the business. This would have pulled forward the company’s growth plans, allowing it to raise less dilutive outside funding at a likely higher valuation.

Since they didn’t do so, the owners are now looking for someone to make a financial investment in a business that they aren’t investing in themselves. This isn’t a great signal.