Skip to main content

What Can the Market Bear?


You need a plan that takes into account what VCs will fund from a market and round size perspective.

One important tactical consideration is what the early stage fundraising market can bear.

Market Fit

Consider two circles - one, what you want to create, and, two, what the market will fund. Ideally, those two overlap. In practice, that venn diagram might have a rather small intersection, if any.

Examples include trying to raise capital in scorched earth markets, i.e. verticals where a prominent company crashed and burned and poisoned the earth for those who follow. Even without a high profile failure, investors might be shy to make a bet in a space they see as having been played out, or one that is so new it is hard to understand, or industries that are a poor fit for the VC model.

While the scope keeps expanding as software is eating the world, on the whole, VCs tend to be interested in a rather niche set of companies and markets. This goes back to the dynamics discussed in Company / VC Fit.

Capital Needs

Another aspect to this issue is the question of how much capital is required to build the business. As explained in Why You Need a Strategy, you want to avoid constantly fundraising. This typically means securing enough capital to hit a big milestone and then raise another round in the next 18-24 months, as per The Purpose of Fundraising.

This number needs to be triangulated with the current market conditions - i.e. what is the typical range for a seed / series A round as of the time you are out raising. Ultimately, you need to be able to show a convincing plan that raising something in that range will get you to the next milestone.

Beware of Perverse Dynamics

Triangulations like those described above can create a bit of a perverse dynamic, where founders amend a good plan just so investors will like it. Some of that is often necessary in order to position the company properly and get it funded. However, I advise against overdoing it.

As a founder and CEO, it is your job to decide on the best course of action, based on your judgement about the right way to approach the market, build the product, etc. In that regard, capital is just an enabler. That is why, in the absence of learning new and important things about the market, you should generally stick to your guns and be conservative in making changes just for the sake of appeasing investors.

I discuss how to go about finding out what the market will bear in Understand the Fundraising Market.