The best way to raise capital is to grow a lot every single month.
I’m not going to explain this as well as Paul Graham did, but I’ll try.
Metrics and milestones are sometimes helpful (“Get to $20k MRR,” “get to x DAU” etc.) and in some cases there are types of companies where benchmarks for each stage are spelled out pretty well (SaaS companies are one example).
But the best way to raise capital is to (1) grow every single month and then (2) paint a picture that proves it is inevitable that you will keep growing every single month thereafter, hopefully at an accelerating rate.
The two best ways to prove this are:
To grow every single week or month for a significant amount of time (hopefully for at least 6 months).
To grow every single week or month for a less significant amount of time, but be able to demonstrate a very granular reason your current customers have signed on and name future customers already in your pipeline who are about to sign on. Hopefully they are available for diligence calls.
Other helpful things to help prove you will continue to grow every month:
Have a very clear projection of what the world is going to look like in the next couple of years and why it would be very painful for your customers to not need you.
A very good understanding of how you got to your customers and how you will get to future customers.
At this point, it is still not obvious that your company will be successful. Investors won’t know if you can you hire a sales team that will make sales as competently as the CEO is able to? Can you manage the sales team? Can you build a great culture where good employees will want to work for you? Can you attract good engineers and do you have a CTO or VP of Engineering who can make sure you are building the right thing, and that it is released on time?
There are regulatory concerns, there are capital markets concerns, etc. etc.
Those latter concerns are things VC’s can deal with. But they have a harder time investing in things that are not growing quickly. The best way to raise a series A is to show growth every single month or every single week at an accelerating rate.
Sometimes people will be able to raise their series A without this. Those people are often serial entrepreneurs or growing at that rate was not part of the plan because it takes them longer to get to market. If you are one of those people, I’m glad. But most of you aren’t.
Most people who read this article will assume they are in this latter camp of people who will need more time to get to accelerating growth, yet only a few of you are in that camp. Notice the disparity there? Remember that you may have mistaken yourself to be in that camp when really you should just be growing faster.
People who do not raise series A rounds often have very good excuses as to why growth isn’t fast. But bottom line, they did not raise series A rounds. VC’s usually don’t care about their very good excuses.
We have a company in our portfolio that closes new business every single week. They will probably not get to $1m ARR before they raise their series A, but I am very close to 100% confident they will do so.
Before they raised their seed round they built a simple application and had run a few customers through the system. They raised their series seed because they demonstrated they could build a product, could find customers and that there was a realistic pipeline of more customers a few months out. The founder also had great domain expertise and could obviously make sales.
That company will raise its series A because within 6 months it’ll have made new sales each week at an accelerating rate. It’ll know why its customers said yes and it is painting a picture of inevitability that explains why future customers in its pipeline will also come on board. That, combined with the market being a large one is the best thing you can do to raise an A. Growth matters more than benchmarks, numbers, metrics etc.