Ok some of this post I’d hope would be blindingly obvious.  But it isn’t, so I’m going to try to help by being brutally direct:

No VC on Planet Earth Wants to Invest in a Startup with Mediocre Growth

None.  No one.  Zero.  I can’t tell you how many emails a week a month that go something like this:

  • “It’s been a challenging year with 30%-50% growth, but with some funding, we can grow much faster next year!” or
  • “Our customers love us.  While growth has slowed the past few months, with just a bit more capital …” or
  • “We’d be growing faster, but we don’t have the capital” or …
  • Well you get the point.

I get it, I hear you. and trust me, I’ve been there.  I’ve had a Year of Hell.  So have most of us.

But listen, to save you energy and some breath: literally no VC wants to fund anyone with mediocre growth.

What’s that?

  • From say $100k-$1m ARR, growth less than 200%
  • From say $1m-$5m ARR, growth less than 125%
  • From say $5m-$15m ARR, growth less than 100%
  • From $20m-$40m ARR, growth less than 60%-80%
  • From $50m ARR, growth less than 60%
  • From $100m ARR, growth less than 40%-50%

Why not? Look, it’s just math.  To make money, VCs need to see a $1B+ exit in 7-10 years.  That also means to $200m ARR in 10 years or so.  Not on every deal, but they at least have to believe every deal can do it.  

You just can’t get there with even Good growth, let alone Mediocre growth.  It just doesn’t compound fast enough.

I know there’s tons of VC advice out there these days about being more efficient, and that’s good advice.  And also, VCs are much more tolerant of lower growth for existing investments they’ve already made — if they don’t need more money.  But VCs just can’t afford to invest in lower growth startups.

Sorry, I know this is a bit of a Louder For Those in the Back post, but so many don’t fully get it.  VC is what it is.  It’s a business of outliers and unicorns.  Even now.  Maybe even, especially now.

Why VCs Need Unicorns Just to Survive

Now there are a few exceptions, but understand them:

  • First, in the very early days, at low valuations (<$10m), VCs may have different views on just how many customers and traction you need to raise a relatively small round.  But even there, VCs are still hunting for outliers.  It’s just early.
  • Second, your existing investors likely will still want to support you if you have Good But Not Great Growth.  They’re in for a dollar.  But ask.  Ask them if they’d invest again. You have to ask.  Ask.  More on that here:

Need a Second Check From Your VCs? Here’s How “Reserves” Work

Yes, you’ll hear a ton of stories from founders that had to meet 150 VCs to get 1 term sheet.  I lived that myself, too.

But you still have to check most of the boxes to get funded even there.  And mediocre growth … that’s just tough.  Assume you’ll have to just push on without a capital injection, for now at least.

In fact as a founder, I’d say 50% of the time, I was unfundable.  Find out if that’s you or not.  And be careful not to waste too much energy fundraising when … you’re not fundable.

(Snail image from here)

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