Does My Startup Need To Be Venture Scale? The Hardest (And Most Rewarding) Lessons

Does my startup need to be venture scale? That’s a question many entrepreneurs ask when creating their fundraising strategy.

What does it take to attract investors and capital?

What will they look for when assessing my startup as a good candidate for funding and strategic support?

These are other questions you’ll ask. Let’s begin by understanding the term venture scale.

“Venture scale” is the latest buzzword doing the rounds in the startup ecosystem, with every founder aiming for this badge. But what exactly is venture scale, and does your startup absolutely need to qualify as one? Read ahead and find out.

Understanding the Term “Venture Scale”

A venture-scale startup is a company that has substantial potential for rapid and accelerated growth. Such companies are essentially hypergrowth, aiming for the “unicorn” status and hoping to achieve a valuation of $1B quickly. Here’s what venture capitalists look for when identifying a unicorn.

• The company has a large Total Addressable Market (TAM). This metric refers to the total revenue opportunity available for its products or services. That is, assuming the company successfully captures the entire market. It should have a customer base willing to purchase enough products for the brand to generate an annual $100M. Eventually, to attain unicorn status, the company should earn $1B per year or even more—the higher, the better.
• The company needs to demonstrate hypergrowth and the potential to double or triple its revenues year-over-year (YoY). If the company has a high growth rate, its comparative revenue multiple will also be much higher. When investors analyze similar brands within the vertical, the brand should stand out with higher long-term valuation prospects.
• The company has a disruptive product range that can dominate the market as the go-to solution for customer pain points. Since the competition has a tough time catching up, that allows you to set up a profitable pricing structure. The brand’s dominance can create barriers to entry that competitors find hard to pierce.
• The company has a robust business model with a high-margin product portfolio. These products sell at prices that are much higher than their production costs. As a result, they can generate large profit margins. Think tech, software, pet products, kids’ essentials, and more.
• The company’s financials demonstrate how a large capital infusion can propel it toward rapid growth. Since you’re open to forking over a large chunk of equity, the trade-off has to make sense.
• The company sees an IPO on the horizon.

How VCs Perceive Venture Scale Startups

To answer the question–does my startup need to be venture scale–you need to think like VCs. Most venture capitalist firms have a 10-year lifespan, meaning that their objective is to earn maximum returns before the fund ends.

For a company to be venture scale, it should have a clear path to reaching a $1B valuation within this time frame. If you’re approaching VCs for capital, here’s how they expect their investment to grow.

Let’s assume you earned $1M in revenues during the company’s first year and raised a $3M to $7M seed funding round. Let’s also assume the VC firm made this investment in its third year and has just seven years before it ends. Accordingly, here are the revenues it will expect.

• Revenues worth $3M in Year 1
• Revenues worth $9M in Year 2
• Revenues worth $18M in Year 3
• Revenues worth $36M in Year 4
• Revenues worth $72M in Year 5
• Revenues worth $100M and above in Year 6

If your company’s growth is less than these revenues, it is not venture scale.

Does Your Startup Really Need to Be Venture Scale?

Being venture scale had to do with building a company that venture capitalists will want to invest in. But is this something you want to do? Your expert fundraising consultant will advise you to instead focus on steady and consistent growth that the company can sustain.

Approaching VCs for large capital infusions is a great strategy, but you should be prepared for the downsides.

Keep in mind that storytelling is everything in fundraising. In this regard, for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.

Remember to unlock the pitch deck template that founders worldwide are using to raise millions below.

Why Approach VCs with Caution

• Partnering with VCs leads to high growth expectations. As outlined in the previous sections, your company will be expected to earn substantial profits–and quickly. However, not all startups and verticals are suitable for accelerated growth. Trying to keep up with unrealistic projections often leads to hasty decisions that can spell disaster for the company. Be wary of that happening.
• VC capital comes at a price. You may have to offer a board seat along with a 10% to 20% ownership stake in the company. Although VCs can provide you with strategic mentoring and advice for strategic growth and networking opportunities, you’ll give up control. The VC board member will have a say in the decision-making process and the direction the company will take. The possibility of conflicts with the founders and founding team is very real.
• At the pre-seed or seed stage, your emphasis is likely on developing the product portfolio and its features. You’ll also align strategies with the vision and mission statement and grow the company’s profits. Sustainable growth and profitability are high on your list of priorities. However, since the VC board member has a time-bound exit strategy, they may push for rapid growth and high returns that the company is not ready for. Remember that their objective is short-term gains, which may be a higher priority over stability. Your company may not be ready for an IPO or M&A deal per the VC’s horizon.
• Giving up equity to get VC funding can lead to dilution. Consequently, the ownership share for the founders and team will be lower. If the company does not perform well when it’s time for the next funding round, you may have to settle for lower valuations.

Does My Startup Need to Be Venture Scale?

To answer your question–no! Not every startup has the potential to be a unicorn. Instead, you should focus on alternative funding sources and strategic partnerships that ensure steady growth. Getting turned down for venture capital is not the end of the road. Here’s what you can do.

