Figuring out what a startup should say to investors is strangely useful for figuring out what it should actually do. Most people treat these questions as separate, but ideally they converge. If you can cook up a plausible plan to become huge, you should go ahead and do it.
If you’re not a software company, and what you want to do requires steel in the ground, then any workable plan to become huge will realistically require 3-4 years each in the lab, pilot, demo, and FOAK phases, largely in series, and will often benefit from the founders stepping down as CEO quite early in favor of someone with much more direct industry experience, and if you’re honest about that many VCs will run away.
As in, because you might have to raise at a lower number in the future, you should raise at a lower number than that now, so you don’t have a ‘down round.’ Or because you couldn’t handle having the cash.
As you explain later, the first part of this would be nonsense if the second part weren’t so important. AKA, if only the founders have the discipline to not increase spend rate beyond necessity and instead use the money to increase runway and still follow an optimal path to growth, instead of inefficiently chasing faster growth by spending more and just assuming more funding will be available when needed, this would not be such a problem.
Also it’s not about having a down round, necessarily. It’s sometimes about needing one at all. I’ve met people whose shareholders forced their companies to wind down instead of allowing a down round, even if the down round would likely have led to a successful exit later, because e.g. the shareholder was trying to raise their own next fund and a down round on their record would have made it harder.
If you’re not a software company, and what you want to do requires steel in the ground, then any workable plan to become huge will realistically require 3-4 years each in the lab, pilot, demo, and FOAK phases, largely in series, and will often benefit from the founders stepping down as CEO quite early in favor of someone with much more direct industry experience, and if you’re honest about that many VCs will run away.
As you explain later, the first part of this would be nonsense if the second part weren’t so important. AKA, if only the founders have the discipline to not increase spend rate beyond necessity and instead use the money to increase runway and still follow an optimal path to growth, instead of inefficiently chasing faster growth by spending more and just assuming more funding will be available when needed, this would not be such a problem.
Also it’s not about having a down round, necessarily. It’s sometimes about needing one at all. I’ve met people whose shareholders forced their companies to wind down instead of allowing a down round, even if the down round would likely have led to a successful exit later, because e.g. the shareholder was trying to raise their own next fund and a down round on their record would have made it harder.