One-Round Wonder | Theory No. 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.
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.
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).