How do you know your startup is viable for venture funding?
Ben Narasin, Partner at Canvas Ventures explain why it’s not always the best option to raise venture funding and you can succeed anyway.
I see a lot of entrepreneurs pitch businesses that are good businesses, they might even be on a journey of great businesses. I don’t believe those are generally a fit for venture capital, because unfortunately venture capital needs effing phenomenal businesses, and this all boils down to economics. You’ve got a three hundred million dollars venture firm, they have to believe that every investment they make, might return to that fund.
So if you have a billion-dollar outcome, that sounds huge and it is, and it’s good enough. But that’s probably 20% of that company going back to the venture firm room, around 200 million dollars, which means they have not yet returned the fund. So when you understand the reality of what venture firms need to do to be rewarded, you better understand why they need you to be a certain type of business.
There is absolutely nothing wrong, in fact, there is plenty of things that are great about an entrepreneur that builds a business over a period of time and sells it over 15 million dollars, 100 million dollars, and that can be material to the entrepreneur, especially if they have good ownership. Think about the firm that funded them, 20% of $100 million dollars is $20 million dollars. On a 300 million dollar fund where an investor will make one investment a year, and probably six investments during the life of that fund.
They just used up a bullet on something that’s not material to their own business to their LPs, that’s pretty dangerous. So I do encourage entrepreneurs to think about what they need, what’s the outcome that makes you fulfilled and you match that to who you raise money from. Because if you raise money to fly a jet when your own desires is to drive a car, you are in a world of frustration and there are many ways that can go bad, none of which you would look back on with a great joy and many of which can impact your own network later on a way that you’re not going to appreciate.
Fundraising in Silicon Valley
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