A Brief Guide to Raising Venture Capital for Pre-Revenue Startups
Yes, some companies raise VC pre-revenue, but how do you know whether your startup should be one of them?
If you’ve read my articles for a while or had the fortune — either good or bad — of taking an entrepreneurship class with me, you know I often preach the importance of traction when fundraising. Simply put, raising venture capital isn’t hard if your startup has good revenue or user growth. Trust me. Tell an early-stage VC your startup is doing $2 million in ARR, growing 30% month-over-month, and needs a cash infusion in order to start growing at twice that rate, you’ll raise capital.
The reason entrepreneurs struggle fundraising is because they reverse the process of building startups. They think they’re supposed to raise money and then build a company. But that’s not how VC works. Venture capitalists rarely give money to pre-revenue companies because those companies don’t have proven customer demand, which is the thing VCs need to see in order to know whether or not a company can become a profitable business.
When I point this out, nobody ever refutes my assertion. However, I always get a handful of comments on my articles about traction, as well as emails from readers, arguing that not every startup can have…
