When You Raise Venture Capital, A Clock Starts Ticking. At First, Softly. Then Louder and Louder.

So we’re back to Good Times in venture and tech:

• Many SaaS stocks are back on a tear the past few months (although often still way off 2021 highs)
• AI is fueling the largest VC investments of all time in Databricks and OpenAI, and
• The IPO markets are reopening.

Insight Partners, one of the biggest growth investors in B2B, just raised a new $12B fund.  Good Times.

Not yet the Best of Times, but Good Times again for sure.

And with that, VC fundraising can seem all like a game again.

I recently talked with a founder that raised a $4m seed, and their cofounder put their entire family on the payroll without telling anyone.  And asked, What’s Wrong With That?

Fundraising can seem like a game, a check-the-box part of being a “Founder”.   And to some extent, it is.

But if you haven’t been through it before, let me share one thing that’s not obvious:

Once you raise VC funding, it’s a clock starts ticking.  A countdown timer.  The pressure is slow at first, and the ticking soft.  But it starts to build, even just after 4-5 months, and especially after 10-12 months.

#1. Because usually, you’re only giving enough capital to last 18 months, 24 max.  

And it’s really less than that, because you can’t go raising a VC round from a position of strength unless you have at least 3-4 months of cash in the bank.  If you don’t, VCs will smell weakness.  Or at least, that time is on their side.  At least a little bit.

#2.  And it’s more complicated, and harder than that.  Because your existing investors will expect the price for the next round to be at least 2x what they paid, ideally 3x for seed investors.  

Because why else invest so early, and take so much risk?  And to earn a 2x or higher valuation, usually you have to do a lot more than grow 2x :). Getting from $10k MRR to $20k MRR won’t do it.  You have to be on the Triple Triple Double Double bandwagon, or close.

That often means going from $10k MRR to $2m ARR by the time of the next round.

If you are growing like a weed, none of this may bother you.  There may be no stress, at least not at first.  But for the rest of us, it’s a ticking time bomb of sorts.  That speeds up, the less cash is in the bank.

At least know the game.  And maybe, stretch that cash just a little further.

And realize if make good progress, but come up short of what it takes to raise the next round — it’s gonna be tough.  Even if you raise a round extension, flat round, or down round.  It’s still … tough.