• Recognize the advantages of bootstrapping and contacting family and friends. Also, consider crowdfunding platforms, lines of credit, and personal loans. These strategies will push you toward organic growth and rolling back revenues into the fledgling startup. You can take your time with a steady growth pace and retain complete autonomy when making decisions.
• Rely on angels, family offices, and incubator and accelerator programs. Government grants are also a valuable source of capital. Don’t overlook the possibility of entering competitions and winning funding for your disruptive ideas.
• Work on enhancing your business model. Start by evaluating it from an investor perspective to identify red flags. Have you estimated the market accurately? Is it really large enough for the company to generate billion-dollar sales? Make sure your research is thorough, and the metrics come from accredited sources.
• Keep in mind that the secret to successful startups and unicorns is flexibility, resilience, and adaptability. You should be ready to pivot and adapt your product range, features, and, sometimes, the entire mission statement if needed. Be open to scrapping the original idea when it’s clearly unlikely to pan out.
• Reexamine your product portfolio. Does it offer a Unique Selling Proposition that competitors will find hard to replicate? Are there better products available in the market? What are the product features customers focus on? Also, research unicorns and companies that made it big. Check out their products to understand the market and customer needs.

Stop Asking the Question: Does My Startup Need to be Venture Scale?

It doesn’t. Close to 90% of startups fail, with 10% not lasting beyond their first year. It will also interest you that nearly one million new businesses were built in the US in 2024. Among these, only 60 became unicorns.

Your goal should be to feature in the 10% of startups that will continue operating. Or one of the 70% of companies that will generate returns for their investors.

If you’re looking for the venture scale badge, know that the average VC firm receives over 1000 proposals yearly. Close to 75% of the candidates they pick will never return the capital. At least 30% to 40% will end up liquidating their assets, resulting in the VCs losing their investment.

When VCs pick viable startups to invest in, their focus isn’t on consistent but slow growth, modest returns, or small markets. They need only a handful of companies that eventually reach the phenomenal growth and profitability stage for great returns.

Not all startups are venture-scale material, and many continue to thrive without becoming unicorns. Most startups are built on specific product categories targeting niche audiences and markets. Others seek to address industry-centric challenges or have non-unicorn growth strategies.

Some verticals require extended research and development before their products are ready for the market and end users. These verticals need significant capital infusions; it can be years before investors see any real returns. For instance, pharma, electronics, oil and gas, and software.

Ultimately, you’ll build a scalable company that consistently earns profits and makes a difference in the community. Think of startup building as a marathon, not a sprint. Your strategy should be revenue generation, extending the runway, and not running out of operating capital.

So, Rethink Your Fundraising Strategies

Does my startup need to be venture scale? No. Here’s what you should focus on instead:

• Revisit your vision for the company and set up key value inflection milestones centering around profitability and serving customer needs.
• While venture-scale startups aim for billion-dollar markets, your objective should be to serve an impressive total addressable market. Capturing a sizeable chunk of it within your vertical and geographical location is a great starting point. Once the company is stable and growing consistently, you can explore expansion channels.
• Work on scaling the company while keeping costs down. You’ll devise strategies to acquire more customers or expand the product portfolio without significant additional expenses. Think low-cost marketing, like social media advertising.
• Look closely at the team and explore the skill sets and talent you need to bring aboard. Is your team equipped to deal with unexpected challenges and execute on your mission and vision? Do team members have successful track records in building and scaling other companies? Don’t overlook the importance of the team slide and how investors perceive it.

Understandably, designing an investor-friendly pitch deck is high on your list of priorities. Metrics are crucial, but more than that, the pitch should demonstrate the strengths your brand brings to the table. Think of the key highlights that will stand out in the presentation.

A dedicated customer base, a stellar team, an unusual product that serves a specific demographic or location–any feature that delivers on growth potential and is worth backing. Focus on impressive metrics and an excellent valuation to carry you to the next funding round.

Interested in learning more about how funding rounds work for startups? Check out this video I have created.

In Conclusion

If you’ve been asking the question, “Does my startup need to be venture-scale?” It’s time to change your perspective. A successful company is not just about a billion-dollar valuation or billion-dollar sales. Focus on other aspects that demonstrate a potential for rapid growth and stability.

Don’t obsess about getting venture capital or the venture-scale badge. Explore other funding sources and strategic partners that will bring more value to the startup in terms of industry-specific expertise. You’ll need guidance with marketing, customer acquisition, product development, and more.

Don’t forget to factor in the possibility of ownership dilution and how decision-making rights impact your control over the company. Partnering with passive investors who offer only capital could be a more practical option.

Being venture scale or unicorn status is nice to have. However, a successful company with a sustainable vision that delivers value to the community is more important. That’s where you should set your sights. Be resilient, adaptable, and resourceful. That’s the key to success.

You may find our free library of business templates interesting as well. There, you will find every single template you will need when building and scaling your business completely for free. See it here.