We live in an era rife with narratives of unicorns, decacorns, and startups seemingly exploding overnight into multi-billion dollar companies, and every budding entrepreneur seemingly dreams of being the next Elon Musk or Mark Zuckerberg. But the truth is that not all startups need to have a “venture capital scale.”
There's a common problem with many startups I work with as a pitch coach: companies will try to raise money from venture capitalists despite knowing that they can't possibly generate returns on the scale those venture capitalists expect.
It can be a startup on a scale of risk and obtain capital funds venture or choose a different path and build a very lucrative company anyway. But the two will never intersect: if you're trying to pitch the startup to VC without offering a return at VC scale, you have about the same chance as a snowflake surviving in the face of a flamethrower.
A brief analysis can be carried out between the differences between a company that can reach a risk scale and one that cannot.
How do I know if my startup is enterprise scale?
Understanding whether your startup can be enterprise-scale is not just about intuition or a hopeful look at big competitors. It is a combination of market analysis, business introspection and strategic foresight.
Below is an initial checklist:
1. Target market size: Is the target market broad? Startups seeking venture capital often target markets valued in the billions. Analyzing the total market the company is aimed at (TAM) is key. If it is very relevant and an important part can be captured, the path is the right one.
2. Scalability: Can the product or service be scaled without proportionally increasing the costs involved? If adding a new user or selling another product doesn't significantly increase costs, you have scalability.
3. Unique value proposition– Are you offering something truly unique or a much better version of an existing solution? If competitors can easily replicate the product, for a VC it could be seen as a challenge.
4. Solid Team and Execution: Can the team take on massive challenges and navigate the turbulent waters of scaling the startup? Venture capitalists don't just bet on ideas; They bet on teams.
If all the boxes have been checked, the startup has the potential to reach a scale that is attractive to a venture capital fund. You have to build a good presentation and go after it.
What happens if venture capitalists don't invest in the startup?
Yes, when approaching several VCs, with the platform in hand and the enthusiasm dial at 100, the response has been lukewarm. Is it the fundraising climate? Don't you appreciate the depth of the founder's genius? Or is there something else at play?
Below are some paths that can be taken:
- Evaluate yourself: requires reviewing the business model. Maybe there is something that was overlooked? An overrated TAM? Is the product as unique as you think? This phase is all about introspection and adjustment.
- Bootstrap: many successful companies started with bootstrap; They relied on personal savings, income, and organic growth rather than external financing. Starting startups is a lot of fun. It allows you to grow at your own pace and maintain complete control, and doesn't end up in the mentalist-adjacent growth trajectories that venture capitalists demand.
- Seek alternative financing: venture capitalists are not the only avenue available. Angel investors may have different expectations regarding investment performance. You can also take out bank loans, crowdfund, and even take advantage of government grants. Some startups also turn to contests or incubator programs that offer seed capital.
- Consider a twist: perhaps the current model is not at risk scale, but with some adjustments or a different direction, it could be. A good number of successful startups started with completely different value propositions and business models, and did not follow the path of hypergrowth until they found a different business model that put them on their current trajectories.
- Reassess objectives: perhaps the risk scale is not the best option for the business, and that may be correct. Many successful companies thrive without ever becoming unicorns or pursuing hypergrowth. It can be a profitable and sustainable business that brings joy, employs many people and makes a difference. Best of all, companies that grow sustainably often also offer a better work-life balance.
Know the strengths
Raising multimillion-dollar checks and burning them on the path to profitability is fun, but it's not the only path to success. Countless entrepreneurs have built successful and sustainable businesses without even stepping into a VC's office.
If you decide to go the venture capital route, it is imperative to understand this perspective and how venture capital works. They look for outsized returns, which means they look for startups with huge growth potential, defensible positions, and stellar teams.
The sometimes confusing truth is that there is no one right way to build a company. However, what is universally true is that the entrepreneurial journey is more like a marathon than a sprint. Whether or not you choose the venture capital-driven path, the key is resilience, adaptability and passion.
Therefore, you have to put on running shoes, water, get energy and keep going.
