Startup companies in California’s Silicon Valley are often known for excesses such as offering gourmet meals and rock climbing walls on site. In many cases, they were able to raise capital from investors to cover the costs because they ultimately helped the company attract and retain key talent. Therefore, investors reasoned that these perks could allow for a profitable exit from a valuable company in the future.
However, one man who was an early investor in Google thinks that these excesses should be trimmed down. He noted that Chinese startups eschew fancy desk chairs or hundreds of square feet of space per employee. According to data gathered by management expense company Work by Coupa, smaller companies tend to spend more on meals and airfare. Companies that made less than $100 million in annual revenue spent 41 percent more on plane tickets compared to companies that made more than $10 billion per year.
This could be because there are fewer policies in place to control spending. Additionally, smaller companies tend to have less leverage to negotiate better prices compared to larger businesses. However, when companies are able to spend less, they need to raise less capital. This allows owners to keep more of their equity and the control that goes with it should the business go public.
While there may be benefits to a startup working with investors, there may be drawbacks as well. The more investment capital a startup requires, the less control it may have over its operations. Furthermore, there may come a point when investors simply stop providing fresh capital. Startup owners may wish to consult with a business planning and formation attorney prior to seeking out outside funds. This may make it possible to create investor agreements or draw up other documents that protect the company’s best interest.