Success is never guaranteed

When I first started investing at Romulus Capital in 2008, whenever I read about a startup raising a large round, I took it as a sign that the company was very successful. At the time, we were writing $20K to $100K checks so a large round was anything above 10X that, so anything above $1M. If a company had raised that much money, I thought that this meant that they were growing very fast, had a clear business model, and a clear path to profitability.

Now I know that this is no longer the case. The reason is that, since joining Aslanoba Capital in 2013, our investments in our Turkish startups tend to range between $250K and $2.5M in a single round. This includes many investments above $1M. And while some of these decisions have indeed turned out to be great investments, some are performing less well and some have failed.

As a result, I now know that just because a startup gets $1M in funding doesn’t mean that it’s experiencing very fast growth, has a clear business model, and is steadily moving towards profitability.

And we can extend this line of thinking.

Now that we’re making bigger investments, my new definition of a large round is anything above 10X our upper limit of $2.5M, so anything above $25M. But just like raising $1M didn’t mean that a company was destined for success in the past,┬áraising more than $25M doesn’t mean that it’s destined for success now. It’s certainly a good signal, but you’d be surprised at the number of startups who raise this much money without having found a scalable customer acquisition channel or settled on a business model with a clear path to profitability.

And I bet this also extends to startups that raise more than $250M.

Success is never guaranteed.

Also published on Medium.