"If a VC doesn't write second and third checks into their investments … that VC just isn't as valuable as one that does.

Ask. Just ask.

Ask how often they write second checks." pic.twitter.com/yJ358OrpXA

— Jason ✨👾SaaStr.Ai✨ Lemkin (@jasonlk) November 6, 2024

So right now is both good times in SaaS (IPOs are somwehat back, AI is fueling tons of VC rounds, revenue growth at leaders is decent) and tougher times in SaaS (markets still down 50%, multiples remain low).  One thing is clear — fundraising is harder right now than it used to be, at least for most of us.

And what that means is a number of you that raised a round will need a little more.  An extension.  A second seed.  Or a bridge from your existing investors.  Or at least, a significant second check from your lead investors even if you find a new investor to lead the next round.

A bit more on bridge rounds here:

How Bridge Rounds Work in Venture Capital: Messy, Full of Drama, and Not Without High Risk

But in this post, let’s talk about a niche topic most founders know nothing about, but that matters — VC “Reserves”.

What are Reserves?  Reserves are an amount of each fund that the VC firm holds back for second and third checks.

These reserves are used both to bridge startups that are doing OK but need a little more cash.  And to double and triple down on the winners.  In fact, since reserves are capped, each portfolio company sort of competes for them.  And overall, the need to bridge ones that need a little more competes with the desire to double down on the big winners, where all the real money is made:

OK, there’s a lot there, but before we even get there — Do Your Investors Even Have Reserves?

Let’s break it down a bit:

• $200m-$1B+ Funds will often earmark 40%-60% of the fund for reserves.
• $50m-$200m Funds will often earmark 30%-40% of the fund for reserves.
• Tiny funds will often earmark some for reserves — but really only for their winners.  They rarely earmark much, if any, for ones that need a bridge.
• Angels almost never carry any reserves per se.  But they do sometimes double down on winners.
• And importantly — very importantly.  Almost no one really carries reserves for SAFEs and Note rounds.  No matter how big the fund.
• And finally — note that the older the fund, the more reserves are invested, and thus used up.  A fund that is more than 6-8 years old may not have many reserves left at all.

Ar SaaStr Fund we do a roughly 50:50 model.  Half of each fund is for new checks, and the other half is for follow-on checks.  And of the follow-on, maybe 20% are for bridge rounds, the rest for “hot” rounds with a new outside lead.  And importantly, I mentally cap any bridge round at about 20% of the check size of the initial investment.

So just bear in mind that first, almost no one will want to write a second check if you truly are failing.  But if you are in the middle, if you are doing OK but not quite well enough to earn the next round yet … some of your VCs will be able to use their reserves to bridge you.

But reserves are concentrated in the largest of funds, with the largest ownership stakes.  And rarely there for SAFEs.

And if you don’t have a lead investor — there probably is no one really holding reserves.  Not really.

More on Lead Investors here:

Why It Matters Who Your “Lead” Investor Is

We’ve pulled all the data and numbers into one simple VC Valuation Calculator here.   Try it — it’s Free!

We’ve pulled together all the latest data from:

• 4,000+ funding rounds across all stages (Seed through Series C)
• Carta’s July 2025 private market data
• Bessemer’s 2025 growth benchmarks and market insights
• Real-time market multiples from Traditional SaaS to AI-Native companies

Here’s what we’re seeing: AI-Enhanced SaaS companies are now trading at 90th-95th percentile valuations — that’s a massive premium over traditional SaaS. Revenue multiples are hitting 11.2x-14.0x for companies with native AI features baked into their core product.

The calculator breaks down valuations by:

• Funding stage (Seed, Series A, B, C)
• Company type (Traditional SaaS, AI-Enhanced, AI-Native)
• Growth rates and market positioning

Bottom line: If you’re building in B2B with AI at the core, you’re likely worth more than you think. But growth rate still trumps everything — a Traditional SaaS company growing 80%+ will often outvalue a slower-growing AI company.

Check your valuation in 2 minutes. The data might surprise you.

Try the Calculator →

Based on fresh Carta data from 3,001 primary rounds raised by US startups (Sept 2024 – August 2025).

The venture capital market has officially split into two radically different universes. And this is super important for B2B founders to understand:

• In Universe A, solid B2B and SaaS companies raise at reasonable multiples following traditional venture math.
• In Universe B, AI-powered startups command valuations that defy every historical precedent.

The data from Carta’s latest analysis reveals something unprecedented: we’re not just seeing a “hot market” — we’re witnessing the complete takeover of winner-take-all economics in venture capital.

