This week I met a founder of a SaaS startup who asked me, “So you can build a software company without big outside funding?”

My first thought was, Uh oh. He’s going to get in trouble fast.

I’m not against VC funding or VCs.

I’m against VCs, ecosystem leaders, tech media, and other founders telling new entrepreneurs that VC funding is the only way to succeed in SaaS.

I’m against founders trying to raise institutional funding from professional investors without knowing how it really works and what is really required for everyone to win.

VC funding isn’t bad or evil, it’s just overprescribed by funders and misunderstood by most founders.

I asked this founder a few more questions, and it was clear he was just getting started and learning about outside funding.

Here are a few realities he wasn’t aware of:

1. Most startup and early-stage SaaS companies don’t take any outside funding at all in the startup stages. They fund the early product and growth experiments themselves with their time and savings or with resources from their other business.
2. Most professional early-stage investors want you to build a product and get some customers before they talk to you. Some angels write friendly checks before you have customers, but VCs rarely do.
3. If you play the SAFE note or seed round game with early-stage VC investors, you’re expected to grow fast and raise bigger funding rounds. You’re on the funding drugs and you can’t get off.
4. If you raise $1M in a SAFE, $3M in a seed round, and $8M in a Series A, you’ve already sold half your company, and most of the hard work and risk is still ahead of you.
5. Your revenue and growth goals go up, and so do expectations of how much you can sell your company for. A $100M exit might sound good to you, but that’s not a win for your latest investor. They probably won’t let you sell at that price.
6. Your institutional investors just moved in and you’ll be working closely with them for 5-10 years. You don’t get to make big decisions on your own any more. You might not make it as CEO.
7. About 50% of founders who take early-stage funding don’t end up with any equity value at all. The company doesn’t make it and goes away, or you don’t meet your growth goals and can’t raise again, or you can’t sell the company.
8. You might spend half your time as a founder raising money. You probably can raise that much in customer funding (revenue) with the same effort.
9. VCs want proven traction and 100% or 200% growth for the next few years. Most founders don’t have businesses growing that fast, even with more funding behind them.
10. The odds of founder success decrease when you take big VC funding. It’s an all-or-nothing game for founders, with a small chance of a blockbuster win.

There’s a place for fast-growing software startup rocket ships that can use VC rocket fuel and make it work. These are 10-15% of all software companies.

The first rule of the game is to know what game you are playing.