Why a Fast-Growing Startup Tries to Keep Its Venture Funding Secret

Photograph by Steven Puetzer

CloudFlare, which has attracted nearly a million websites to use its services, doesn't like to boast about fundraising.

Announcing how much money you’ve raised is typically considered good startup hygiene. Chest-beating about big numbers brings attention, especially from prospective hires looking for a cash-rich company to work for.

Not so, said Matthew Prince, the chief executive officer of CloudFlare, which sells Internet security and infrastructure services. Providing a view into his company’s bank account could lead to threats of litigation and takeovers, he said in an interview at Bloomberg’s San Francisco office last week. And raising venture capital is not something to be proud of, he added.

“Why brag about fundraising?” Prince said. “Fundraising is a loss. It means you couldn’t generate enough cash flow.”

For eight months, Prince avoided disclosing a $20 million fundraising round led by New Enterprise Associates that CloudFlare had raised in November 2010. It has not raised another round since, said co-founder Michelle Zatlyn. ”It’s a rare startup that closes a $20 million venture round and doesn’t bother to mention it,” Michael Arrington wrote on the blog TechCrunch last year.

CloudFlare, which routs customers’ network traffic through its own servers to speed up load time and protect against attacks, has other things to boast about. An average of 2,000 websites are signing up to use the company’s tools each day, Prince said. CloudFlare has more than 500,000 websites using its services, and about 400 million Web surfers funnel through its system each day, Zatlyn said.

The startup, which has fewer than 40 employees, doesn’t want to go on a hiring binge, especially for the types of people who apply to a company after hearing it has raised money, Prince said.  Those engineers fail the startup IQ test, he said, because the shares they would get once hired would be less valuable than before the round.

“The best time to join a startup is right before it raises money,” Prince said.

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