Jul 01, 2019

Is a bigger VC round a bigger problem?

In the VC ecosystem that is currently evolving Poland and the region, many models are copied one-to-one from the US market, in which VC funds existed for years. These models originate from the environment of the distinctive local market and when they reach us, they are not always adapted to the Polish specificity.

Currently, many new VC funds are launched in Poland and this asymmetry can be noted. There are startups at the stage of MVP that have already secured EUR 3 – 5 million and in the growth phase with 150,000 EUR monthly recurring revenue unable to raise EUR 1 million with a decent valuation, reaching the fume wall.

Financing the VC round is like shifting gears

Many founders know that they need funding, but not everyone is able to calibrate the size of rounds and timing. According to Paul Graham from Y Combinator, “financing the next VC rounds is like shifting gears“. That means each round should give you the speed that will allow you to shift up to the next gear. Only some startups do it well and most are underfunded, but more and more often there are also those over-funded in relation to their scale and growth, as if the car was to start from the third gear. My experience shows that the latter situation is even more dangerous. Overfunding or round taken too quickly loosens discipline or unnecessary and expensive experiments and as a result unfulfilled expectations of growth and increased investor pressure.

Increasing the size of each round, reducing the time between consecutive stages of financing

The ideal startup funding model has not changed for years. What changes is mainly the size of the rounds in each phase, the so-called fundraising inflation. Previous A rounds are now the seed rounds and the A rounds have become multi-million transactions. Of course, in our part of Europe, the same rounds are much smaller and each figure must be divided by at least “4”. Just as the size of each round increased, so the time between successive financing stages decreased. Some entrepreneurs believe that if they do not close financing rounds every 12 months, it means that they do not follow the success path and fall out of the VC market. It’s not true.

Investing in “spacecrafts” that either go to the moon or break down on the way

The approach of VC funds from Silicon Valley assumes investing in “spacecrafts” that will either reach the moon or break down on the way. In other words, you are either 0 or 1 and there is nothing in between. This approach seems to work with respect to marketplace companies or social networks, which both require a lot of effort at the beginning to reach critical mass. It is less accurate for SaaS and so-called managed marketplace companies, in which capital expenditures and growth trajectory are more gradual. This also applies to the majority of Polish companies, which want to scale locally and regionally rather than immediately fighting for a global position. This does not mean that these companies can not become “spacecrafts” at some point, but certainly, these two can not happen at the same time. This is particularly important in Europe, where marketplaces and social networks have never been a strong domain due to the fragmentation of markets, regulations, etc., while SaaS (or other b2b/b2c or similar models) are a very rapidly developing field.

A few drops of adrenaline instead of one stab to the heart

SaaS (or similar) do not need a huge amount of funding in one shot to finance their R&D, marketing or sales teams. Quite the contrary, in the long run, SaaS need a relatively small amount to experiment and develop their product. Therefore, they should raise a few smaller seed rounds before they close the larger round A. It is better to take a few drops of adrenaline instead of one stab to the heart. There is a personal dimension to this – for VC one or two unsuccessful investments are included in the model of operation, but it is different in the case of an entrepreneur. She puts her heart into business, devoting money and often sacrificing personal life. She can learn and gain valuable experience from a big-ticket failure, which may result in a different approach in the next attempts and eventually a “spaceship”, but it can also end with burnout and doubts. Fortunately, there are other ways to build a successful company.

Looking for profitability at the expense of growth?

Why not enter the path of profitability before you run out of money? Why rely on the mercy of the capricious VCs? Does looking for profitability always have to be at the expense of growth? Probably not. If the growth metrics are calibrated on a regular basis, you can set the company to achieve profitability and independence at the exact moment when the funds end. You can then press reset, raise another round and move the breakeven point forward, adjusting the growth metrics. And then you repeat the whole process again. I am convinced that it can be done at any stage without sacrificing the dynamics of growth. Funds usually want to invest more funds to achieve greater growth and give themselves and the company the chance for the next round. Companies choose to take a larger round to forget about fundraising for a while and be able to focus on business. However, if these goals are not achieved, it ends with a difficult financial situation (because profitability was not planned) and the need to raise the round on unfavorable terms to be able to survive. In such a situation, VC funds will usually own a larger part of the company than the founders have ever planned to give away. And there is nothing extraordinary about that – VC funds just work that way. So before you enter the VC world, think about your approach and the risks associated with it. Treat the current round as if it were your last, and it will be much easier for you to control the situation.

You should go to the market when you and your company need it, not when the bank accounts are empty. Build your business your way.


Maciej Balsewicz

CEO and Managing Partner of

Passionate about technological innovation and entrepreneurship. He has 12 years of operational and investment experience in VC and PE. Former vice-chairman of Inpost Paczkomaty, and earlier the CFO at easyPack, where he managed operations on 15 markets and was responsible for obtaining financing for the international expansion of the total amount of EUR 200 million.