So you want to raise $50M…

A few thoughts and questions to ask before you raise that big growth round

By Micah Rosenbloom, Managing Partner

We’re in the fortunate position of having several portfolio companies in the position to raise $30–50M+ growth rounds.

This is a great option to have! But it’s riskier than most founders assume, so here are a few bits of advice for those in a similar situation.

🍻 Resist peer pressure to raise

You’ll find *a lot* of encouragement to raise a big round if it is remotely possible — your investors want the mark, and your employees will love the paper wealth. Still, it’s the highest-risk path of least resistance you’ll ever walk down.

❓ Ask why you are raising

If you can predictably turn $1 in $2+ go for it, raise.

However, many startups get VC interest based on excitement about a “hot” category and growth numbers undergirded by shaky unit economics.

Don’t believe the hype — especially your own.

💸 Make peace with selling your $500M exit options

If you’re raising $50M, you’ll likely have a $250-$300M valuation. A $250M+ valuation is an agreement, implicitly, that you will probably sell the company for no less than $500M. That’s not so easy!

While hard to believe, a founder can make less selling a startup for $1b than selling for $250M. It’s okay, laudable even, to take the giant swing, but be sure you understand that you are increasing, not decreasing your level of personal risk.

🐞 Consider a smaller round

Raising a smaller round can be surprisingly hard because of how VC firms are structured, but it’s often the better move for the company. Use the power your momentum provides to raise a smaller amount and preserve some optionality.

🌐 Look for strategic investment

You might be able to get more flexible terms from a strategic partner rather than a purely financial fund. This arrangement comes with its own risks, but it creates a BATNA that can cajole traditional VCs if nothing else.

💳 Evaluate debt

Some founders use equity funding to fund inventory or smooth out a slow cash conversion cycle when debt would be a less risky and non-dilutive alternative.

Make sure you’re aware of the menu of financial options!

🤔 “Steelman” the alternate case

Seek out a trusted advisor who can make a strenuous case for why raising a growth round doesn’t make sense. You don’t have to listen to follow their advice, but be sure you understand their argument before taking on the capital.

🤝 Build relationships with potential acquirers

If you aren’t 100% sure whether to take the round, it’s always good to at least consider M&A. Selling now might be better for the company — and your finances — than raising a high stakes round of funding.

Even if you don’t plan to sell at this juncture, you absolutely should start laying the groundwork for the future. You’re now at the stage where you need to start building relationships with the potential acquirers who will ultimately deliver your ROI.

I know this is a lot to process, but trust me, answering these questions and taking these steps will only get *harder* with more money in the bank.

You’ll be expected to move much faster, which reduces the time to think and margin of error for mistakes.

If you take one lesson from this thread:

Growth rounds *increase* the volatility of your startup.

Again, growth rounds *increase* risk, and most people think they do the opposite.

The upside *might* be bigger, but the downside can be total.

Not many startups exit for $500M+! Before going the route of a growth round, make sure you’re ready and prepared for what it means to be a Pre-IPO company. For some companies, it is the right path. For others, never “growing up” is the best way to go!