When Not Getting Big VC Funding is the Best Thing

I hear from founders every week who pitched big investors and were turned down with responses like these:

  • “Your market is too small”
  • “We don’t like services revenue in the mix with SaaS”
  • “We don’t like transactional revenue”

These are valid responses from big investors. They just don’t like businesses that don’t fit how their fund works.

But this can be great news for practical founders, once they get over the initial rejection and understand what’s really going on.

What’s going on is you can build a solid, self-sustaining business and NOT have dozens of over-funded competitors chasing your same customers.

There are plenty of great tech businesses and wide open markets that don’t fit the venture model. VCs know this.

These can be great opportunities for practical founders, but not for VCs.

They produce “founder-scale” exits but won’t produce “venture-scale” returns with billion-dollar exits.

Last week on the Practical Founders podcast, Luke Hohmann, founder and former CEO of Conteneo, told me how he grew his software business out of his consulting services business, right in the heart of Silicon Valley.

Luke sold his software and services combo to the largest software companies.

But it wasn’t a fit for the largest venture funds there: market too small, too many services.

So he grew Conteneo steadily anyway. His customers loved it and he didn’t need outside funding after all.

Conteneo was enterprise collaboration software that enabled the biggest companies to engage their leaders in new ways to make much better decisions about product portfolio investments.

He was able to fund a new developer or marketer with a couple more customer deals. So he just sold more to fund his growth.

“One of the important lessons for any practical founder is this:

“Instead of thinking of investors as your first source of funding, look to your first customers,” Luke says.

Check out this in-depth interview with Luke Hohmann on the Practical Founders Podcast.

Thanks for sharing so many useful insights, Luke.

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