[Fundraising for Startups] Lesson 12: Understanding the Venture Treadmill

Today I want to tell you about something I call the Venture Treadmill. It's a real thing.

When you raise money for your company from anyone, you've stepped on to the Venture Treadmill. At that point, you're not rewarded for anything but growth.

Oh, you rebuilt your entire back-end so that it's ready for a billion users? Cool, but where's the growth?

Oh, you hired a really badass team? That's nice. Where's the growth?

Oh, neat. You got a cool office. Wowowowow. But where's the growth?

It would be funny, except it's true: it's easier than ever to raise your first $500K, it's harder than ever to raise your next million.

Once you've stepped on to the Venture Treadmill, the expectation is that you'll grow fast enough to require raising more money every 12-18 months -- if you survive at all.

If it takes you longer than that, most investors will think your company has stalled. If you raise money quicker than that, most investors will think you're growing incredibly fast.

It may not sound rational but, if you really want to dig into it, it's all about how professional investors measure their own performance. (I'll save that explanation for another day... but, if you're ready for the rabbit hole, Google "IRR" and get a cup of coffee.)

So it's hard not to chuckle when an entrepreneur says, "This will probably be the last money we raise."

DON'T EVER SAY THAT. EVER.

At best, you're giving the investor no real incentive to invest in your company. At worst, you sound like an idiot.

-P