Numbers That Will Make Your Head Spin

Let’s start with the headline: Seed rounds in the 99th percentile are hitting $161M valuations. That’s not a typo. That’s +123% higher than even the 95th percentile at $72M.

But it gets wilder as you move up the stack:

• Series A: The gap between “great” (95th percentile at $250M) and “legendary” (99th percentile at $716M) is a +186% jump. We’re talking about Series A companies valued higher than most Series C rounds just 24 months ago.
• Series B: The 99th percentile hits $2.068B — that’s unicorn territory in what used to be a “growth” round. The jump from 95th to 99th percentile? A casual +200%.
• Series C and beyond: We’re now seeing Series C companies in the 99th percentile valued at $7.169B and Series D at $8.104B. These aren’t outliers anymore — they’re the new “wow” category.

You can see it play out live in our new, SaaStr VC Valuation Calculator here:

What’s Actually Happening Here?

This isn’t market irrationality. This is the mathematical result of winner-take-all economics reaching venture capital. When the difference between #1 and #3 in any AI category means the difference between a $200B and a $1B outcome, traditional valuation models break down entirely.

1. AI Has Created Super-Category Winners

The companies hitting 99th percentile valuations aren’t just “AI companies” — they’re companies building AI moats so deep that competition becomes nearly impossible. When your model gets better with every customer interaction, when your data flywheel compounds daily, when your AI creates switching costs that didn’t exist in traditional SaaS, you’re not competing in the same market as everyone else.

With OpenAI raising at $500 Billion, and Anthropic at $170 Billion, the potential returns for VCs for investing in a category winner seem almost unlimited today.

2. Capital Efficiency Meets Infinite TAM

The deadliest combination in today’s market: AI companies that can show both massive TAM expansion AND improving unit economics. Traditional SaaS companies might 3x their addressable market through international expansion. AI companies are 10x-ing their TAM by automating entire job functions. When you combine that with AI-driven operational efficiency, investors will pay almost any multiple.

3. The “Never Raise Again” Premium

The top 1% of AI companies raising at these valuations have a credible path to never needing external capital again. Their AI advantages compound, their margins improve with scale, and their competitive moats widen automatically. VCs aren’t just paying for growth — they’re paying for the chance to own a piece of a business that might generate cash for decades without dilution.

The Three-Tier Market Structure

What we’re seeing is the emergence of a three-tier market:

Tier 1: Traditional SaaS (50th-75th percentile). These are well-built software companies following the old playbook. Series A at $58-97M, Series B at $136-262M. Good businesses with predictable SaaS metrics, but they’re competing in a world where AI isn’t central to their value proposition.

Tier 2: AI-Enhanced SaaS (90th-95th percentile). These companies have successfully integrated AI into existing SaaS models. Series A at $160-250M, Series B at $450-688M. They’re getting the “AI premium” but haven’t achieved true AI-native differentiation.

Tier 3: AI-Native Category Creators (99th percentile). This is where the magic happens. These aren’t SaaS companies with AI features — they’re AI companies that happen to have software interfaces. They’re creating entirely new categories, automating entire workflows, and building moats that didn’t exist in the pre-AI world.

Bessemer Venture Partners also has a good take here:  Great B2B Start-Ups vs. Shooting Stars … vs the new Category of AI Supernovas:

Almost everyone wants to fund the supernovas and shooting starts.

What This Means for You

If you’re a founder:

If you’re building traditional B2B/ SaaS, you’re competing for Tier 1 valuations no matter how good your execution. If you’re building AI-enhanced SaaS, you need to prove your AI creates genuine differentiation, not just feature parity. But if you’re building something truly AI-native — something that couldn’t exist without AI at its core — there’s more capital available at higher valuations than any founder in history has ever seen.

The question isn’t “should I add AI to my product?” It’s “can I build something that’s impossible without AI?”

If you’re an investor:

The cost of missing an AI-native category creator has never been higher. The companies you passed on at $50M pre-money in their Series A aren’t just raising Series B at $500M+ — they’re potentially building the next $100B+ businesses. But the risk of paying Tier 3 valuations for Tier 2 companies has also never been higher.

The due diligence question has fundamentally changed: it’s not “is this a good SaaS business?” It’s “does this AI advantage compound automatically?”

If you’re an operator:

The talent war is about to get even more intense. Companies raising at these valuations can afford to pay top-of-market compensation and offer equity packages that are genuinely life-changing. If you’re at a Tier 1 or Tier 2 company, you need to be thinking about your next move strategically.

The Dangerous Part

Here’s what keeps me up at night about this data: When 99th percentile Series A companies are trading at 7x median valuations, we’re not seeing market dynamics — we’re seeing market separation.

