We live in an era rife with the narrative of unicorns, decacorns, and startups that seemingly explode overnight into multi-billion-dollar enterprises, and every budding entrepreneur is seemingly dreaming of being the next Elon Musk or Mark Zuckerberg. But the truth is, not every startup needs to be “venture-scale.”
I see a common problem with many startups I work with as a pitch coach: Companies will attempt to raise from VCs despite knowing they can’t possibly deliver venture-scale returns.
You can either be a venture-scale startup and raise from VCs or choose a different path and build a very lucrative company regardless. But never the twain shall cross: If you’re trying to pitch your startup to VCs without offering a VC-scale return, you have about the same chances as a snowflake surviving in front a Boring Company flamethrower.
Let’s talk about the difference between a company that can reach venture-scale and one that can’t.
How do I know if my startup is venture-scale?
Understanding if your startup can be venture-scale isn’t just about gut feeling or a hopeful glance at big competitors. It’s a mix of market analytics, business introspection and strategic foresight.
Here’s a checklist:
1. Size of the target market: Is your target market expansive? Venture-scale startups are often eyeing markets worth billions. Analyze your total addressable market (TAM); if it’s vast and you can capture a significant chunk of it, you’re on the right track.
2. Scalability: Can you scale your product or service without proportionally increasing the costs involved? If adding a new user or selling another product doesn’t significantly increase your costs, you’ve got scalability.
3. Unique value proposition: Are you offering something truly unique or a much better version of an existing solution? If competitors can easily replicate your product, achieving venture-scale might be a challenge.
4. Strong team and execution: Do you have a team that can take on massive challenges and navigate the turbulent waters of scaling a startup? VCs don’t just bet on ideas; they bet on teams.
If you’ve ticked all these boxes, congratulations! Your startup has the potential to reach venture-scale. Build yourself a good deck and go for your life.
What if VCs won’t invest in my startup?
Let’s say you’ve approached several VCs, deck in hand and enthusiasm dial turned to 100, but the response has been lukewarm. Is it the fundraising climate? Do they not appreciate the depth of your genius? Or is there something else at play?
Here are a few paths you can take:
- Evaluate yourself: Revisit your business model. Perhaps there’s something you overlooked? Have you overestimated your TAM? Is your product as unique as you think? This phase is all about introspection and fine-tuning.
- Bootstrap: Many successful companies started off by bootstrapping; they relied on personal savings, revenue, and organic growth rather than external funding. Bootstrapping startups is tons of fun. It lets you grow at your own pace and retain full control, and you don’t end up on the mentalist-adjacent growth trajectories demanded by VCs.
- Seek alternative funding: VCs aren’t the only game in town. Angel investors may have different expectations for returns on their investment. You can also get bank loans, raise crowdfunding and even avail government grants. Some startups also turn to competitions or incubator programs that offer seed money.
- Consider a pivot: Maybe your current model isn’t venture-scale, but with a few tweaks or a different direction, it could be. Quite a few successful startups started out with completely different value propositions and business models, and didn’t go down the hyper-growth lane until they found a different business model that set them on their current trajectories.
- Reassess your goals: Perhaps venture-scale isn’t the best fit for your business, and that’s okay! Many successful businesses thrive without ever becoming unicorns or pursuing hyper-growth. You can have a profitable, sustainable business that brings joy, employs many, and makes a difference. Best of all, businesses that grow sustainably often offer a better work-life balance, too.
Know your strengths
Raising multi-million-dollar checks and burning them on your way to profitability is fun, but it’s not the only path to success. Countless entrepreneurs have built successful, sustainable businesses without ever stepping into a VC’s office.
If you do decide to go down the VC route, it’s imperative to understand their perspective and how venture capital works. They’re looking for outsized returns, which means they’re looking for startups with massive growth potential, defensible positions and stellar teams.
The sometimes confusing truth is that there’s no one right way to build a company. What is universally true, however, is that the entrepreneurial journey is more akin to a marathon than a sprint. Whether you take the VC-fueled path or not, the key is resilience, adaptability and passion.
So, lace up those running shoes, munch down an energy bar and keep going.