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Fundraising prowess is no longer a startup success metric (it never was, really).

Bret Waters


We’re clearly entering a new era in startup fundraising. We had a 10–15 year run of capital being ridiculously cheap and abundant, but running with scissors always ends up badly, eventually.

By late 2021 it honestly seemed like Silicon Valley had deteriorated into a cult of fundraising. Now the capital markets are signaling loud and clear that we need to get back to the cult of just-building-a-great-business.

Fundraising prowess is not a startup success metric and it never was, really. In fact, there are many many examples that suggest an inverse relationship between fundraising prowess and success:

  • WeWork, Katerra, Quibi, Munchery, and Beepi are all companies that were incredibly successful at fundraising — and they all went bankrupt spectacularly.
  • Meanwhile, Zapier, Zoom, MailChimp, and GitHub all under-performed their peers in fundraising and yet over-performed at actually building a great business.

I’ve done it myself: I once raised $7.5M for a startup and we spent it all before we ever reached product-market-fit. A few years later I raised $800K for another startup, we managed that money carefully, adjusted quickly when we needed to, and built a successful global company without ever raising another nickel.

I was thinking about all this this week when I saw this deck from Sam Lessin from a talk he gave on the current state-of-play in the venture capital world. He says that we’ve reached the end of the “Factory-farmed Unicorn” era — an era when VC model was to focus relentlessly on pushing portfolio companies through a Series A, B, C, D, and then of course an IPO where everyone cashes-out and the public is left owning stock in an overvalued company. This sort of factory-farming inherently requires the startup operating team to be laser-focused on one metric: getting to the next fundraise as quickly as possible at an ever-higher valuation.

(Side note: remember that investment valuation itself is an artificial construct — investors getting 10% of the company at $100 post is the same as getting 5% at $200 post — so now we have a faux startup success metric based on an artificial construct).

The purpose of growth-stage venture capital is to scale a company at an unnatural pace. That’s the purpose. Scaling at an unnatural pace tends to have binary outcomes (like airplane travel, you either arrive safely or you die in a fiery crash — there isn’t anything in between). Whether you want to get on that airplane or not depends on your risk tolerance and the current macroeconomic climate.

We are at the intersection of several economic vectors right now: post-pandemic structural changes, the end of ZIRP, a changed talent market, and an IPO window that is essentially closed. We can’t fight those vectors. As Sam Lessin says in his deck, entrepreneurs and “investors who do not recognize the new world of today and change how they operate are quickly going to have a very bad time”.

The good news is that today being capital-efficient is easier than ever. The digital tools available today are incredibly powerful, and effective organic growth methodologies are widely known and available. You can do more with less. As Benedict Evans has observed, it’s increasingly true that with new startups today “it’s hard to tell if it’s 50 people in Mountain View or 3 people in Vienna”. Capital efficiency is easier than ever.

Fundraising prowess is not a startup success metric. We need to get back to participating in the cult of just-building-a-great-company.

I’ll give Sam the last word on this: “People need to get back to the game as it was, and be comfortable waiting longer for external validation, confident in their internal KPI’s for systematically building healthy businesses”.

That’s where we are today.

This was adapted from my weekly missive for entrepreneurs and innovators, and (because I like plagiarizing myself) probably contains a sentence or two from my new book. On a related note, my colleague Edwin Oh wrote this terrific post a few years ago which I recommend. I love the parable.



Bret Waters

Silicon Valley guy. Teaches at Stanford. Eats fish tacos.