The gap suggests that investors believe the top 1% of AI companies will capture disproportionate value compared to everything else. Historically, when this kind of valuation divergence happens in venture, it means one of two things:

1. The top tier really has discovered a new form of value creation that justifies infinite multiples
2. We’re in the late stages of a bubble where “AI” has become the new “blockchain” or “metaverse”

Here’s why I think it’s mostly #1: The AI companies hitting these valuations aren’t just growing faster — they’re growing more efficiently while simultaneously expanding their addressable markets. They’re not just better businesses; they’re different businesses entirely.

But that “mostly” is doing heavy lifting. Because if I’m wrong, the correction will be unlike anything we’ve seen in venture capital.

The Bottom Line

Winner-take-all economics haven’t just influenced venture capital — they’ve completely taken over. We’re not living in a world where the best companies get 2x valuations anymore. We’re living in a world where AI-native companies trade in a completely different universe.

For founders, this means the difference between building a “good SaaS business” and building an “AI-native category creator” isn’t just better outcomes — it’s 10x different outcomes. The middle ground is disappearing rapidly.

For investors, this means the cost of being wrong about which companies are truly AI-native versus AI-enhanced has never been higher. Miss the next AI category creator, and you don’t just miss good returns — you miss generational returns.

The math is simple: In a winner-take-all world, you either build something that becomes the winner, or you compete for scraps. The valuation data just makes that reality impossible to ignore.

Choose your game accordingly. Because in venture capital, there’s now the AI game and everything else.

Data source: Carta analysis of 3,001 primary rounds raised by US startups, September 2024 – August 2025. Want more startup data insights? Subscribe at carta.com/data

Because the Age of AI has led to not just massive rounds being raised, but those massive dollars going to the fewest companies ever.  Per Pitchbook’s latest data: 41% of all venture capital dollars deployed in the U.S. this year have gone to just 10 companies. Read that again. Ten companies. Out of thousands seeking funding.

This isn’t just concentration—it’s a fundamental restructuring of how venture capital works.

The Math Founders Need to Understand

Here’s what 41% concentration actually means in practice:

• $81.3 billion has flowed to just 10 startups out of $197.2 billion total VC deployment in 2025
• This represents a 75% increase from the share awarded to the top 10 companies in 2024
• It’s the highest concentration we’ve seen in the last decade
• Eight of these ten companies are AI-focused

To put this in perspective: OpenAI alone raised $40 billion—the largest single financing event in venture capital history. That’s more than many entire years of VC activity in previous decades.

The top three AI companies (OpenAI, xAI, and Anthropic) collectively raised $65 billion—nearly one-third of all venture dollars this year.

Why This Concentration Is Accelerating

1. AI Infrastructure Requires Unprecedented Capital

Unlike previous technology cycles where millions could fund meaningful progress, frontier AI development demands billions. Training large language models, building compute infrastructure, and acquiring the necessary talent requires capital at scales that would have been unimaginable even five years ago.

Scale AI’s $14.3 billion round from Meta (giving Meta a 49% non-voting stake) exemplifies this new reality. When Meta can justify a $14+ billion investment for specialized AI infrastructure, we’re playing an entirely different game.

2. The Power Law Has Gone Exponential

Venture has always operated on power law dynamics—one big win covers many losses. But now the “big wins” are so massive they’re creating a bifurcated market:

• Mega-funds with billions in assets under management chase mega-deals
• Boutique funds fight over the remaining 59% of capital spread across thousands of companies
• First-time fund managers raised a combined $1.8 billion across 44 funds—less than half of what Founders Fund alone raised ($4.6 billion)

3. Corporate Venture Arms Are Driving Concentration

Tech giants aren’t just investing; they’re making strategic bets that reshape entire markets:

• Microsoft’s multi-billion OpenAI partnership includes product integration and cloud infrastructure
• Amazon’s $8 billion total investment in Anthropic (with AWS as primary cloud provider)
• Meta’s Scale AI acquisition that brings CEO Alexandr Wang to lead Meta’s new Superintelligence Lab

These aren’t traditional VC investments—they’re strategic acquisitions disguised as funding rounds.

The Tough Reality for Everyone Else

While the headlines celebrate billion-dollar rounds, here’s what’s happening in the rest of the market:

Seed Funding Is Actually Declining

Despite the overall funding boom, seed funding fell 14% year-over-year to $7.2 billion in Q1 2025. Early-stage investment dropped to $24 billion—the lowest level in at least five quarters.

VC in 2025 So Far Per Carta: Valuations Are Up 15-25% … But Deals Are Down -13% at Seed. Deals Are Down Everywhere.

