One-Round Wonder
Theory #23 | Can a startup have the best of both bootstrapped and venture funded paths?
About a year ago, I published my thesis on the Silicon Valley Small Business, a new startup archetype that combines big tech know-how and ambition with small business principles. Importantly, the SVSB isn’t about small outcomes; it’s a set of principles for any size outcome. One of the principles is about not relying on outside funding by default, yet not dismissing it entirely. I explore this idea in greater detail in this essay.
We hear of a startup’s first funding round, the follow on, the next one, and one more. This is the essence of the traditional venture-funded startup path.
On occasion, we hear underdog stories of startups that bootstrapped to notable success, with zero funding rounds and little pomp and circumstance.
But is there something in between these extremes? Can a startup have the best of both bootstrapped and venture funded paths? And can it be done with intention?
That’s the idea of the one-round wonder — or the “one and done” round or “seedstrapping.”
The Benefits
Any amount of funding comes with benefits, and most are intuitive. Since I’ll talk about what I believe is the ideal amount and use of funds, I’ll summarize a few key benefits first:
Cash. The cash itself obviously has loads of benefits. You can experiment faster without introducing existential financial risk. Financial stability tempers founder urgency and stress. I think of the 3 key tangible benefits as:
Ability to pay founders and employees (or even afford to hire at all)
Budget for operational expenses (technical, non-technical, experimental)
More working capital to cover short-term costs and prioritize growth
Community. The best funding comes with a network of supporters just a warm connection away. Community helps find advisors, employees, and critical early customers (e.g. the famed YC B2B SaaS startup ecosystem). Support for raising “follow on” rounds isn’t a key focus here.
Credibility. The big intangible. Enter the usual discourse about the brand and reputation of investors. Credibility is about being able to be trusted and believed in — by potential customers, employees, investors. Successfully raising and from reputed investors helps with all of these short-term.
So what’s the difference between these benefits and what you get with a lot of funding? Not much! It’s mostly about intention and understanding the ROI of each of these benefits at every scale of funding.
The Range
Startups that don’t swear off funding entirely often wonder how much to take.
The goal is to get the business to profitability as efficiently as you can and with as much high slope potential as possible. The aspiration of the one-round wonder is to use a strategic, single round of funding to achieve this!
So what’s the ideal range for this “one round?”1
Note: Surely there are differing opinions on the range, so take this as one perspective.
Set the lower bound at $100,000 & the upper bound at $5,000,000.
I’ll break down the logic behind this, but first, you might be thinking this is a large range. Yes, it is, but in the context of the vastly bigger ranges we’ve seen across a tech startup’s entire lifecycle, it’s actually quite small. In VC terms:
It’s between the size of a small pre-seed and a robust seed round.
We’ve seen the size of venture capital rounds inflate over the past decade+. Seed rounds today look like series A’s from a decade ago. And pre-seed rounds, more common now, look like the seed rounds of the past.
The average pre-seed round is around $500K, some suggest closer to $1M. The median and average seed round in 2014 was ~ $400K and $800K respectively per Crunchbase; these peaked in 2022 with the median seed at $2.5M and the average seed at $3.7M (shown above). And among select large VC funds only, the numbers are higher still — $4M median and $4.6M average seed by 2020. In 2024 of course, these figures should be lower.
When you raise from VCs (or the like), think in VC multiples.
In the early stages of a startup, it’s easy to just pitch a vision and sign a market-rate SAFE note and not think about the downstream implications. I like this short-hand rule by Jason Lemkin from SaaStr:
“Just multiply amount of venture capital raised times 10. That is what you must sell or IPO for — for it all to really work out.” He illustrates further:
If we apply this rule to the funding range above, the low-end is 10 times $100K = $1M. The high end is 10 times $5M = $50M. That’s a big difference.
Granted the investors giving you a $100K check vs. a $5M check will differ, but it’s still about multiples. And it still takes a very different product, team, business plan, and level of execution to hit one target versus the other.
The Sweet Spot
There are two main parts to deciding what the “right” amount within the range is. Think about minimum viable funding based on costs and maximum viable funding based on projected revenue and profit potential (and therefore the outcome).
So let me be a bit more prescriptive. I believe there’s a subset of the range that is more often “right” than not:2
Within the $100K to $5M range, $500K to $2M is the sweet spot.
Again, reasonable people will disagree, and some will think this is a touch conservative. Let’s assume you want this cash to serve you for at least 18 months, ideally for 24 months.3 I’ll illustrate the logic with some “based on true stories” examples:
Scenario 1: Idea stage startup with two founders.
You have savings but don’t want to run on them for more than a few months. If you take just $100K, you can cover some operating expenses, but you can’t pay yourself. If you take $250K, you can cover opex and a low salary of ~$50K each if needed. With $500K, you can take closer to market salary (e.g. $80K) and also have more budget to experiment and hire. Imagine you have 3 founders and you may want to hire an employee — anything below $500K seems untenable.
Scenario 2: Soft-launched product with early traction.
