No matter how great the product, a business needs funding to grow.
Historically, the funding in question has come from venture capital (VC) firms. Venture capital may be deployed towards product development, but it mainly supports a startup's capability to drive further and further growth. Who Does VC Benefit?
Like Hollywood, venture capital is in the 'hits' business. Funds prosper from outsize returns in a very small number of investments. Most companies lose money or barely break even. It's the handful of blockbusters that represent all the profit within the industry.
While Shark Tank
makes venture capital look simple, it's a tricky business off-screen. VC brings more opinions to the table, which can lead to a loss of control, contradictory goals, overspending, and distractions to the managerial team, not to mention a lot of debt.
And the "growth at all costs" model is a contentious one. The logic implies that, by growing faster than the competition, a startup can capture a disproportionate percentage of a market in the long term.
But not all founders want to forgo profit in exchange for growth, and not all businesses are setup to grow at all costs, especially through taking on debt. For the cohort of founders who prefer to grow slowly and enjoy the reassurance of profit as they progress, a venture capitalist's goals won't align with their own.
In response, a new category of provider is emerging to address the specific needs of this growing segment. Known as "venture services," these firms serve as a partner, not a vendor. Part product developer, part investor, they add the most value to startups at seed stage by providing non-technical founders with on-demand product teams in exchange for a mix of equity and cash.
Because businesses that last longer are stronger, venture services firms are invested in sustaining the company, rather than simply growth.
Venture services combats the fees-for-service arrangement — an arrangement that creates a project-centric (not product
-centric) mindset - that rarely delivers the strategic thinking necessary to scale a software product through multiple iterations.
Because the firm's goals align with the client's, its team must consider the product's lifetime, not just its immediate requirements.
Additionally, a venture services firm will offer equity financing for a portion of the project.
A good example is Castle's recent partnership with Trey Gibson, founder of Spotio, a Saas company that supports the Door to Door sales industry. Trey grew Spotio to over $1m ARR without a dedicated product team or CTO in less than 3 years.
A salesman by trade, he quickly found that product was holding his business back and consuming a disproportionate amount of his time.
Instead of growing his customer-base and talking to customers he was firefighting outages and persistent bugs.
By partnering in exchange for a 50/50 mix of cash and equity financing, Trey secured the committed product team he needed, without the non-linear challenges an inhouse solution presents.
By sharing risk and potential upside, venture services firms are properly incentivized to collaborate and take intellectual ownership of the startup's strategic and business goals. Their goals are the startup's goals. And when those goals align, the business gets to create the product it actually wants to — not the product an investor wants to see.
As both an investor and a partner in development, venture services offers an alternative to funding technology-enabled growth, helping non-technical founders
scale their business the way they