112. Do You Invest Pre-Revenue

VC Minute
Ask a VC, "do you invest pre-revenue?" and 90% of them are going to say some version of, "it depends." Think of revenue as just one throttle. What are the other throttles you have down?

VC Minute – quick advice to help startup founders fundraise better.

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This is Rich Maloy with SpringTime Ventures, bringing you the VC Minute, quick advice to help startup founders fundraise better. 

This week let’s talk about revenue and how it relates to fundraising. 

Ask a venture fund, do you invest pre-revenue? 90% of the time, they’re going to say. “It depends.” The critical part is understanding what it depends on. 

Springtime is definitely in the, it depends on category. And I’ll share with you how I answer the question, “Do you invest pre-revenue? 

You know I love analogies and frameworks. For this, I think about three separate throttles that work in unison. 

The first is revenue. The further down that revenue throttle is, the easier it is to get to a yes. That’s obvious; more revenue means more proof. 

The next throttle is startup experience. Has that founder built and scaled a startup before? If that throttle is fully down, it’s easier to get to a yes. VCs love to back repeat founders with prior experience scaling and, ideally, selling a startup. 

Finally, the industry is experiencing throttle. Founders with deep domain expertise can push that throttle all the way down. The more industry experience you have, the more that benefits you. 

For us, if you don’t have the startup experience or domain expertise, then you must have the revenue. The further back that revenue throttle, the more we need to see the others far forward. 

This is just one way of looking at things. Part of your job in fundraising. Is to ask direct questions about previous investments that fund has made in pre-revenue companies. 

Here are a couple of questions you could ask. What are recent pre-revenue or low revenue investments you’ve made. What are the factors that led you to make a decision to invest? 

The less revenue you have, the more you need to lean on your other experience and your expertise. Other things could include other examples of your successes, your grit, your passion for solving this problem, and why you’re going to stick with it for so long. 

Lean into those aspects where you are at full throttle. 

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