How to spend your funding ?

Many venture capital firms or professionals would want you to spend wisely and most importantly get break-even point before spending more. One of my VC told me recently that the next trench of money coming in will be for me to expand the company fast. While the 1st trench is for me to get the company towards break-even. This sounds logically.

Here's a real case in China.

2 similar companies in the same internet P2P download industry, both obtained a few million USD in funding. Company A upon receiving the funding move into low gear, calculate their financials and base their new business plans towards ensuring the company will survive for the next 7 to 8 years. While Company B designed their financials and business plan to only last 12 months, basically going to spend all their money away to get market share. Today Company A is still around, became a small player in the P2P download business. They still have their Series A money in the bank with a good small healthy profit margin each month. Company B on the other had become China largest P2P download site and a key player in the online games cooperative publishing business racking millions of RMB each month. VC are chasing to throw money at them everyday while Company A is seeking their Series B funding to expand its business.

I meet another VC friend based in South China and had a long chat with him after reading one of his term sheet which requires the company to pay back the investment within 5 years if the company do not go IPO or being acquired unless the company cant last 5 years. I asked him the reason why ? He said that all the money they invest into a company is for them to spend and make a success out of the company. It is not for survival so the founders shouldn't design the company for survival. If they lose all the money in the right way then be it ! But if they dont spend and slowly spend the money for survival then its better for a VC to invest in stocks.

So in theory the money is for you to either grow BIG and HUGE or just simply die and close down. I strongly believe in this method whereby the entrepreneur should plan to use the money to grow, expand and make the business huge or if he wants to do it slowly then dont take VC money.

Many may not agree with this notion and concept tho' for many reasons. Many VC wants a healthy portfolio that's alive and kicking. Some believe that survival allows a company to sit and wait for the right time and moment to come just like gambling we need patience.