If you think you want big VC funding someday with Series A, B, and C funding, then you’ve got to create one of the few software businesses that will grow crazy fast and exit for over $500 million or $1 billion.

This is just how the math works for the big Silicon Valley-style venture funds we all hear about.

If you don’t make it to a big exit, the math probably won’t work for you and other founders to win any prize.

When a software business targets a smaller market with a smaller TAM, like vertical SaaS for most industries, big VC funds won’t invest because they can’t invest big checks of $10M or more and get a much bigger return.

This is what they mean when they say, “Your TAM isn’t big enough.” It’s not big enough for their math to work in their fund.

But what about a software company that grows to $8M ARR and sells for 16X revenues?

Was that big enough for big VC funding? Nope.

That was the exit math for Praveen Ghanta and his cofounder. Praveen was my guest on the Practical Founders Podcast this week.

You can do the math on that exit: nine figures between two founders.

Praveen and his cofounder bootstrapped HiddenLevers as a side gig at first. Then they grew with more revenues and higher profits.

They could have raised money from VCs, but they looked at their market opportunity and did the math. They knew it was too small to be a “venture-scale” business. VCs would never be happy.

Instead, they grew their business, made millions in profits along the way, and then sold it during the 2021 M&A boom.

Their business was too small for VC funding. But Praveen and his cofounder succeeded with a huge “founder-scale” exit.

That amount would be a life-changing win for any SaaS founder, but almost all funded founders never make that much when they sell their companies.

Nobody hears about the thousands of founder-scale exits, even the bigger ones like HiddenLevers.

Most founders can’t discuss their exits because of NDAs with their acquirers. Or because they don’t want people to know.

There are 20X more of these founder-scale exits than big VC-scale exits. At least.

“Non-investible” to VCs is not the same as a non-valuable business to practical founders.

VC funding isn’t bad or wrong. It’s just misunderstood by founders who don’t see the simple math before playing the game.

Listen to this insightful interview with Praveen on the Practical Founders Podcast.

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