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Posts RSS - Comments Get Steve Blank via your RSS Feed Recent Posts Lean Launch Pad 2026 @ Stanford – Lessons Learned Presentations Incorruptible Hacking for Defense @ Stanford 2026 – Lessons Learned Presentations Anthropic Mythos – We’ve Opened Pandora’s Box AI and Teaching – The Brave New World Nowhere Is Safe Solving Yesterday’s Problems Will Kill You Your Startup Is Probably Dead On Arrival Time to Move On – The Reason Relationships End You Only Think They Work For You Lean Launch Pad 2026 @ Stanford – Lessons Learned Presentations Hacking for Defense @ Stanford 2026 – Lessons Learned Presentations Anthropic Mythos – We’ve Opened Pandora’s Box AI and Teaching – The Brave New World Nowhere Is Safe Solving Yesterday’s Problems Will Kill You Your Startup Is Probably Dead On Arrival Time to Move On – The Reason Relationships End You Only Think They Work For You Archives June 2026 April 2026 March 2026 February 2026 December 2025 November 2025 October 2025 September 2025 July 2025 June 2025 May 2025 April 2025 October 2024 September 2024 August 2024 July 2024 June 2024 May 2024 April 2024 March 2024 February 2024 January 2024 December 2023 November 2023 October 2023 September 2023 August 2023 July 2023 April 2023 February 2023 January 2023 November 2022 October 2022 September 2022 June 2022 May 2022 April 2022 March 2022 January 2022 December 2021 November 2021 October 2021 September 2021 August 2021 July 2021 June 2021 May 2021 April 2021 March 2021 February 2021 January 2021 December 2020 November 2020 October 2020 September 2020 August 2020 July 2020 June 2020 May 2020 April 2020 March 2020 February 2020 January 2020 December 2019 November 2019 October 2019 September 2019 June 2019 May 2019 April 2019 March 2019 January 2019 December 2018 November 2018 October 2018 September 2018 August 2018 July 2018 June 2018 April 2018 March 2018 February 2018 January 2018 November 2017 October 2017 September 2017 August 2017 July 2017 June 2017 May 2017 April 2017 March 2017 February 2017 January 2017 December 2016 November 2016 October 2016 September 2016 August 2016 July 2016 June 2016 May 2016 April 2016 March 2016 February 2016 January 2016 December 2015 November 2015 October 2015 September 2015 August 2015 July 2015 June 2015 May 2015 March 2015 February 2015 January 2015 December 2014 November 2014 October 2014 September 2014 August 2014 July 2014 June 2014 May 2014 April 2014 March 2014 February 2014 January 2014 December 2013 November 2013 October 2013 September 2013 August 2013 July 2013 June 2013 May 2013 April 2013 March 2013 February 2013 January 2013 December 2012 November 2012 October 2012 September 2012 August 2012 July 2012 June 2012 May 2012 April 2012 March 2012 February 2012 January 2012 December 2011 November 2011 October 2011 September 2011 August 2011 July 2011 June 2011 May 2011 April 2011 March 2011 February 2011 January 2011 December 2010 November 2010 October 2010 September 2010 August 2010 July 2010 June 2010 May 2010 April 2010 March 2010 February 2010 January 2010 December 2009 November 2009 October 2009 September 2009 August 2009 July 2009 June 2009 May 2009 April 2009 March 2009 February 2009 Other Stuff About Steve Startup Tools Secret History Books for Startups Slides/Videos Raising Money Books for Startups Every year I teach classrooms full of students who leave class understanding the basics of how to search for product/market fit—and thinking their next goal is to “get funded.” That’s a mistake. There are two reasons to raise money: You have a killer idea that is only partially validated, that you think can get to $50M+ of revenue in 5 years with 80%+ gross margins (if margins are lower, you need a lot more revenue)and you need money to get to product-market fit, or You (think) you have product-market fit with real customers and real revenue and need money to grow and expand. Not all startups need outside investment to grow. What most founders don’t realize is: Every stage of a startup requires a different set of metrics and milestones and founder skills. Knowing these will help a founder position her pitch to get investors’ attention. Founders need to keep their eye on the prize — not just the next funding round Luckily, I teach with two great VCs, Mar Hershenson of Pear Ventures and Jeff Epstein of Bessemer Venture Partners who both put together presentations unraveling the mysteries of how and why startups raise money. Jeff’s presentation is from the point of a view of “What Investors Want” (see resources here ) while Mar’s takes it from a founder trying to figure out the funding landscape. And thanks to Ann Miura-Ko of Floodgate (my first Lean LaunchPad co-instructor) for her suggestions. Keep in mind that there is no “one way” to raise money Different investors will almost certainly have different models, and different regions may have different math. Still, there are some benchmarks to keep in mind. Here’s the first 2½ years of a startup journey. The Startup Investment Landscape For startups the early stage funding landscape looks like this: Step 1: The Pre-seed round – you raise $500K-$2.5M Step 2: The Seed round – you raise $2.5-$7.5M Step 3: The Series A – you raise $7.5-$25M Step 4: Series B – you raise $15-$65M Step 5: Series, C, D….

