A founder I respect sent me their investor presentation. They’re smart and their product is great. It serves a big market.

At the end of the their deck, they ask for $2.0M in venture financing. I don’t think it’ll work.

I asked permission to give feedback and wrote back the following. It’s advice I’ve found myself repeating enough to other founders that I thought it helpful to include here:

Take this feedback with a grain of salt. I’m just relating one person’s journey (mine) and if it can save you any pain, then taking the 10 minutes to write this email was worth it 🙂

I think your ask for $2.0M in equity funding will be too rich for the market. More or less, what I’ve observed in my own business—and with businesses in which I’m an angel—is raising more than $1.0M (either in equity, on a SAFE or in debt) is nearly impossible unless you’re a trusted serial founder or perceived as the hottest business on the planet at the moment. (You know you’re the latter because all the VCs will be texting you and you’ll have no idea how they got your number)

If you’re a first time venture-backed founder (vs. a services business CEO, for example), it’s a near requirement now-a-days that you go out and raise several hundred thousand dollars in angel and/or pre-seed funding before raising more than a million. The exception to this rule might be if you have a product that’s generating $10–25k (or more) in MRR, and that your product has been in the market long enough that the seed investor can model churn and/or viral effects. Alternatively, they would want to see a monster top-of-funnel to justify telling their other partners that the business is inevitable to grow sales at a rate of 10–15% month-over-month for the foreseeable future with little risk.

Now, you may hear advice or anecdotes contrary to the above. VCs who say the above is not true are either lying either to preserve their optionality or lack of self-awareness. Also likely you’ll hear folks use exceptions to disprove the rule (I myself know a founder who raised exactly $1M because their kid and the VC’s kid are friends).

I wrote this too, which you might find useful/terrifying: https://husney.com/a-seed-raise-by-the-numbers-3905/

Your first round will probably be small. Too small, perhaps, to even earn a living. It won’t seem fair. It isn’t fair: you are likely underwriting a ludicrous degree of risk.

Small rounds can get big. Asking for $120k or $250k can easily balloon into $500k or more. On the other hand, asking for too much rarely results in receiving less. Often, it results in raising nothing at all.