Raising money isnt about revenue

Figma raised a $3.8M Seed + a$14M Series A all pre-revenue

So raising money isn’t about revenue ❌

In fact it was 3+ years before Figma had any of the common traction metrics (users, revenue, growth)

Sandvine, the first startup I worked for raised a $19.5M seed round pre-traction / pre-product right after the dot-com crash

So clearly it’s not about traction either

Okay then…

So what is it about?

🤩 Raising money is about investors believing in your (future) ability to hit Venture Scale

Does (historical) traction help?

Of course, it helps A LOT these days…

There’s only a very few that’ll be able to raise with zero traction → usually because of the team → some crazy breakthrough → or some other X factor

But on the flip side…

Traction doesn’t automatically equal funding 🤯

There’s a lot of startups out there right now with traction who are (or will) struggle to raise

And I don’t think that gets talked about enough...

We get often get sold this story → if you get to X traction = you’ll be able to raise → Growing 2-3x yoy = successful raise → $3M ARR = Series A

And so we put our heads down, burn through our runway, hit those metrics to eventually pop our heads back up and realize that it’s still not enough

But now we’re almost out of runway 😞

At least that was my experience…

I thought as long as our numbers went up and to the right, we’d be fine…

We doubled revenue, we had big customers with thousands of users and finally crossed $5M 🙌

But then we struggled to raise our next round → But we had lots of traction??

What I didn’t realize was that traction metrics are high level, lagging indicators and investors are looking for the leading indicators instead

That’s how they’ll build conviction that you’ll be able to get on (or stay on) the $1M to$100M in 7 to 10 years venture scale curve → meaning after you hit $1M in revenues you need to… → grow at 10% mom for 24 months straight → and 6% mom for the next 3 years 🚀

But the problem is…

Those leading indicators are complicated, different for each company, ICP, growth tactic and stage + sometimes take some gut & intuition on the investors side

So instead, VCs take the easy way out and say things like “you need more traction”

(and most founders take that literally as - if I can get more users, more revenue and more growth I’ll be guaranteed my next raise)

But now you know better 😃

Dig deeper and figure out what leading indicators you need to de-risk

And use that as your roadmap 💪

Author

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