We live in an era rife with the narrative of unicorns, decacorns, and startups that seemingly explode overnight into multi-billion-dollar enterprises, and every budding entrepreneur is seemingly dreaming of being the next Elon Musk or Mark Zuckerberg. But the truth is, not every startup needs to be “venture-scale.”
Not all startups are suited for venture capital funding and the high-growth, high-return expectations that come with it. It’s crucial for entrepreneurs to assess whether their company falls into the venture-scale or non-venture-scale category. By choosing the appropriate path, entrepreneurs can build successful and profitable businesses that align with their growth goals.
As a pitch coach, I often come across a common problem with many startups I work with: Companies will attempt to raise funding from venture capitalists (VCs) despite knowing they can’t possibly deliver venture-scale returns. It’s crucial to understand that not all companies are suited for this path.
The difference between venture-scale and non-venture-scale companies
Firstly, let’s define what it means for a company to be venture-scale. Venture-scale companies are those that have the potential to generate extremely high returns on investment within a relatively short period of time. These are the kinds of companies that venture capitalists are primarily interested in funding.
On the other hand, non-venture-scale companies are those that operate in niche markets or have business models that may not align with the high-growth, high-return expectations of VC investors. These companies may have slower growth trajectories but can still be highly successful and profitable.
It’s important for entrepreneurs to understand which category their startup falls into. Trying to pitch a non-venture-scale company to VCs in hopes of securing funding is a recipe for disappointment. VCs are looking for companies that can potentially become the next big thing in technology or innovation, so it’s crucial to be realistic about your company’s potential for massive growth.
The alternative path to success
Instead of chasing venture capital funding, startups that fall into the non-venture-scale category can still pursue alternative paths to success. This includes bootstrapping, seeking funding from angel investors or alternative financing options, or focusing on generating profits through sustainable growth.
By choosing a different path, entrepreneurs can build profitable and sustainable businesses without the pressure of meeting unrealistic growth and return expectations. This allows them to focus on creating value for their customers and establishing a strong foundation for long-term success.