VC funding is just one piece of the vast financial ecosystem that companies can tap into as they grow. Whether you’re looking at angel investors, venture capital, or private equity, each equity-based funding option comes with its own set of expectations and milestones as your company matures. And let’s not forget, there are non-dilutive grants available too - not every route means giving up equity.

VC is designed for a specific type of company - one that needs capital to grow aggressively, increase valuation quickly, and scale into a massive business.

Because of how the VC asset class works, investors into VC funds (LPs) expect the venture fund to generate at least a 3x return. 

Here’s the reality: early-stage investing is risky. Most VC investments won’t return meaningful capital - some won’t return anything at all. But the power law effect means that a small handful of investments will drive the majority of returns. This is why VCs need to believe that every investment, if it works, has the potential to return the entire fund so that they can in turn fulfill their 3x return goals.

So what does that mean for a startup? It means that for a VC to invest, they need to see:

• Fast growth potential – The ability to scale quickly.
• A massive addressable market – A problem space big enough to support a billion-dollar+ outcome.
• Differentiation and defensibility – A product or technology that won’t get wiped out by a better-funded competitor.

This doesn’t mean you can’t build a great, impactful company without VC funding. Plenty of companies have done it. And not all investors have the same return expectations - some play by different rules. But if you’re considering raising from VCs, it’s worth asking yourself:

• How big is the market you’re playing in?
• What makes your product fundamentally different?
• How will you scale rapidly with the capital you raise?

If you can bring a compelling case to life, backed by a scalable and highly differentiated product, then VC might be the right path. If not, there are plenty of other ways to build a great company.