Deal Count Continues Falling

Global deal count declined for the fourth straight quarter, down 28% year-over-year. Fewer companies are getting funded, but those that do are raising massive amounts.

Fundraising Timelines Are Lengthening Overall

The median time to raise a venture fund reached a record 15.3 months in 2025. If you’re not an established mega-fund, raising capital is becoming exponentially harder.

What This Means for Different Players

For VCs: Choose Your Lane Carefully

The venture industry is bifurcating into two distinct categories:

Mega-Funds ($1B+ AUM):

• Chase late-stage, proven companies
• Average deal sizes of $200M+
• Focus on 10-20 investments per fund
• Need billion-dollar outcomes to move the needle

Specialized/Early-Stage Funds:

• Hunt for overlooked opportunities in niche markets
• Average deal sizes under $15M
• Require 100+ investments for diversification
• Success depends on finding the next mega-company before it becomes obvious

There’s increasingly little middle ground between these strategies.

For Founders: The New Fundraising Calculus

If you’re building in AI infrastructure or foundation models, you’re competing in the mega-round arena whether you like it or not. The capital requirements are simply too high for traditional VC funding cycles.

If you’re building anything else, understand that you’re competing for a shrinking pool of available capital with thousands of other companies. Your path to funding requires:

• Exceptional early metrics that prove product-market fit
• Clear differentiation from AI-powered alternatives
• Capital efficiency that demonstrates you can build meaningful businesses without mega-rounds

For LPs: Risk Concentration Has Never Been Higher

Limited partners face a challenging paradox: the funds most likely to deliver outsized returns (those with access to mega-deals) are also creating unprecedented concentration risk.

When Founders Fund’s portfolio includes multiple billion-dollar AI bets, a single sector downturn could impact returns dramatically.

The Questions Everyone Should Be Asking

Is This Sustainable?

We’re investing as if it is.

Are We Creating a Bubble?

When 70% of all funding goes to mega-rounds ($100M+), and mega-rounds hit their highest levels since Q3 2022, we’re arguably approaching bubble-like concentration.

What Happens to Innovation?

The greatest risk isn’t financial—it’s innovation. When the vast majority of venture capital flows to a handful of companies in a single sector, we’re potentially missing the next transformative technologies that emerge from unexpected places.

The Bottom Line

We’re witnessing the most dramatic concentration of venture capital in history. Whether this represents the maturation of venture into a more efficient capital allocation mechanism or the creation of dangerous systemic risks remains to be seen.

What’s certain is that the venture landscape of 2025 looks nothing like it did even three years ago. The rules have changed, the players have consolidated, and the stakes have never been higher.

For founders, investors, and LPs alike, acknowledging this new reality isn’t pessimistic—it’s essential for navigating what comes next.

The question isn’t whether venture concentration will continue. The question is whether the innovation economy can thrive within it.

Data Sources: PitchBook, Crunchbase, CB Insights, various industry reports. All funding figures represent U.S.-based companies unless otherwise specified.

It's not a flag when a founder picks new VCs for the next one

Many reasons for this

It's a pretty big flag when none of a founder's last VCs want to invest in the next one

Are exceptions, but usually a sign

— Jason ✨👾SaaStr 2025 is May 13-15✨ Lemkin (@jasonlk) May 4, 2025

So I’ve been investing long enough — just about 12 years — to not really have mastered it, but seen the results of trade-offs made in investing.  

I’ve made about 30 material investments.  More on them here. Most have been successful, but of course, not all have, and I’ve been reflecting on the ones that didn’t, because they still had attractive elements when I invested.  I’ve at least come far enough to see why some exited for billions (Salesloft, Pipedrive, Greenhouse) or become truly worth billions with hundreds of millions of revenue (Talkdesk, Algolia, etc.) and others are on the way (Owner, RevenueCat, Gorgias) … others didn’t.  Despite strong initial promise.

My learnings:

What Works — That You Might Think Wouldn’t Work:

• High employee/VP churn. You’d think turning over lots of VPs would impact growth — and it does. But some CEOs get through this as long as they are super committed to bringing in the next group of VPs.  This can be especially common during hyper growth.
• Solo founder, too many founders, co-CEOs. Solo founders can work (Zoom proves this). 5+ cofounders can work (I think of that as too many cooks, but now I see it still can work). Co-CEOs can work, even though many investors think this is a flag and confusing. It works for Atlassian. It works for others, too.
• Taking a long time to get to $1m-$2m ARR. I used to think if you didn’t get to Initial Traction fast enough, the team would burn out. But now I’ve learned that’s not always the case. Some of my best investments had zero revenue the first 2 years or even longer.  UiPath took 10 years to get to $1m in ARR!
• Cofounder conflict. I hate to see it, and personally, it held me back. But now I’ve seen many unicorns make it even with significant cofounder conflict in the early and middle days. Some of the best CEOs just push through it, one way or another.