(Btw, the definition of each startup financing stage has changed in the last decade. What was a Series A round in 2005 is now a pre-seed or seed round. And what used to be a seed round a decade ago is now a pre-seed round. Lots of reasons for this shift, but it basically boils down to there’s a lot more money that wants to invest in startups, and all of it is racing to get in early.) This is a journey that can be planned and measured. In a pre-seed round you are focused on building minimal viable products, testing your insights and searching for product/market fit. In the seed round you have an early product and by the end you’ve found product/market fit and understand the scale of what you’re building and the levers that you can pull to accelerate growth. For a Series A round you want to prove you have built a repeatable and scalable sales/revenue model and understand all parts of the business model. Series B is about proving your net revenue model (can you be profitable?). Series C onwards funds growing your company to $100M in gross profit. (At the end of this post, we’ll discuss the valuation at each step (how much the investors value your company and therefore how much of it you need to give up to get this money) and how much revenue you should generate at each step.) Pitch By the way, If your pitch is not going to knock investors’ socks off, if you cannot communicate a big vision and a unique insight about the 10x advantages which customers and users will care deeply about, then even if you build out the smartest, most thoughtful process of chasing fundraising, you will fail. Team, Product, Traction, Business Model and Market In each step of funding there are five questions you (and potential investors) will be asking: Tell me about your team, your product, your traction, your business model and the market. Team is just what it sounds like. Tell me why you’re the right person to lead this company (bad answer “Because it’s my idea.” Better answer, “Because I’m the customer.”) Tell me about the group of people you’ve surrounded yourself with – your cofounders and then your key executives. Each stage of funding and company growth requires additional expertise and new skills, and you’ll want to demonstrate that you have these with potential investors. Product (sometimes called the “ value proposition ”) is the product or service you’re building. One of the tough things for a startup is to figure out how much of the “product” has to be real and working at each stage of funding. Traction is a fancy investor word for “Show me you’re making progress.” It’s sometimes called “product/market fit.” In a startup’s early days – pre-seed and seed – this is not about how much revenue you’ve made but more about how much customer passion your product is creating and how many more are loving it each week/month. (Read Ann Miura-Ko’s article on product/market fit here .) Business Model Founders tend to fixate on the product. Now that product/market fit is part of the lexicon most understand that the product also needs passionate customers. But great product and eager customers are just part of what makes a great business. The rest that makes up a company is called its business model. These elements of the business model– revenue (pricing, pricing strategy), distribution channel, How to Get/Keep/Grow customers, Key Activities, Resources and Costs – are other, critical parts your start up needs to understand and have in place. Market is a euphemism for “How big can your company grow?” Investors want to put their money to work in a startup that can be worth billions or tens of billions of dollars. What are your unique insights about technology, economics, change in market, etc. What evidence do you have that you can grow this big? How will you do it? The big idea about all of this is that at each step of funding, the order and priority of team, product, traction and market changes. Pre-seed Round of Funding In the pre-seed stage, a startup is searching for product/market fit. There are no customers and no product, just a series of minimal viable products. Funding: Startups typically raise anywhere from $500K to $2,500,000 in pre-seed. At the low-end this might come from friends, family or angel investors. At the high-end pre-seed angel funds might invest. (Yes, there are venture funds that look for and invest in startups this early.) Team: As you’re raising money from friends, family or angels, investors in this round are betting mostly about you and your team. Have you or your team members achieved anything important in the past? Any wins to date in your startup? Do you have co-founders who complement your skills? (Warning signs are “We were in the dorm together” or “It’s my team from the class I took.”) Traction: Tell investors about your search for product/market fit and what you’ve learned from potential customers to date. Show them the evolution of your minimal viable product and its current state. You need to begin to “instrument” your customer acquisition process with analytics. (Product/market fit means that you’ve found the match between your potential customers’ pains, gains and jobs to be done and the features of your minimal viable product. I.e. your product fits the needs of your target customers.) Product: At this stage you are building a series of low-fidelity products (sometimes called a minimal viable product or MVP.) It might be a wire-frame, PowerPoint demo or prototype. The goal of the product at this stage is not a sale, but to test hypotheses about customer product/market fit. (Along with the MVP you share your three-year product vision to see if your product vision engages a passionate customer response. Market: Tell us why this is going to be a huge market. Even better, start with a unique insight – what have people missed, what’s changed, what’s now possible? (Warning signs are, “No one has thought of this/is doing this/we have the exclusive patents.”) Business Model: List all the parts of your business model . What are your assumptions about each part? What is some of the critical metrics that matter? Number of customers? Revenue per customer? Number of employees? Revenue, Gross Margin? Expenses? How do you plan to test them. Goal/Time: By the end of the pre-seed stage the company ought to have evidence that it has found product/market fit. You should be thinking about an end-to-end pipeline of how to Get/Keep/Grow customers. This pre-seed stage typically takes 6-12 months. Pre-Seed Round Paperwork: Smart investors will typically give you minimal paperwork – either a convertible note or a SAFE (Simple Agreement for Future Equity) or a KISS (Keep It Simple Securities). Seed Round of Funding By the end of the pre-seed stage (about a year into your startup), your startup has evidence that they’ve found product/market fit. (One sign is that you are no longer changing your website/sales PowerPoint/product/app every time you need to acquire a customer.) Now it’s time to raise money to acquire paying customers. Funding: Startups typically raise anywhere from $2.5million– $7.5 million in a seed round. At the low-end this might come from angel investors and pre-seed funds. At the high-end, funds specializing in Seed rounds and Series A funds might invest. Traction: For a seed round investors want to focus on traction. You need to provide proof that customers love and can’t live without your product. This means you have evidence that you’ve found product/market fit and have fanatic customers who are reference accounts. You’ve built detailed analytics tracking into your product and you should be seeing organic and viral growth; and can provide Daily/Weekly/Monthly Active Users, 30d/90d/120d retention. Retention and low attrition are good signs of customer validation. (Note that each market – web/SAAS/physical products – and channel – online/direct sales – has different metrics and a different funnel steps.)For example, this should translate to revenue ~$0-200K/Annual Recurring Revenue with a clear plan to reach $1.5M-2M in 18 months. The goal is to iterate on building a repeatable engine for growth that makes the economics work. This is different than focusing solely on the gross revenue number. (Your ARR and revenue milestones will depend on what business you’re in. For example, not all revenue is recurring and even in a subscription model for a consumer goods company, your recurring revenue will not be valued the same as if you’re selling enterprise software and operating costs are so vastly different. As an example, $1 of revenue for a direct to consumer company is worth ~$1 in valuation at scale (Zappos was sold for $1B when they had $1B in sales). On the other hand, in a SaaS business $1 in recurring annual revenue equals ~10x in valuation.) Product: At this stage you have a high-fidelity product, one that earlyvangelists (early passionate customers) can use and pay for. Enough of the product is demonstrable enough that you can gauge customers’ price sensitivity, depth of engagement, etc. The three-year product roadmap gets earlyvangelists engaged. Team: Do you have a core team that can build the first product and get early sales? The culture needs to be hypothesis > experiment > data > insight > validate/invalidate/modify hypotheses. Business Model: In seed you often discover that your business has more moving parts than you originally thought. You may be in a multi-sided market with other customer segments/partners that are critical to your business. You should be testing all parts of your business model; revenue models/pricing, resources, activities and partners. Market: Tell us why the data validates that this is going to be a huge market. At first the founders do the first sale, then they prove your first salespeople can repeat that sale. Goal/Time: By the end of the seed stage, the company ought to have evidence that repeatable sales can be made by the founding team. This typically takes 12-18 months. Seed Round Paperwork: While founders will still want minimal paperwork – either a convertible note or a SAFE or a KISS– professional investors at this round often want an equity round with a more formal set of documents for their investments. You’ll see a Term Sheet, Stock Purchase Agreement, Amended and Restated Certificate of Incorporation, Investors’ Rights Agreement, Right of