Has the bar for raising VC capital changed?
Not really. The Best of the Best.
But today that means 100% growth at $100m ARR. pic.twitter.com/UD7ZMgD6qB
— SaaStr (@saastr) October 12, 2022
Q: What are some common misconceptions about funding a startup?
- Things are magically better when you get funded. It helps a bit, but in the first few rounds, you rarely raise enough to let you hire everyone you want, do every campaign you want, etc. It helps, but it’s not a radical change. At least, raising a seed round is rarely as much a radical change as many first-time founders think.
- You often overspend after raising your first round. Startups that have never raised a funding round often overspend right after. They just lack the DNA and experience to know how to properly budget what they’ve raised. More here.
- Investors are all-knowing. They generally have more start-up experience than you overall, but not in your industry and space. Take their advice with a grain of salt.
- More money will come. Often, it doesn’t, at least not for a long time. Each round generally is harder to raise than the last. More here.
- More money wins / creates the winner. Sometimes it does, in certain spaces. But it didn’t for Zoom, for Shopify. for Atlassian, for Mailchimp, for ZoomInfo, for Qualtrics, etc. All were lean or bootstrapped for a long time.
- VCs will block you from selling your company. Sometimes, this does happen. But usually, as long as your VCs make money, they will be OK selling at any fair price. They trust the founders to know when it makes sense to sell.
- Being VC funded validates you. Well, it does a bit. Just not as much as you’d think. There are just so, so many startups. It helps in general, and it helps with recruiting in many cases. Just maybe not enough to justify the dilution on its own.
- A “No” from any given VC means anything. It doesn’t. So many unicorns had to talk to 100 VCs to raise their seed round. Now, a No from everyone at the Series A stage or later probably does mean something. But not before. And a No now can easily be a Yes later, if you accelerate. A bit more here.
- Your VCs are busier and more important than you are. They aren’t. The average VC only makes 1–4 new investments per year. So they have time to talk, meet, etc. You do matter. VCs as individuals only make so many investments. More here.
- Getting top-tier VCs is a game-changer. Brands do help. But these days, most top funds are multi-stage. So you can always get Sequoia, A16Z, etc. later. They don’t have to lead your seed or Series A round. More here.