Signs, With Hindsight, Of An Investment That Probably Won’t Work Out:

• CEO hid things and/or was misleading. If the metrics don’t make sense, just don’t invest. I can think of one exception that is a unicorn now, but otherwise, if the metrics are a bit baloney (e.g., claiming bookings are ARR, or using Quarterly MRR, or claiming team members are full-time that aren’t) … then pass.
• If a CEO surprises you with things, do not invest. Hiding the ball, I’ve seen 100% of the time, leads to a mediocre outcome. Not always a failure, but always a mediocre outcome. This is really just the prior point amplified. The best CEOs are direct with the good, the bad, and the ugly. At least by the second meeting.
• Great CEO But Mediocre CTO. Sometimes, you can grow quickly at $1m-$2m+ ARR, even with a mediocre CTO. Because that one 10x feature might be enough up to that point.  But then … things get complicated. You have to scale, and add 10x the workflows. A mediocre CTO can’t keep up.  Especially today.  AI just makes everything even more competitive. These ones without an S-tier CTO, even with a great CEO, hit a wall somewhere. It may be as late as $10m-$15m ARR, but somewhere.  I’ve seen some of these still scaling to real value (hundreds of millions), but I haven’t seen a mediocre CTO take a startup to the stratosphere yet in SaaS.  Even if the CEO is great.

Things That Are Super Risky … You Might Not Think Are:

These are flags of likely issues to come, but they aren’t dispositive.

• None of The Investors From Last Startup Want to Invest.  This one took me a while to see, but if they did a start-up before and none of the prior VCs want to write even small checks, I’ve never really seen this work out.  Because the easiest investment to make as a VC is in someone you already know and believe in.
• Taking the First VC Money Offered Too Quickly, Especially if It’s a Suboptimal VC. The best CEOs take their time. The ones that immediately take the first term sheet offered out of a bit of panic, I’ve seen that decreases the odds of success.  It doesn’t kill a startup, but it does turn out for me at least to be a sign of a CEO that is too worried, nervous or conservative.  Take an extra week or two to make sure the investor you think you want is the right one.
• Secondary Liquidity Too Early. Selling some founder’s shares later, as the valuation passes $100m, makes a ton of sense. It helps you go long as a founder. I should have done it. But selling too early, at too low a valuation, is a risky sign the founders don’t 100% believe. This isn’t 100% correlated to failure, but there is a strong correlation here in my experience. It also can lead to substantial co-founder conflict down the road when an underperforming co-founder expects more and more of their stock to be cashed out.  A lot of experiments were run here in the Go-Go Days of 2021.  They didn’t work out.
• A Burn Rate Even a Smidge Higher Than Normal. This is super risky — because it only grows from there. A burn rate that is even 30%-40% higher than similar companies is a flag. It’s a flag the burn rate will continue to expand at this rate. For me, any start-up that has burned more than say, $3m or so on the way to $1m+ in ARR–that’s too much. It’s a sign they just need to burn too much for each new $1 they bring in. The meta-learning is more money makes it worse. They ratchet up the burn, and then burn even more than similarly situated companies. Even a slightly-higher-than-normal burn rate compounds. Into a too-high burn rate.  Almost every single time in my experience over the past 10 years.  More here.

• 71% of all VCs dollars are going into AI
• VC dollars are more and more concentrated into winners at growth stage
• Many traditional B2B VCs are now looking for faster growth than even T3D2 today, in the Age of AI

So everything in some ways seems the same in fundraising, but really, is so different.

And what I find is that most founders just don’t know.

They don’t see 100% of the change directly, and they don’t really know for sure if they are fundable or not.  Especially when so many of the big rounds on TechCrunch were actually signed and even closed before the Big Change.

So here’s my simple suggestion, in good times and bad:

Once a quarter at least, at your board meetings, if nothing else, if you have them — ask each of your 4-5 largest investors:

Are we fundable today?  What are the odds we can close a round?  And at what terms?

You’ll often be surprised.  And the one thing VCs usually know better than founders is how fundable you are.  That’s what they do all day, every day, after all.

Especially the founders doing pretty well, but not knocking it out of the park, are often surprised.  Especially the founders who had such an easy time raising the last round, are often surprised.

I’d say at least half are surprised.

