Every year I teach classrooms full of students who leave class understanding the basics of how to search for product/market fit—and thinking their next goal is to “get funded.”
That’s a mistake.
There are two reasons to raise money:
- You have a killer idea that is only partially validated, that you think can get to $50M+ of revenue in 5 years with 80%+ gross margins (if margins are lower, you need a lot more revenue)and you need money to get to product-market fit, or
- You (think) you have product-market fit with real customers and real revenue and need money to grow and expand.
Not all startups need outside investment to grow.
What most founders don’t realize is:
- Every stage of a startup requires a different set of metrics and milestones and founder skills. Knowing these will help a founder position her pitch to get investors’ attention.
- Founders need to keep their eye on the prize — not just the next funding round
Luckily, I teach with two great VCs, Mar Hershenson of Pear Ventures and Jeff Epstein of Bessemer Venture Partners who both put together presentations unraveling the mysteries of how and why startups raise money. Jeff’s presentation is from the point of a view of “What Investors Want” (see resources here) while Mar’s takes it from a founder trying to figure out the funding landscape. And thanks to Ann Miura-Ko of Floodgate (my first Lean LaunchPad co-instructor) for her suggestions.
Keep in mind that there is no “one way” to raise money Different investors will almost certainly have different models, and different regions may have different math. Still, there are some benchmarks to keep in mind.
Here’s the first 2½ years of a startup journey.