5 Key Rules of VCs That Founders Need to Know

Over the past year, I've spoken with more than 50 Startup founders

Many of them received funding from venture capital (VC) firms.

Most didn’t know the “rules of the game” when raising capital for the first time.

It was the same when I raised funds for my company 10 years ago.

Here are 5 key VC rules you need to understand:

1)Obsession with Exit Strategy 💸

VCs focus on ONE thing – making more money from their investments.

They work for their Limited Partners (LPs), which means they MUST generate profits or they’ll lose their jobs.

Simply put, for every $1 invested, they expect to get at least $3 back in 5 years.

So, you also need to be obsessed with optimizing the value of your business.

This means making sure your Startup has the best metrics and can sell at the best price.

If not, you’ll never align with your board, which is often composed of VC members.

Example:

When founding the job recruitment platform for women, Canavi,

And successfully raising funds from investment funds

Our founding team was always obsessed with rapid growth

Creating impressive metrics that larger investors would be interested in

So we could raise the next rounds of funding and keep our current VCs happy.

2)Disconnect from Customers 💼

A VC-backed company is always chasing growth.

Your decisions will be based on growth metrics to please the board, not necessarily your customers.

The two may align, but not always.

If you started a business because you're passionate about helping your customers, a VC-backed path could complicate things.

Example:

One of my companies at that time had a product, revenue, and successful fundraising.

However, we realized that the current product wasn’t adding much value for customers anymore

Because the structure was outdated and couldn’t support large growth.

It needed a complete overhaul, which would take 5-6 months, slowing growth in the meantime.

Most investors at the time didn’t agree and still wanted us to keep growing.

Fortunately, the lead VC backed our decision, with a majority in favor.

We revamped the product, launched it, and saw explosive growth.

I felt lucky to have found the right lead investor.

3)Paralysis by Decision-Making 😬

I’ve seen many founders afraid to act because they believe it won’t please their board.

No matter what VCs say, in the end, you should confidently make bold moves and face the extra pressure.

VCs will offer lots of advice, but when it comes to deciding and executing, the responsibility is yours.

If you succeed without following VC advice, they’ll still applaud you.

If you fail, even with their advice, they’ll ask you to step aside and replace you with another CEO.

Example:

In one company where I was on the board, the founder made a series of videos sharing the company’s challenges and how the team was working hard.

Most current investors were against it, saying no one would want to invest if we shared such difficulties.

I strongly supported the founder, knowing it would work out.

Three weeks later, the videos went viral on FB Reels and TikTok, bringing us over 200 leads interested in buying franchises

And opening 40 new locations in 4 months

As well as successfully exporting products to the U.S.

At that point, investors praised the CEO’s actions.

Founders, make your own decisions and stand by them.

4)Pressure for Rapid Growth 🚀

VCs want quick returns.

Their timeline is usually 5 to 7 years because they need to deliver high returns to their LPs.

But not every company can grow that fast.

Not every founder can handle the pressure that comes with rapid growth.

So, they end up spending money on “fake growth” activities like hiring large sales teams or pouring money into marketing without knowing if their unit economics work.

As a result, revenue grows quickly, but losses increase even more.

The lesson from the unicorn WeWork is a prime example—earning $1 but losing $2.

So, even with billions in revenue, WeWork still lost billions and has now declared bankruptcy.

5)The “More Fundraising” Trap 🎣

How can VCs build their track record if they usually aim to exit after 5 to 7 years (as promised to their LPs)?

By valuing their portfolio.

And to show that their portfolio’s value is increasing, they need two things:

1. They need startups to raise another round of funding at a higher valuation.
2. They need a liquidity event to exit (the startup being acquired, going public, or selling to other investors).

So, they want you to take on the maximum possible risk because they accept losing 7 out of 10 times.

Meanwhile, founders are playing an “all or nothing” game because the startup is everything they have.

You need to ask yourself if you’re ready to take on that level of risk,

knowing that you might have more control and a better chance of success if you grow on your own without external funding.

P.S: I have nothing against the VC-backed path,

as I am currently raising funds from VCs for the Startups I’m on the Board of Directors of,

and I’ve seen the great benefits of having VCs involved.

But I feel it’s crucial to know what game you’re playing 💪.

(End)

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