5-Million Raised and $1M in Revenue

I have been seeing tons of companies that have raised $5M and are still $500k-$1M in ARR. They are going to market looking for funding because they have just now found product market fit and they just need some capital to “turn on” sales. I love the “turn on sales” concept. I have never actually seen this button anywhere at startup headquarters.

The problem with the “5 Million Raised” companies is that they have clearly had several whiffs trying to find product market fit within its lifecycle. Generally I see the companies to be at least 4-years old. They have maybe $1-$3M in priced equity and there are always a string of notes also attached to the cap table. The one thing they all have in common is that the founder is resolute in saying “NOW they have figured it out.”

The problem with this strategy is that founders are coming to market with two black eyes pretending nothing is wrong. If the company needs an additional $1M to reach $2M in ARR then you are still at 3x burn multiple. Which is barely acceptable. Yea, burn multiples matter again. This coupled with the fact that you really need to sell the investor that you can get to $2M ARR because if they is any doubt you are dead in the water and are considered a C- asset at best.

Founders- remember you can only burn a dollar once. Make it count.