You have a company doing eight million a year, growing steadily, genuinely profitable or close to it. You could plausibly sell it for two hundred million in a few years. And every venture conversation you have makes you feel like you are apologising for something.
Here is why, and it has nothing to do with your business.
Run the arithmetic from your investor's side. A fund owns perhaps 15% of you by the time you sell. On a $200M exit that returns roughly $30M. For a $500M fund that needs to return three times its capital, $30M is about 2% of the job. Your best possible outcome barely registers in the model the person across the table is measured on. They are not being dismissive. They are being rational inside a structure that cannot afford to care.
The power law is a real model applied far past the set of companies it fits. Plenty of startups make a great deal of money without ever trying to be a unicorn.
I write this from the startup CFO's chair. I build the model before the round and clean up after it, which means I see what the money actually did to the business two and three years later.
I have argued a version of this before, in VC or Not?. But it points you at revenue, customers, debt and angels: real answers, all of them small. It leaves the impression that declining venture capital means declining institutional money altogether. For your kind of company, that is no longer true.
What is actually available to you
Money that is happy with your exit. Funds built for mid-size outcomes target exits between $50M and $500M, and the managers report portfolio success rates around 60% to 75%. Compare that with Correlation Ventures' study of more than 21,000 financings from 2004 to 2013, where 65% failed to return 1x capital and only 4% returned 10x or more. The difference is not better picking. A fund that needs one position to return the whole vehicle has to write every cheque as a lottery ticket and accept that most expire worthless. A fund whose target is $150M needs a company that works. What that buys you is an investor pleased when you sell for $150M rather than one filing it under disappointing.
Money that never asks you to sell. Permanent capital assumes no exit at all, with returns coming from cash flow. Tiny is the clearest example in software: it buys companies outright and holds them. Permanent Equity runs the same idea with roughly 30-year funds. If you have built something that could run profitably for decades, you are allowed to just run it.
Money on a shorter clock. Structures built around exits inside six years, typically smaller cheques. MDB Capital has been running one version of this since 1997 under the name public venture: build the patent position first, then take the company public early and small.
Your $200M exit is not the number
I build this waterfall for founders often, and it is routinely the first time anyone has walked them through it.
Sell for $200M having raised $15M on standard terms and you are life-changingly wealthy, your employees see real money, and your investors are delighted. Sell for exactly the same $200M having raised $150M and your common stock is close to worthless, because liquidation preferences are paid before you are. Same company, same buyer, same price, opposite life.
Nothing failed at the exit. The capital set the outcome you had to produce, and that decided how fast you hired, how much you burned, and which offers you were allowed to accept. What separated the two versions was settled years earlier, at the term sheet.
If you already took the wrong money
Plenty of founders reading this are not choosing. You raised in 2021 on terms that made sense in 2021, and now you are somewhere with no name: too substantial to shut down, too small to sell easily, unable to justify another round.
This matters because founders in it assume it is personal. Only 15% to 20% of seed-funded companies now reach a Series A within two years on Carta's data, against roughly 30% for the 2018 cohort. Third-party estimates put 30% to 40% of US venture-backed companies in the zombie category: real operating businesses with no venture-scale path. This population is manufactured by market structure, not by bad founders.
A fourth path is forming, and the name for it is the roll-up. A roll-up is not simply buying companies and holding them. It assembles pieces of a puzzle, complementary products, adjacent customers, overlapping infrastructure, into something worth materially more together than apart, and keeps extracting value from the combination. The cost reset is the entry move, not the thesis.
That changes what an approach means for a company in your position. You are not being bought as scrap. You are being bought because a specific piece of what you built completes something and the buyer intends to keep operating it. Constellation Software has been buying small vertical-market software businesses on that logic since 1995, more than 500 of them, and famously almost never sells one.
Execution is where roll-ups are decided, and the graveyard is full of firms that bought well and assembled badly. Ask any acquirer which pieces they think you complete, and what they intend to do about it in the first year. A buyer who cannot answer that concretely is buying a spreadsheet, not a puzzle piece.
Why your last process went quiet
Some funds taking your meetings cannot actually invest. They keep an active-looking pipeline while holding little deployable capital, because the firm's real work is raising its next fund, and the occasional SPV keeps the appearance intact. If a process stayed warm for four months then evaporated with no explanation, this may be why. The partner was interested. The firm could not write the cheque.
You are in no position to run diligence on an investor, and trying costs you the meeting. You can still get most of the picture without asking for it.
Two questions are normal in any early meeting, because they are process questions rather than fund questions: what is your typical cheque size at this stage, and who else has to be involved before you can move. A partner who cannot answer the second one concretely is nowhere near a decision. The rest is public or one call away. Fund closes are announced, so a vehicle that closed six years ago is at the end of its deployment window. Recent deals are on the firm's own site, and what matters is whether they led a priced round or came in through a follow-on or an SPV. Founders in their portfolio will tell you in fifteen minutes whether the firm has gone quiet.
None of that is certainty. It is knowing where to spend your attention in the months you can least afford to waste it.
Before your next raise
Write down the outcome your business can plausibly reach in seven years. Be honest, not aspirational. Then model what each type of capital requires you to produce to make that investor whole, and find the one whose definition of success is the same number as yours, rather than the one with the best brand or the highest valuation.
That is a two-hour exercise and the highest-return modelling a founder ever does. It is also the last moment at which the answer is still yours to choose.
Sources and attribution
- This piece was prompted by Ethan Mayers on The New Funding Models Founders Need to Know, episode 294 of The Ignite Podcast with Brian Bell. The taxonomy this article works from is his: small-to-medium venture funds targeting $50M to $500M outcomes, permanent capital built on ongoing cash flow rather than an exit, and the argument that the power law "should not be applying unicorns of power law to every form of startup." The CFO reading of what those structures mean for a founder's cap table is mine.
- Seed-to-Series A graduation rates: Carta, which puts recent cohorts at 15% to 20% within two years against roughly 30% for the 2018 cohort.
- Venture return distribution: Correlation Ventures' study of more than 21,000 financings from 2004 to 2013, summarised by Seth Levine in Venture Outcomes are Even More Skewed Than You Think.
- Zombie-company estimates: third-party ranges compiled from Carta, Dealroom and CB Insights data, plus PitchBook's count of US startups from 2019 to 2022 with no follow-on round, exit or confirmed shutdown.
- The 60% to 75% portfolio success rate for mid-size-outcome funds comes from Mayers on that episode, describing how these funds construct a portfolio. It is what the managers expect of themselves rather than a measured result, and there is no independent dataset behind it yet, so read it as a claim.
- Permanent capital examples: Tiny and Permanent Equity, which invests from roughly 30-year funds.
- Roll-up example: Constellation Software, founded 1995, 500-plus acquisitions of vertical-market software businesses.
- Everything in the first person, including the waterfall and the questions to ask a fund, is the author's own from startup CFO engagements rather than published research.
