It needs to be said: The default case for 80-90% of SaaS startups is never to raise VC funding.

VC funding has always been the exception and not the rule in the software business.

But in recent years, “Go Raise Funding” became the standard expectation for most new startup founders, especially in the biggest cities.

I spent the last few years interviewing thousands of SaaS founders who thought they should play the startup funding game–because “that’s what you do if you’re serious.”

Most of those founders didn’t understand the VC funding game and how it actually works. They were ready to take funding drugs without understanding the requirements and severe side effects.

But now it’s more apparent than ever that very few startups fit the big VC model to take on significant funding and pay it back with a $500M or $1B exit.

It’s also more clear that the time and effort to raise funding is usually more expensive than frugally building a product and getting revenue going.

And it just doesn’t take a round of funding to build a product and grow revenues for most B2B software these days. AI will make it cheaper still.

Where did we learn that “Everyone gets funding and you should too?”

It comes from the ecosystem of local and online supporters who teach this as the only game.

I plead guilty. I was part of this ecosystem of “just get funding” help for a while after a career with VC-funded software companies.

But I saw the world change in the last five years:

•  It’s inexpensive to make software now and getting cheaper
•  It’s easier to go to market if you are savvy
•  VC funds are 3x bigger, so risks go up for founders
•  SaaS is a big global market with thousands of great micro-markets
•  Easy funding and big exits with crazy multiples will be rare for the next 5-10 years

It’s riskier for founders to take on big VC funding than to not take it for 90% of new or growing software companies.

New SaaS startup founders should start with the expectation that they won’t raise institutional funding EVER, with the possibility that they might raise a practical round someday later if the conditions are perfect.

VCs know that their funding is very risky for founders and that they are for a small minority of moonshot startup opportunities.

Startup ecosystems and advisors need to help startup founders first, not funders first.

The default case for 80-90% of SaaS startups is never to raise VC funding.

Why isn’t “self-funding first” the default option in entrepreneurship classes and accelerator playbooks?

#practicalfounders