Through 2014–2019, growth was the top priority of startups. Through those years, a priority put on growth accelerated.

As I’ve written prior, in 2019, if you were growing 100% YoY with “positive unit economics” you could seemingly raise any amount of money at any valuation.

Firms were becoming so focused on backing future unicorns, that they were putting bets on less companies, making those bets bigger, and really prioritizing this growth premium.

  • If you were growing 70–100% YoY, fundraising was possible, but hard.
  • 50–70% YoY meant you’d be doing an insider round.
  • Less than 50% could mean the end of a business.

And now, we’ve entered a new fundraising environment. And in this environment companies need to either be growing very fast, or very capital efficiently. It used to be forgivable to over-fundraise as a way to hit those 70–100% growth numbers. Now it’s not.

I’m seeing an increasing number of these “good” but not “exponentially growing” businesses go to market, and be surpirsed at how luke warm the reception is.

The reception is even worse if it’s taken a lot of previous capital to get them to where they are. While capital efficiency has always been “a thing,” I’m seeing more VCs pass because: “having raised this much capital, I’d expect you to be further along by now.”

This is hard for a founder to receive, because while capital efficiency has always been one factor overlooked by enough growth, it’s become THE factor. And it’s not like a company can go back in time and change its history.

I wouldn’t be surprised if a new KPI starts to get generated that is centered around operating leverage. I can imagine it having something to do with: capital invested for net new, net revenue generated/quarter. Or something like that…

In any case — the rules have definitely changed, and the challenging part is that many companies may need to find awkward types of financing to recalibrate to new priorities, which are judging startups with hindsight bias.

[5'9", ~170 lbs, male, New York, NY]. I blog about investing. And usually about things I’ve learned the hard way. Opinions are my own, not CoVenture’s