The Startup Velocity Question: What Hinders Acceleration in VC Funded Companies?

I have been running 1Mby1M since 2010. I find myself saying to entrepreneurs ad nauseam that VCs want to invest in startups that can go from zero to $100 million in revenue in 5 to 7 years.

Startups that do not have what it takes to achieve velocity should not be venture funded.

Experienced VCs, over time, have developed heuristics to gauge what constitutes a high growth venture investment thesis. 

The Startup Velocity Question: Lack of Understanding of Positioning as a Discipline

I was chatting with an experienced venture capitalist in Silicon Valley about his portfolio’s Positioning challenges. He said, “In a lot of cases, Positioning (and the messaging that follows) is indeed the problem. But a bigger problem behind this is that the founders do not see much value in investing in this area. The founders with technology background tend to value certain aspects of marketing such as lead gen, trade show, etc., but completely underestimate the value of proper positioning. It has been hard for me to get the founders to pay attention to it and spend their time and money on it.”

This problem, unfortunately, is pervasive in the industry.

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The Startup Velocity Question: Venture Funding Bootstrapped Startups

As you know, I categorically support bootstrapped entrepreneurs.

There are numerous startups now that have achieved $4M-$5M in revenue without any external funding.

However, it has taken time. Sometimes, it has taken 5-7 years to get there.

VCs, however, are looking for velocity.

The Startup Velocity Question: Selling to CFOs under Tightening Budget Conditions

In a tightening market, budgets are under scrutiny.

The Startup Velocity Question: Large Companies ALSO Have Problems

Many large companies with hundreds of millions in revenues are currently facing slowdown.

The Startup Velocity Question: AI Blah Blah Blah

There’s an AI blah blah blah phenomenon right now all over the industry!

“Product growth is plateauing or declining but we have AI that will rejuvenate everything …”

Well, AI will do what?

What is the exact positioning of your AI offering?

The Startup Velocity Question: VC Portfolios

As discussed, the Venture Capital model looks for hyper growth startups that grow at an exponential pace. Companies that can go from 0 to $100M in revenue in 5-7 years.

Hyper Growth is not a natural state of business. Most businesses grow at a linear pace at best.

The Startup Velocity Question: MicroVC Portfolios

As of December 31, 2023, in the United States alone, there are 54,000 venture funded startups.

Let us refresh our memories on what constitutes the Venture Capital model: hyper growth startups that grow at an exponential pace. Companies that can go from 0 to $100M in revenue in 5-7 years.

The Startup Velocity Question: The Churn Issue

The market is full of companies facing velocity issues due to high churn.

Somehow or the other, they may have managed to sell subscriptions to enterprises, SMBs or individuals.

The Startup Velocity Question: Inability to Explain the REAL Value Proposition

Another scenario I am encountering in my discussions is that of the inability to explain what the company does.

In the best case, the company is able to close deals.

The Startup Velocity Question: Market Shifts Derail Companies

Let’s take a most obvious example: BPO companies offering large numbers of customer support agents to other businesses.

Enter AI.