What’s different about getting funded in 2024?

Think you can get funded with a slick pitch deck and an MVP? It is 2024 and the rules have changed.

The data shows U.S. startup funding dollars are up, but deals are down (Axios). Interest rates are high. And the number of IPOs are low. It isn’t an exaggeration to say it's tough out there. VCs are making fewer bets and consolidating their investments - mostly on AI.

Ninety percent of today’s startups must now demonstrate more robust business models and experienced leadership to attract funding.

Here are 3 hard truths for today’s startup leaders.

1️⃣ You need more than an MVP and a pipeline for a first round.

In the frothy before-times of 2020, you could get away with an MVP and a customer pipeline for a first round. Not anymore unless you are an AI juggernaut.

First time founders hate this. They lament that if they had paying customers, they wouldn’t need VC investment. That, of course, is not true. That first set of paying customers is rarely enough to fund your growth beyond your MVP+.

2️⃣ Being 'Good' was probably never really Good Enough. Now, you need to prove how essential your product really is.

There are very few market segments left that aren’t terribly crowded. If you are in one of those blue sea segments, you don’t need my advice (but call me if you are raising a seed round!).  If not, then in these times of concentrated investing, you need to show more than 'product-market fit' to raise a round.

Investors are looking for proof that your customers believe you have nailed the solution to their problem. And the best proof is strong retention numbers - Net Dollar Retention (NDR) of at least 120%.

3️⃣ You need to understand your market landscape much better than the investor across the table.

Founders often make the mistake of thinking they understand their market landscape because they are aware of the other companies that are building a product similar to theirs. But that’s only part of your competition.

Your real competition is the set of companies solving the same customer problem, regardless what product they decided to build.

More than ever, in today’s economic climate you need to develop what I call “outside-in” thinking. (More on “outside-in” thinking in my new book Sail to Scale, available August 22.) Trust me, if you don’t do your homework, you’ll be pitching to a VC who knows more about your market segment than you do.

⛈️It’s tough out there these days. And not just for new startups in their launch phase, but for scaling companies also.

This means you need to do three things that companies three years ago didn’t have to do.

🔦 Budget. Stretch the resources you have to get you through a longer runway. Prioritize your spend. No more marketing when you don’t even have product-market fit yet. Spend time working with prospects and customers long before you think you should be doing it.

🔦 Take Budget from Others. Not talking about stealing. I’m talking about making sure the product you build is essential and differentiated enough that customers who are already spending dollars elsewhere will divert those dollars from wherever elsewhere is to you.

🔦 Plan for Profit. Not today. Or this year. But while the economy is the way it is, your pitch is going to have to show a path to profit that still drives a sizable business.  This is the back-up plan in case we don’t return to “growth at all costs” in time for your Series B funding round!

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