“Profitable Web Startup” is not an Oxymoron

A big chunk of my time goes to meeting with early-stage entrepreneurs. My goals for these meetings are: to get to know the founders as people, to learn about their product and business strategy, and to talk about whether and how we (Founders Co-op) might be able to help them.

At some point in these meetings, I always ask how the founders are thinking about getting to breakeven: how much money it will take, what has to happen, and how much of that plan is based on real numbers versus conjecture. Some teams have thoughtful and well-supported answers to the question, but a surprising number of entrepreneurs look at me like I have two heads, and then go on to say something like “we’re focused on building our customer base right now and monetization isn’t really a priority.”

As soon as that happens, I know it’s time to start winding up the meeting (at least as far as our investment is concerned). From a fund perspective, we don’t see any reason why “startup” and “profitable” shouldn’t appear in the same sentence, and we like to work with founders who feel the same way. We know this cuts against the grain of the traditional venture model, but in many ways that makes our job easier: founders that operate their companies with a scrappy, revenue-minded approach tend to get the same quizzical looks from venture investors that I give to the “go big or go home” guys.

I’m well aware that a lot of money has been made by founders and investors in companies that never turned a nickel of revenue. As with lottery winners, rock stars and best-selling authors, these spectacular-but-statistically-rare outcomes tend to obscure the fact that most businesses that create long-term value for their owners do so by creating value for customers, value that those customers are prepared to pay for. Maybe “early-stage value investing” is an oxymoron for most people, but it’s a pretty fair description of what we’re up to here at FC.