First Refusal and Co-Sale Agreement and a Voting Agreement. Series A Round of Funding By the end of the seed stage–about 2½ years into your startup– your startup has a repeatable and scalable sales model and a provable case that there can be a multi-billion dollar valuation. Funding: Startups typically raise anywhere from $7.5 million – $25 million in a Series A round. This size round typically comes from a venture fund or a corporate VC. Market: You need to convince investors that this is at least a $1B+ company. Product: At this stage you have a fully-featured first version of the product needed to scale sales. And you are working to the three-year product vision, iterating and course correcting based on customer feedback. Traction: For a Series A round investors want to focus on a repeatable and scalable sales model with efficient growth. That means you need metrics that prove you have it. Repeatable sales means if you hire an account exec, you know that they will close $1M Annual Recurring Revenue in a year. Or if you spend $100K in ad spend, you can get 100,000 new users.Startups raising an A round typically have $ ½M-$4M Annual Recurring Revenue. Note that the focus should not just be on growth month-to-month but also on efficient growth. For example, other metrics include achieving net retention of 80-150%, getting a Lifetime Value/Customer Acquisition Cost ratio greater than 3, getting to two times Customer Acquisition Cost Payback Period in less than 18 Months. You should have a realistic plan to grow revenue 3-5x in 12 to 18 months. These numbers differ dramatically for e-commerce versus consumer, versus SAAS, etc. You should know what the right success metrics are for your industry. (The best VC’s will actually tell you what metrics they are looking for.) Team: The core product team is working efficiently and the sales team for scale is in place and 75% are meeting quota. Business Model: By the end of Series A, all parts of the business model have been tested and they add up to a scalable, repeatable and profitable business. Goal: By the end of the Series A, the company ought to prove that you’re a business not a hobby. You need to show > $5M in gross profit. Just to put your journey in perspective, if you want to achieve Unicorn status or go public, you ultimately need to deliver $100 million annual gross profit in Years 6 – 8. Series A Paperwork: You’ll be seeing a Term Sheet, Stock Purchase Agreement, Amended and Restated Certificate of Incorporation, Investors’ Rights Agreement, Right of First Refusal and Co-Sale Agreement and a Voting Agreement. Revenue Growth Some investors think of the ideal startup revenue growth with a shorthand of “ triple, triple, double, double, double .” Years 1-3: $0-$2M in revenue Year 4: Triple the revenue to $2-$6M Year 5: Triple the revenue again to $6-$18M Year 6: Double the revenue to $12-$36M Year 7: Double the revenue again to: $24-$72M Year 8: Double the revenue again to: $48-$144M Valuations Fair or not, not all startups are equal in the eye of their potential investors. Some startups may be considered “hotter” than others and get much higher valuations. A hot startup may be even able to skip the pre-seed round and go directly to a seed round – meaning more money raised at a higher valuation. The criteria for a “hot” startup include: The background of the founders attended a top university i.e. Stanford, MIT, Harvard had previous experience at a high-growth company, ie Facebook, Google, etc. serial entrepreneur attended a top university i.e. Stanford, MIT, Harvard had previous experience at a high-growth company, ie Facebook, Google, etc. serial entrepreneur A “hot” market It depends on the month or year – is it AI? Big Data? AR/VR, Cyber, Robotics. It depends on the month or year – is it AI? Big Data? AR/VR, Cyber, Robotics. Hype Do you have a big investor leading the round? Have you gone through Y-Combinator? Are you famous? Do you have a big investor leading the round? Have you gone through Y-Combinator? Are you famous? Location Silicon Valley Other innovation clusters Other innovation clusters FOMO A startup with a huge vision and story can create FOMO (fear of missing out) in investors – one of the strongest forces for accelerating your fundraising process. At the same time VCs worry about FOLS: Fear of looking stupid FOMO> FOLS A startup with a huge vision and story can create FOMO (fear of missing out) in investors – one of the strongest forces for accelerating your fundraising process. At the same time VCs worry about FOLS: Fear of looking stupid Lessons Learned Every stage of a startup requires a different set of metrics and milestones and founder skills. Knowing what investors want at each stage provides founders with guideposts Founders need to keep their eye on the prize not just the next funding round Print (Opens in new window) Print Email a link to a friend (Opens in new window) Email Share on Reddit (Opens in new window) Reddit Share on WhatsApp (Opens in new window) WhatsApp Share on Telegram (Opens in new window) Telegram Share on Tumblr contact: info@kandsranch.com contact: info@kandsranch.com @sgblank Get the Podcasts for Free Powered by WordPress.com . WP Designer.