A related post here:

Yes, You Need to Fundraise 52 Weeks a Year. The 1-and-30 Rule.

Close image from here

Dear SaaStr: Is it True VCs Don’t Like to Invest Where Founders’ Equity is Fully Vested?

Yes, it’s true but …

#1.  VCs Are Less Rigid Here Than They Used To Be

So the other day I was introduced to what looked like a great founder. The space was a bit unusual but that’s OK. I asked the founder to send me the most detailed deck he could so I could do my homework.

He sent me a 3 page teaser deck with zero data. The classic “teaser deck”. It said basically nothing I couldn’t learn from his homepage. Not even how many customers they had, or what their plans were for the year.

I had to send an email back kindly saying it wasn’t for me. Even though if there had been a bit more there, it might have been.  I was genuinely interested.  But I just … needed to learn more to lean in.

Sometimes, you’ll still take a meeting after a Teaser Deck. If it’s enough. But at least for me, more often than not, I politely just decline if I don’t get it quickly. A real, detailed investor deck though just might have been enough. We’ll never know.

So with that, I thought I’d put together a list of 10 Unforced Errors founders make in fundraising. They aren’t necessary fatal. But just be aware, they often decrease the odds you get funded.  So at least reflect on them before you kick off a fundraising process, or even just meet informally with investors.

#1.  Sending a Very Basic Teaser Deck

A lot of founders are told to share the bare minimum to a VC, just enough to get a meeting.  That may work sometimes.  But just as often, if an investor asks for more detail, and you don’t provide it — they may pass on next steps just because they don’t see it.  It’s sales.  Lead with your strength.  A ton of great info really can turn a “Maybe” into “I’m Actually Interested”.  Often.  Hiding it or not sharing it can lead to just moving on to the next deal.

It’s sales.  Lead with your best shot.  Leave the games for others.

Dear SaaStr: Do VCs Like Short, Teaser Pitch Decks?

#2.  Fundraising After Just 1 Good Month

I know it can be tempting to go out and talk to investors after 1 good month of growth.  But really 3 is so, so much better.  In fact, most early stage VCs will almost completely overlook a period of flat growth if they see 3-4 months of strong growth.  But 1 isn’t a trend.

“The Three Months of Strong Growth” Rule in Raising Venture Capital

#3.  Going In Super Hot / Super Aggressive If You Aren’t A Clear “Yes”

A related point to the first one, but a broader one.  Many on social media and otherwise tell founders to run a “tight process” with VCs and in essence give them just a few days to quickly make a decision. If you are super hot, this can work well.  But if you are interesting but it’s not 100% clear folks would want to invest, then they may just pass if you tell them they have little to no time to make a multi-million dollar decision.

I’ll give you a recent example.  One of the fastest growing companies in the SaaStr Fund portfolio recently raised a strong round, and I reached out to one of the top 2-3 VCs in the space that I knew well to see if they were interested.  The VC immediately said No.  Why not, I asked?  Just curious.   “The growth is incredible but the space has a lot going on and we would just need time to actually meet and get to know the company.”  So they didn’t even take an initial meeting.  I then told them they would have the time and vouched for the founder.  They had a few weeks to dig in, and eventually offered to fund them.

#4.  Asking For Way Too Much Money

This one is a bit nuanced and complicated, but still important.  Look, if you need say $15m seed round and are confident you can raise at a valuation to support it, then ask for it.  But also realize if you ask for more money than is “usual” at a given stage, and/or more money that a VC generally invests, many VCs will just opt out.  Why?  Because it’s too much stress on the fund, and too much risk, among other reasons.  Most mid-sized and smaller funds want to write checks of around 2% of the fund for 10%-20% ownership.  So a $150m fund might be very comfortable writing a $3m check at a $20m valuation.  But ask them for $15m?  They’ll either say No, or at least, pause.  That’s 10% of the entire fund.  Just understand the check size to stage to fund size ratios here.  So many times in earlier stage deals, a deal could have happened if the founders had just asked for less.  Certainly they could at least have gotten many more meetings.  It’s a trade-off.

Dear SaaStr: Should I Tell VCs How Much I Want Them to Invest?

#5.  Not Having a CTO or Other Key Resources

Personally, I won’t invest if a start-up doesn’t have an S-tier CTO.  I think the world is just too competitive today to win without one.  Others are OK with it if they think the CEO is great.  If you don’t have a key resource, at least don’t hide it.  That will only backfire.

#6.  Sending Mediocre or Generic Outreach

This should go without saying, but any VC will tell you 95% of the inbound / cold emails they get are just terrible.  Slow it down.  Slow it down.  Make it great, and make it truly personalized.  Show a connection to that VC.  At least, a tweet you saw that resonated.  At a bare minimum.

