Stage 1. The High - Why?

This week’s newsletter arrives on a Saturday — a clear violation of the promise I made to you. But the truth is simple: I just haven’t had the time. I usually write my posts the weekend before, but last weekend I managed to snap my Achilles tendon and ended up in the hospital getting a cast. And despite spending the week unusually stationary, I still haven’t had a moment to “sit down” and write (sitting down hasn’t been the problem, I’ve done nothing but sitting) — too many other things have demanded attention.

I tore the tendon during a tennis match two hours from home. I had to grit my teeth, hop into the car, and drive back using my left foot instead. The lack of movement this week has taken a toll on both my mindset and my creativity. Just as I was finally getting back into tennis, I’m now looking at twelve months of rehab. But with this forced slowdown, I’ve decided to lean into writing even more. I’m working on a novel in true Capitaholic spirit, and I’m only about 15% away from a complete first draft. Finishing that draft will be my Christmas present to myself.

My company that I bought back from the bankruptcy estate is ticking along nicely, and there are some genuinely exciting things developing. I’ve realized, though, that the most exciting things are almost impossible to report on transparently — precisely because their outcomes are still uncertain (which also is the reason for them being exciting in the first place). Once things solidify, I’ll share what’s happening.

This week’s newsletter focuses on the first step in a Capitaholic’s journey. My plan is to explore each step in depth. To understand the underlying mechanisms — the forces that pull founders into the capital-saturated path, and the investment opportunities that act as the gateway drug into capital dependence. Why do we choose capital over the alternatives? This won’t be heavy on scientific evidence; it’s mostly informed speculation based on personal and observed experience.

But first, of course, we begin with this week’s Capitaholic:

Yoodli

Yoodli earns the title this week after raising $40 million at a $300 million valuation. As a product it’s more or less a wrapper around whichever language model you prefer, designed to coach you through presentations, conversations, feedback sessions, and more.

The only metrics we’re given to make sense of the valuation are a 900% increase in ARR and some user statistics that tell us very little. To me, that suggests the valuation is about as disconnected from revenue as today’s kids are from reality with TikTok glued to their faces.

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1. The High → 2. The Chase → 3. The Hangover → 4. The Crash → 5. The Rehab

When I started Binary Brains with my co-founders, we agreed we wouldn’t raise capital. We believed we could do it ourselves. We saw the upside of building without external funding — of doing it “for real.” We met a few investors through the incubator we were part of, and sitting in a room with them as a great AI-focused team in 2019 and clearly stating we weren’t raising capital was, ironically, the most effective way to attract interest.

It didn’t take long before we hit a crossroad: either focus entirely on a customer that would have pulled us away from our AI vision, or try to serve that customer and stay on the AI track — by raising capital.

During the summer of 2019, we declared we would bootstrap. By the autumn kickoff, we had changed our minds. And by the end of the year, everything was essentially lined up. We aimed to close the round in March 2020 — and then Covid hit. The timing was impeccable in the worst possible way. We had already oriented ourselves around a VC-driven strategy and wouldn’t survive without the capital we hadn’t yet secured. We became dependent on the idea of capital before any money had even arrived.

When we finally closed the round at the end of May, it was with our backs against the wall. Co-founders had already begun sending out job applications. That round changed everything. We could scale. We were mentioned in the tech press. It even affected how we saw ourselves. And, unfortunately, I think even customers liked it — we were perceived as a safer partner, one validated by venture capital.

There’s a lot embedded in that story — plenty to unpack and learn from.

From a neuropsychological perspective, “the high” isn’t mystical — it’s dopamine + social status + unexpected validation.

Research on the brain’s reward system shows that dopamine isn’t triggered merely by reward, but by unexpected reward — the so-called reward prediction error. When something goes better than expected (say, an unexpected email from a VC), the dopamine spike is significantly stronger.

Our first round ticked every box. We received unexpected validation while the world was falling apart. We got enormous social proof through media coverage, investor cheerleading, and LinkedIn praise. The tech press — and your peers — couldn’t care less when you sign another customer, but they erupt when you raise capital. There’s simply no dopamine hit from customer traction that competes with venture funding.

For context: in 2019 we won IKEA’s global open innovation competition for AI forecasting, competing against 1,000 companies vetted by IKEA and PwC.
An incredible achievement.
Nobody cared.

The gateway drug is almost always harmless at first.
Weed before heavier drugs.
Beer before alcohol addiction.
Angel investors before capitaholism.

And we all know there are more potent, more destructive stimulants in the ecosystem than angel investors.

Research on signalling theory in entrepreneurial fundraising shows how investors and founders use signals — background, team, previous rounds — to communicate quality. When a VC steps in, or even expresses interest, it functions as a powerful quality stamp and social proof. Studies show that lead investors psychologically influence others by signaling safety: “If they’re in, I’m in.”

A term sheet is not just validation — it’s a social multiplier.

Raising capital is essentially a pyramid scheme in social proof, and you walk out as the temporary winner.

Thank the tech media for that.
Biggest round wins.

Beyond the craving for external validation, a huge factor is uncertainty reduction.

Starting a company is an exercise in extreme uncertainty — all of it resting squarely on your shoulders. Passing some of that weight to investors and their money feels relieving. As a founder, you’re acutely aware of every flaw, every risk, every unresolved challenge. Funding temporarily quiets that anxiety.

But do you actually need the money?
If an investor is interested, you’ve already proven something. If you push forward and keep doing what brought you that interest, you’ll get the answers you need — real answers — from customers. With investor money, you get the answers from investors instead. And you can hide the shortcomings by throwing capital at them.

Short-term relief.
Long-term cost.
Like peeing in your pants on a ski trip — warm for a moment, cold forever after.

Self-determination theory explains another part of the appeal. Investments satisfy our core psychological needs: competence, autonomy, belonging. Someone believes in you. You gain freedom. You become part of “the club.” That’s why it feels more attractive to be chosen by a fund than to sell more to customers. Customers bring revenue; investors bring identity.

And then there’s the success narrative: in the startup world, success and capital raised are nearly synonymous. When money is on the table and the supposedly selective investors want you, it’s incredibly hard to walk away.

The system is designed to make a “no” difficult. Psychologically, every one of Cialdini’s principles of influence is in play:

Recognize them. Don’t let them manipulate you. Instead, flip them — use them in your customer relationships. You’ll have plenty of time to do that if you stop chasing investors.

Guard yourself against the need for external validation. Seek it from your family, your customers, and yourself.

Create your own high when you sign a new customer. Celebrate it aggressively. If you own the company, that’s your money coming in — an unmatched feeling.

Ignore what others are doing.
Ignore your competitor’s massive round.
Ignore your friend’s big raise.
Walk your own path.

The flaws your competitor hides with capital, you will have solved by the time they’re forced to face them — during the Hangover stage, at enormous financial and emotional cost.

If you’ve already raised capital, break the addiction now. Spend less than you earn. Immediately. Cut the office, the headcount — whatever you need. Keep the remaining capital as a buffer if there are some left. If investors think your strategic shift is wrong or your growth too slow, offer to buy them out — as soon and as cheaply as possible.

More on that in the coming steps.

Have a more mobile weekend than I do.
See you next week.
I’m not going anywhere. Literally.

/Jacob Kihlbaum

Capitaholic Anonymous