Your founding team has bootstrapped for a year. You’ve landed on a product, beta tested, and signed paying customers. You want to double down now, but despite a bit of revenue coming in, you’re still hitting financial and time constraints. You could raise $500K to ease these burdens. But what if you’re ready to lean in more? If you raise $1-2M, you can afford to pay yourselves, hire high-leverage employees, and invest in growth experiments.
These are of course just two illustrative scenarios; there are many more unique combinations of circumstances. Just change the location, sector, business model, number of founders, their experience level, personal savings, etc. — any one of these can massively impact what is “right.” And there’s the impact of cost innovation in your industry (and AI will impact most tech or tech-enabled fields).
Outside the Sweet Spot
If $500K to $2M is the sweet spot, what about anything above or below this?
Less than $500K
In my opinion, less than $500K is only the “right” amount if you already have money you’re comfortable spending, you have revenue with enough margin to cover most expenses, and/or it’s a straight execution play with a very tight plan.
My thought-partner in crime, a former YC founder, read a draft of this essay and had a great question — is $100K actually too little given YC started with $125K? My answer is yes, it’s great for 3-6 months and you can stretch it if you suffer a bit, but the goal was usually to raise post-YC. Notably, YC now offers a total $500K.
Ultimately, the risk with raising less is that it’s neither here nor there; you’re still tight on cash and it’s distracting and draining to potentially raise again.
More than $2M
You usually only need more than $2M if you want to spend more or last longer.
What would you spend more on? Usually it’s labor. And when or why would you want to last longer? This one’s self-explanatory, but tactically it gives you more time to iterate and pivot (which I’d find most helpful in high market risk categories or those with longer product development and sales cycles).
The risk with raising more than the sweet spot is simply that you need a bigger outcome. Using the 10x rule, raising $2M should make you think about a $20M outcome, if $2.5M then $25M. These are all non-negligible stepups, so while it’s tough to draw a hard line at 2, 2.1, 2.2, etc., it can be a slippery slope.
The Investor
So who is the “right” investor to give you $500K-$2M (or even up to $5M)? I talked about this briefly in my expanded SVSB thesis:
Who’s best suited to back these types of startups then? Angel investors, accelerators, and small, early-stage venture capital funds (i.e. pre-seed and seed). In the latter category, we’ll also see VCs try to accommodate alternative funding structures to address scenarios where SVSBs become profitable and don’t want or need to exit (i.e. revenue share, fixed-multiple return, dividends, royalties). I wrote more about this in an expanded essay on the “Silicon Valley Small Business” here.
In a recent “State of VC” deck, Sam Lessin from Slow Ventures affirms the SVSB thesis and the idea of an only-seed-funded startup as compelling. It’s true that more than a few VCs are now focusing on Seed stage given uncertainty of growth capital markets (and of big outcomes with good underlying fundamentals).
Some startups have informally taken this path in recent years, e.g. by changing their intention after raising a traditional venture round. I believe many more will formally in the coming years. (There’s a lot more to discuss about how the funding ecosystem and investment structures may adapt, which kinds of startups are best positioned for this, etc. but I’ll save that for a future post!)
The Aspiration
The 2010s were a decade of young, ambitious entrepreneurial types trying to birth “unicorns,” go public, and become billionaire royalty. In the near mid-2020s, would-be Zuckerberg-esque founders are looking more closely at which types of companies they should try to build and how they should fund them, if at all.
Every early-stage founder is thinking: to raise or not to raise? Or what if I raise just a little and see how it goes? Is there a way to get the best of both bootstrapped and venture-funded paths? Historically the two paths have diverged, but there’s a new, convergent aspiration to keep in mind — being a one-round wonder.
If this working theory resonates, consider scrolling up to give it a like, shouting it out on socials, telling someone about it, leaving a comment, … or whatever you think is nice. 🙏
I rarely feel the need to say this, but this essay is not professional or financial advice, and it shouldn’t be taken as such. But do use the ideas as a starting point for your own evaluation!
The “range” and the “sweet spot” are my estimations based on publicly available industry ranges, the trajectory of many funded startups, as well as personal and anecdotal experience.
I don’t believe raising for much more than 24 months of capital is efficient, though it’s possible to have buffer and stretch longer. Many founders who raised a lot at peak have pivoted and downsized yet have a lot of cash in the bank which means a big required outcome.
Fascinating read Anu! I like this idea of raise once and then grow from there :) keep on writing
The concept of the “Silicon Valley Small Business” (SVSB) introduces a fresh way to think about how startups get their funding. It’s like finding a middle ground between the fast-paced world of big venture capital investments and the slower, self-funded growth of smaller businesses. I really like this idea because it suggests a one-time funding approach to help a startup grow without relying on constant new investments. This raises an interesting question: how might investors traditionally focused on high-growth potentials view this model? Are there signs that investor expectations in regions like Silicon Valley are becoming more receptive to such moderated growth strategies?
Also, the name “Silicon Valley Small Business” is pretty interesting. It puts a Silicon Valley spin on what many would just call a normal small or medium-sized business, aiming for steady and realistic growth. I’m curious, does this branding help align stakeholder expectations with the business’s strategic funding intentions, or does it challenge the conventional Silicon Valley ethos in a way that might reshape investor perspectives?