Be honest.  Would you fund your own start-up based on that outreach?  If not, try harder.

#7.  Not Reaching Out Because You Don’t Have a Warm Into

Don’t wait if you don’t have a warm intro.  Instead, write the world’s best cold email.  Literally every early stage VC reads their cold email.   Growth and late stage investors often don’t, but that’s a different stage and process.  The very best seed and Series A VCs do read their cold email.  It just has to be great.  So if you don’t have that magical warm intro, don’t let it stop you.

And just as importantly, remember a mediocre warm intro is worse than a great cold outreach to a VC.  VCs do want warm intros, but they really want the ones where a trusted resource says that are The Best of The Best.  Not just a random intro.  So if this so-called “warm” intro won’t say you are The Best of the Best, you’re often better off with a cold email to that VC.

Which VCs Open Cold Emails? Keith Rabois. Aileen Lee. David Sacks. Satya Patel. And More.

#8.  Looking Stale

Don’t send a deck that says “Feb Deck FIN v12” in … April.  Don’t send a deck that is dated.  Don’t make it sound like you’ve already talked to 60 VC already and everyone said no and they are your last choice.  Even if it’s true.  Be honest here, but man, keep it fresh.

#9.  Not Giving Anyone Time To Get To Know You

Will VCs invest in 24 hours into a super hot deal?  Yes.  Does anyone want to?  No.  Investing is risky.  And these days, everyone has a fraud or two in their portfolio, a mini-FTX or mini-Theranos.  Everyone.  So, first, every VC would love to actually know a founder before they invest.  And second, every VC would love to actually get a chance to watch your progress over 2-3 months before they invest.

This is why I recommend to founders to take 1 VC meeting a week.  Even if you don’t want to.  And then just keep them updated regularly with your progress.

Yes, You Need to Fundraise 52 Weeks a Year. The 1-and-30 Rule.

#10.  Not Being Honest.

Don’t hide the fact your co-founder is quitting.  Don’t pretend pilots are signed year-long deals.  Don’t claim you’ve built something entirely yourself that is really just someone else’s API.  7 times out of 10, you’ll get caught on this during due diligence.  The deal will blow up. 3 times out of 10, you may get aware with it.  And then when, after funding, the VC realizes they were lied to … trust is broken forever.

It’s not worth it.  Too many founders are tempted to cut corners here to get the check.  It blows up on you.  Either now.  Or later.

A Note from SaaStr

When Karl Alomar shared these insights at SaaStr Annual, the session was standing room only. As a managing partner at M13 he’s taken two companies through successful M&A exits and one through IPO.

About Karl Alomar

Karl is Managing Partner at M13, where he leads investments across AI, SaaS, and enterprise software. Prior to M13, he founded and scaled three venture-backed companies:

• Company #1: M&A exit to Fortune 500 tech company
• Company #2: IPO in 2019
• Company #3: M&A exit to Leading enterprise software company

He’s now invested in over 50 companies and sits on the boards of five AI-first startups. His portfolio companies have raised over $2B in follow-on capital.

The Five Keys to Building a Successful Startup in 2025: From Pre-Seed to Series A and Beyond

Here’s what 99% of founders get wrong when building their startups: they dive in without a systematic approach to validating their market, building their team, and scaling their go-to-market motion. After taking two companies through successful M&A exits and one through IPO, here’s what actually works.

1. Market Validation – The Brutal Truth About Category Selection

Let’s be real here: your idea probably fits into one of these four quadrants:

• High potential, high competition (where most venture-backed startups land)
• High potential, low competition (the holy grail, but rare)
• Low potential, high competition (avoid unless you’re building a lifestyle business)
• Low potential, low competition (probably not worth your time)

Most founders reading this are in the first category. That’s fine – but you better have a clear plan to win.

2. Team Building: A Tale of Two Phases

Pre-Series A: The Special Forces Phase

Your first 10-15 hires need to be different. They need to be:

• Generalists who can wear multiple hats
• Action-oriented executors
• Comfortable with ambiguity
• Not specialized role-seekers

Post-Series A: The Navy Phase

Once you hit $1m+ ARR, everything changes. You need:

• Specialists who’ve “been there, done that”
• Process-oriented managers
• Clear reporting structures
• Departmental expertise

The hard truth? About 50% of your early team won’t make it to this phase. Plan for it.

