They invest $1m into your startup for a 20% ownership stake.
You use that money wisely, hit profitability and decide you don’t need to raise more money. 10 years later, you sell your business for $30m.
You still own 80% of the company and walk away with $24m. For you, the founder, this is a life-changing triumph.
Now, here's the VC’s ledger:
- Company Sale Price: $30m
- VC Ownership: 20%
- Cash returned to VC: $6m
- VC Goal: $300m (assume 3x+ target return on $100m)
- Progress toward goal: 2%
Even though you built a healthy business, your success only moved the needle by 2% for the VC. From their perspective, the time and space you took in their portfolio was “wasted” because you didn’t have the potential to return the fund.
This is why VCs push founders to go “big or bust.” They would rather you take a 90% risk of going bankrupt trying to become a $1bn “unicorn” than settle for a 90% chance of becoming a $30m business.
In the VC model, a $30m exit and a $0 exit look almost exactly the same.
This is why the "raise once and done" or "seedstrapping" approach doesn't work for VCs.
But, that doesn't mean it won't work for other types of investors.
some. there's 90+ lists with 100k+ records. the db like openvc, shipshape, nfx, etc, will be pretty much up to date. rest to be checked. if any of the lists are outdated, let me know. happy to take it down.
What is this shit? You whine about gatekeeping then I click the first item on your site and it's a link to a google doc gatekeeping the shit you're whining about gatekeeping... I'm genuinely curious what your excuse is because you look like a massive hypocrite right now.
thanks, good feedback. we just acquired www.nocodefounders.com, which historically runs on bubble but find it quite slow and expensive. what are the best alternatives?
The single biggest challenge when pitching to VCs:
Convincing them that you can return their fund.
VCs never talk about this at the meeting. But, it is THE key factor that drives their decision.
Took me a while to understand this when I was fundraising.
These 6 simple steps helped me address the “fund returner” during the pitch:
1 - Always check the fund size of each VC before the meeting - an easy one today with all the ai search tools out there.
2 - Say it's $100m. This means that you need to show the VC how they will get $100m from your startup at exit (sale or IPO), i.e. that you will “return” their $100m fund.
3 - Assume the VC will own 10% of your startup at exit --> if they need to get $100m back, that means your exit valuation needs to be $1bn.
4 - Next, assume that the revenue multiples in your industry are 5x --> this means that you will have to generate $200m of annual revenues.
5 - Now, divide that by your current Average Revenue per User (ARPU). This will get you to the number of paid customers that you need to have at exit.
6 - Say, your ARPU is $10k. This means that you need to have 20k paying customers at exit with your current business model / pricing.
Now you’re done with your prep.
Your main job is to explain how you will acquire all those customers (or increase the ARPU).
The more concisely this is baked into your story, the easier you make it for the VC to invest.
They invest $1m into your startup for a 20% ownership stake.
You use that money wisely, hit profitability and decide you don’t need to raise more money. 10 years later, you sell your business for $30m.
You still own 80% of the company and walk away with $24m. For you, the founder, this is a life-changing triumph.
Now, here's the VC’s ledger: - Company Sale Price: $30m - VC Ownership: 20% - Cash returned to VC: $6m - VC Goal: $300m (assume 3x+ target return on $100m) - Progress toward goal: 2%
Even though you built a healthy business, your success only moved the needle by 2% for the VC. From their perspective, the time and space you took in their portfolio was “wasted” because you didn’t have the potential to return the fund.
This is why VCs push founders to go “big or bust.” They would rather you take a 90% risk of going bankrupt trying to become a $1bn “unicorn” than settle for a 90% chance of becoming a $30m business.
In the VC model, a $30m exit and a $0 exit look almost exactly the same.
This is why the "raise once and done" or "seedstrapping" approach doesn't work for VCs.
But, that doesn't mean it won't work for other types of investors.
Or, does it?