I've never understood having employees for the sake of having employees. who is that impressing?
it makes me think of a midwesterner who has swung every vote when the politician says "jobs!" over and over again, and now they're funded and are like "jobs for the sake of jobs! look how many jobs I made!"
what are the tertiary benefits of doing this, if any? do the growth capital VCs need to see that? would be counterintuitive if thats a thing
just feel like I'm missing something as the employee growth have no causation for profit growth. any correlation is because people just have been getting a bunch of them and only have them if they can afford them, some of which is from profits sometimes when companies had those.
My guess is that it's because you want to be able to show that something is growing. Revenue isn't growing and customer numbers aren't growing. But you can make the company itself grow!
I thought about this a bit more, and maybe a more charitable scenario is that you want to be able to show that the VC money is being put to good use, and quickly. If you are hiring a ton of employees, it's a signal that a lot of hard work is being done and that the funding is being used directly to make it possible to complete that hard work.
I also want to be clear that my perspective is mostly that of a contributor. I have never founded a company or been involved with venture capital, or related forms of investing, in any professional capacity.
Personally I don't quite understand why a founder would want to take a huge pile of money and then burn it as fast as possible trying to hit some hyper-growth target, when they could instead take a small amount of money and set up a stable revenue-earning business. But then again, I'm so risk-averse that I haven't quit my job to start a business, so my opinion probably isn't worth that much.
> you want to be able to show that the VC money is being put to good use, and quickly
That's pretty much it. The VCs, at the height of the bubble, were forcing startups to take far more funding than they needed. A startup company can't just sit on the cash and do nothing with it, the funding needs to be put to work ASAP in order for the VC companies to justify having provided the funding.
Most startups are software companies, so they have limited ability to spend those mountains of VC money on capital expenditures. They can't spend their VC funding on building a factory or something. The largest expense in a software company is human resources, so that's what they end up spending their funding on (even if it's not in the best interest of the founders, employees or customers).
> Personally I don't quite understand why a founder would want to take a huge pile of money and then burn it as fast as possible trying to hit some hyper-growth target, when they could instead take a small amount of money and set up a stable revenue-earning business
They don't have a choice. If they don't accept the huge pile of money, they get nothing. The VC business model isn't compatible with slowly building a stable revenue-earning business. From the private equity investor's point-of-view, if they wanted to invest in a stable revenue-earning business, they can just go and do a leveraged buy-out of a well-established, stable revenue-earning business (like a health care business, or an older enterprise SaaS business, etc.) and skip all the risks associated with the startup phase. They only want to invest in a startup if it's a hyper-growth moonshot, and they don't mind burning founders, employees, customers and their own money in the process because they only need 1 in 100 startups to succeed and the other 99 are just tax write-offs for them.
It spreads the wealth, I’m not complaining. Is it ideal? Probably not. Does it lead some companies to explode into other areas and capture markets? Yes.