3. Product Development: The Three Gates

Pre-Seed Gate ($0-$250k ARR)

• Build the leanest possible version
• Find your ICP (Ideal Customer Profile)
• Get 10 customers to say “yes” before building anything real

Seed Gate ($250k-$1M ARR)

• Launch your MVP
• Find your super fans
• Get to 50-100 paying customers
• Prove early adoption

Series A Gate ($1M+ ARR)

The real test:

• True product-market fit
• Scalable infrastructure
• Proven unit economics
• Clear path to $10M ARR

4. Growth Engine: The 5 Pillars of Scale

1. Content Marketing

• Aim for 30-40% of customer acquisition
• Focus on evergreen educational content
• Think 5-year value, not 5-day clicks

2. Performance Marketing

The magic metrics:

• LTV/CAC ratio > 3:1
• CAC payback < 12 months
• Clear attribution modeling

3. Inside Sales

• Works best from $1M-$10M ARR
• Becomes inefficient beyond 1000 customers
• Average ACV should be >$10k annually

4. Self-Serve Motion

The metrics that matter:

• Freemium conversion rate > 2%
• Net Revenue Retention > 100%
• Land and expand ratio > 130%

5. Partner Channels

• Should drive 20-30% of revenue by Series B
• Partner CAC should be 30% lower than direct
• Commission structure must align incentives

5. Fundraising: The New Normal in 2025

Pre-Seed

• Team + Vision
• Early design partners
• Basic prototype

Seed to Series A

• $1M+ ARR
• Clear go-to-market motion
• Validated TAM
• 15-20% MoM growth

Series B and Beyond

• $5M-$10M ARR
• Proven unit economics
• Net Revenue Retention >120%
• Clear path to $100M ARR

A Note on AI Integration

Every successful startup in 2025 falls into one of three categories:

1. AI-Native: Built on AI from day one
2. AI-Powered: Using AI as a competitive advantage
3. AI-Conversion: Traditional business adding AI features

The key? Don’t just add AI – make it core to your value proposition or don’t bother.

The 5 Key Metrics That Actually Matter

1. Net Revenue Retention: Aim for >120%
2. Gross Margin: >70% for software
3. CAC Payback: <12 months
4. LTV/CAC: >3:1
5. MoM Growth: >15% until $10M ARR

Remember: 65% of Series A companies fail before Series B. But if you nail these fundamentals, you’ll be in the successful 35%.

"You don't have to raise $10m, $20m, $100m in venture capital.

You can raise just one round if you want. A one-and-done.

And maintain so much more optionality." w/ @thesamparr pic.twitter.com/6IGJrVB5GT

— Jason ✨👾SaaStr 2025 is May 13-15✨ Lemkin (@jasonlk) December 23, 2024

There are a lot of posts about how VCs make a ton of money with liquidation preferences when founders make zero.

I find that’s rarely true. There are cases — 100% for sure.

The way in theory a “liquidation preference” works is the VCs get their money out first in a deal, and sometimes, they get it out first and then they get out their pro-rata stake.

So yes in theory, if you sell for less than you raise in VC money, the VCs in theory would get it all back, and the common stock and founders nothing.

But like so many things … it’s not that simple:

• First, even if a startup sells for say $20m after raising $50m and ev even if the VCs were able to keep all that $20m, that’s still a big loss.
• More importantly, when an acquirer goes to buy a company, they almost always want the founders to stay and go big. Departed founders, that’s different. But they almost always want as much consideration as possible to go to the founders and top execs still there — and NOT the VCs.

In fact, in my worst investments so far in 11 years of investing, the founders made $20m+ and the VCs lost most of their money. The opposite of this narrative.

Liquidation preferences or not.

My main point here is to worry less about being “screwed” on VC terms like liquidation preferences, and worry more about making sure you can sell for 3x-10x what you raise in VC capital or more.

VC capital can be profoundly valuable.  But it’s also profoundly expensive.  Make sure you raise what you need, if you can.  In fact, raise 125% of what you need.  But don’t way overfund your start-up.

That can lead to tears all around.  No one wins unless you win big.  Including the VCs.

Dear SaaStr: Does Raising Funding From VCs Limit Your Exit Options? If So, How Much?

And also in a lot of these stories, remember the founders that didn’t make any money on an acquisition not only were at startups that sold for less or not much more than they raised — they are usually the ones that left.

Again, the ones that stay almost always get a carve out even in a small M&A deal.  Stripe, Salesforce, Datadog, etc. aren’t going to spend tens of millions or more to buy a start-up, and have 100% of that money go out the door, and 0% go to retaining the team they just bought.  It just ain’t going to happen.

So if you want to be sure you make money from your start-up, argue less about this and that, and just. … stay.