SynthaSite, one of our competitors, just released news today that they have closed a $20M round of financing. Now that this is public, I think it's very interesting to examine the difference in strategies we are taking.
We're a big fan of capital-lean businesses: those that are able to accomplish a lot with a little. They have a few large advantages: they're generally better for the entrepreneur, who maintains a larger ownership of the company, and for the investor, who sees their (relatively) small amount of capital used to build maximum value per dollar.
A different strategy, that can also be successful, is to raise as much money as possible, and then buy your way to the top. But buying your way to the top doesn't reduce all of the business risks -- it's just rolling the dice with higher stakes.
The downside for the entrepreneur, in this case, is closing doors: the option of a successful exit at smaller ranges is completely closed. In SynthaSite's case, with $20M raised and a likely $30-60M post money valuation, they will likely not be able to exit successfully for any less than $100M. Not to say that it isn't possible, just that it's much more difficult.
What's most interesting about this comparison is contrasting to Weebly's story: We raised $650k in April 2007, which brought us to profitability with a medium-sized team. Our team is very efficient. We're constantly working hard to improve the service, and we're accomplishing a tremendous amount.
In every sense, we're ahead of SynthaSite for the time being: a larger user base, more pageviews per month across all user sites, faster organic growth, and significantly more revenue. The question I would be asking as an investor in this most recent round is: "Why is there such a disparity between the capital needs of Weebly and SynthaSite?", or "Why did SynthaSite need to raise $25M to get to a similar point Weebly has with $650k?"
CommentsAnthony 02/17/2009 15:13
David that is a very valid point. I think it may have something to do with the culture of some start-ups. I work for a company that is culturally quite the opposite from that of a start-up (A 16'000 employee bank) and I can tell you that we are certainly trying to do as much as we can with very little. Perhaps that is the issue some start-ups face - As they progress from start-up to established business, they struggle with the change in scale of their resources. 02/17/2009 16:55
Great point and something I was wondering about when I read about their funding. Unless there is a clear plan for how extra money will lead to growth, I am not sure how valuable it is to give up equity. Especially in online business where viral/creative marketing beats paid marketing hollow. 02/17/2009 21:03
You are right. Additional piles of cash can be disorienting and cause inefficient utilization of capital. Of course, no self-respecting VC is going to let them go hog wild with the money they will expect them to do something. This is where your firm needs to be cautious. That money can help them create waves that disrupt the market. Be on the alert - have a guerrilla campaign that includes a few plans to quickly counter their efforts. 02/17/2009 21:56
Well, they apparently just closed the $20M yesterday. Really the number to compare to your $650k is the $5M they closed 15 months ago; how much of that have they spent? Presumably more than half of it. Is there something relevant to their success that they can buy with the next $22M? Maybe! Let's give them the benefit of a doubt. Maybe it wasn't just for financing the business, maybe some of the shareholders took some cash home. Mikael Öhén 02/19/2009 00:22
How profitable is Weebly and what is the revenue (if you can share)? The amount of money raised only represent a number. To measure whether a company has a strong financial environment to grow, we need to really anlayze the books. A beginning balance can meerly represent anything these days. Ravi Moosad 04/07/2009 21:41
$20M raised by Synthasite is yet to be spent. If you look at their software, you cant ignore their strengths. Synthasite have many features which Weebly does not have at this point.(Though I started with weebly and love to stay with it.) It is only fair to believe that their $20M will be invested wisely. Joe 05/25/2009 21:18
Your point about capital efficiency is interesting. But I think measuring the "true" capital efficiency of a startup can be difficult because one will have to consider other factors as the growth plans of the company, the competitive landscape and positioning of the company. However, capital efficiency is still a desired objective of any startup or any company for that matter. You make an excellent argument, and I find myself in the same position, I run a growing start-up with under 1mm investment and we are very profitable. The problem is our competition are out raising over 20mm, the only benefit we have seen, because as you mentioned their product and management team haven't changed, is that they now get a lot of press in the financial world. All press is good press. For me as a founder the difficulty has been showing our investors the value of our business in light of the $$ they would like to see by us taking another round of funding thus making their paper worth increase. Really I would love to hear how you have been able to keep the investors you have happy, when as a small profitable company exit isn't as likely when your incremental growth isn't exponential, and a large venture deal can really help in the media aspect (as well as ramp up spending for expansion and poise the company for a trade sale or potential IPO). The way I See it I built my company to run it, to grow it, and to offer something unique to the market place, Sure 20m would help us shout it from the roof tops, but real growth doesn't come form shouting in peoples faces. I am a great weebly fan, your products are great, your blog is entertaining (yes a high criteria for choosing your service) and you are going to be around because your investors won't pull out on your 3rd stage because you haven't met your previous two. I like you guys, and would like to stay like you...any suggestions? Comments are closed. |  David co-founded Weebly, an incredibly easy to use tool that helps millions of people create a professional web site, blog or online store.
He was named to Forbes' 30 under 30 list, is a part-time DJ and has traveled to over 20 countries. Investments include Cue, Parse, Exec, Churchkey, Streak, Incident Technologies and Adioso. 
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