Early-stage founders, it is not 2021, and you are ignoring revenue at your own significant peril. Let me explain...
I met a founder last night who just closed a pre-seed investment for his SaaS startup. I asked him his goals for the next 12 months and he smiled and said, "user acquisition -- paid would be great, but I'd just be happy with a bunch of passionate free users at this point."
That's when the hairs on the back of my neck started to stand up.
I asked what his revenue target was for raising his Seed round in the next 14 to 18 months. "Ah, you know, I keep hearing from VCs that revenue is nice, but not really necessary."
Again, founders, it is not 2021. Interest rates are at 7.5%. Money is now very, very expensive. And your investors are getting their butts handed to them after several years of "revenue being nice."
1) There is real compression happening in the venture world and it is absolutely hitting the Seed stage. There are a zillion companies all competing for half the dollars available two years ago. As an investor recently told me, "good enough is no longer good enough; GREAT is often no longer good enough."
VCs are now in a position where there are ten great companies in the pipeline for every two or three checks they're going to cut this quarter. Unless none of those other companies have revenue, you're likely going to be left out in the cold. Good, but not good enough.
2) Even if you can raise capital on little to no revenue, the bar for raising a Series A is FIRMLY planted at $1.5M to $2M in ARR (up from $1M pre-pandemic).
It is hard enough going from $40k/mo to $160k/mo in a year and a half. Try going from $0 to $160k/mo in that same time span. When you are making little to no revenue, you fundamentally don't know if your business model works.
Your Seed round is about accelerating your business, not figuring it out. Revenue when raising a Seed round isn't a nice signal for VCs; it's the foundation for growing at the speed future investors will demand.
To paraphrase Stinger in Top Gun, don't let your ego write checks that your startup can't cash.
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