Is Venture Capital Right for Your Startup?

The Alternative Path to Startup Success: Prioritizing Profitability

A common trajectory in Silicon Valley involves securing startup funding, driving sales, and repeatedly raising venture capital. The ultimate goal is often an IPO or acquisition, ideally resulting in substantial financial gains.

However, an alternative approach exists. What if a company deliberately avoided the continuous fundraising cycle after an initial round? What if it prioritized achieving profitability through measured, sustainable expansion, contrasting with the frequently observed pattern of unprofitable growth seen in many venture-backed ventures?

SecurityPal AI's Journey

This question prompted Pukar Hamal, founder and CEO of SecurityPal AI, to reassess his strategy after a $21 million Series A funding round in 2021. A year later, the company was facing a critical financial situation.

The Series A round was spearheaded by Craft Ventures, led by David Sacks, and included participation from Martin Casado of Andreessen Horowitz and Frederic Kerrest, co-founder of Okta.

Hamal shared on TechCrunch’s Equity podcast that he launched the company in March 2020, marking it as his second entrepreneurial endeavor.

His prior company, acquired through an acqui-hire, had secured initial funding before achieving product-market fit – a prevalent practice. Founders often seek investment before definitively validating customer demand.

Hamal now considers this earlier decision a significant “mistake.”

Consequently, with SecurityPal, he adopted a different strategy. He waited until the company reached $1 million in Annual Recurring Revenue (ARR) – a process taking approximately one year – before pursuing and closing his first, and to date only, funding round, the Series A.

Leveraging AI for Enterprise Security

SecurityPal utilizes AI to accelerate security due diligence for enterprises, a crucial step in every major transaction involving new IT contracts. The platform aims to reduce security reviews from months to days or even hours, resulting in cost savings and faster deal closures.

The company boasts prominent clients including Airtable, Figma, LangChain, and Grammarly.

In 2022, however, the company encountered a challenge. Rising interest rates negatively impacted the venture capital landscape, making further fundraising difficult. “We were consuming a significant amount of capital,” Hamal explained, “and were roughly 14 months away from exhausting our funds.”

This served as a pivotal moment. Hamal implemented substantial cost reductions, including workforce reductions. The experience was deeply impactful, leading him to commit to a different operational philosophy. “We extended our financial runway and focused on achieving cash flow break-even and ultimately, cash flow positive profitability,” he stated.

Choosing Sustainable Growth

Despite the renewed flow of VC funding, particularly for AI startups in 2025, SecurityPal has not sought additional investment.

Hamal believes that accepting venture capital comes with inherent trade-offs. “The more capital we raise, the greater the expectations, the more control we relinquish, and the increased pressure to hire personnel who may not be a good fit,” he explained.

He emphasized that for many venture capital firms, growth is the primary metric, sometimes even prioritized over improving gross margins.

This can lead to increased losses despite rising sales. VCs often operate on the assumption that founders will address profitability later, relying on continued fundraising. Failure to secure further funding can jeopardize the company’s survival.

Hamal’s vision for SecurityPal is “durable growth” – a slow and steady progression. Limiting deployments allowed his team to provide comprehensive onboarding and support, even for complex customer needs.

He wanted to avoid rapid sales followed by customer churn due to inadequate product adoption. “This scenario is common due to the intense pressure on companies to expand quickly,” he noted.

Conversely, he observed that slower ARR growth can foster “healthy gross margins and efficient cash collection.”

A Nuanced Perspective on Venture Capital

Hamal clarified that he is not dismissing venture capital entirely. He acknowledges that some startups may require continuous fundraising and rapid ARR growth. He isn’t even precluding another funding round for SecurityPal in the future.

However, he advocates for founders to carefully consider the alternative of slower, more nuanced growth strategies.

“I secured venture capital, and I’ve chosen not to raise it again because my objective is to position the business so it doesn’t continually require venture capital,” he concluded.

For the complete discussion, listen to the Equity podcast, which features Hamal’s insights on alternative funding sources.

We are committed to continuous improvement. Your feedback on TechCrunch and our coverage is invaluable! Please complete this survey to share your thoughts and potentially win a prize.