I’ve talked to 50+ VC-backed startup founders and invested millions of dollars and what surprised me the most is the number of founders who didn’t know the “rules of the game” when they raised their first round.
Here are the main points you need to consider if you want to take the VC route. 👇
1- Exit Obsession
VCs focus on ONE thing - making more money with what they invested.
VCs work for LPs (Limited Partners). This means they MUST give a positive return or they will be out of the job.
To keep it simple, for every $1 they invest they aim to get a minimum of $3 back in 5 years.
So be ready to obsess over optimizing your enterprise value (meaning how to make sure to have the best metrics possible to sell)
Or you will never be aligned with your board.
2- Customer disconnect
A VC-backed company will always look for more growth.
Your decision will based on the growth metrics to please your board and not on what truly delights your customers (both can be aligned, but not always).
Think of Netflix when they had to charge their customers more (stop password sharing within a family) so they could grow (while at the same time making their customers angry).
If you take the entrepreneurial path because you’re obsessed with helping your customers, a VC-backed route can make it complicated.
3- Decision Paralysis
I’ve seen many times where founders are scared of taking action because they believe it will not please their board.
No matter what VCs tell you, down the line you should be confident to take bold moves and deal with the extra pressure.
4- Hypergrowth Pressure
VCs want a fast return. Their timeline is usually 5 to 7 years because they need to give a high return to their investors (LPs).
But not every company can have fast growth.
Not every founder can deal with the pressure associated with hypergrowth, so they end up burning cash on “fake scaling” things like hiring big sales teams without knowing if their unit economics work.
5- “Another round” trap
How can VCs build a track record if they usually want to exit after 5 to 7 years (as they promised their LPs?)
By giving a valuation to their portfolio.
And for them to show that their portfolio value is growing, they need two things:
1- They need startups to raise another round at a higher valuation
2- They need a liquidity event to exit (startup is getting acquired, an IPO, or selling to other investors)
So they want you to take the maximum risks possible because they are fine losing 7 times out of 10.
Meanwhile, founders play an “all-in” game because their startup is all they have.
You need to ask yourself are you fine with taking that level of risk knowing that you could be in control and have a lot more chance to succeed if you were bootstrapped?
P.S. I have nothing against the VC-backed route but I feel like it’s important to know the rules of the game you’re playing 💪
Every week I’ll publish new articles on how to build and grow a B2B business that generates millions of dollars.
Peace, love, and profit 💰
G. ✌️
.png)
.png)
