Yo — Welcome to The Rogue VC!

My name is Harrison, and I’m here to demystify the world of venture. Today, we’ll talk about raising a venture round.

Getting venture funding is sexy.

It’s a mark of legitimacy that gives you and your company clout. In my old circles, it was the mark of something “real.” But should it be? Should raising capital really be something on every young startup’s to-do list?

Absolutely not.

In fact, I’m convinced the venture model doesn’t serve the majority of business owners. That’s why the most common advice I give founders is, “Don’t raise a round.”

To explain why, we’ll discuss:

• 🤝 The VC Model

• 😅 Consequences of Raising

• 😈 Creating VC Value Without Raising

If you’re already familiar with VC, feel free to skip straight to interesting stuff.

Let’s dive in.

The VC Model

If you’re reading this, I assume you’re already familiar with the basics of VC.

Long story short, venture funds raise money from high-net-worth individuals or large institutions and invest that money into startups on their behalf. The model is high-risk, high-reward. Because something like 90% of startups “fail,” investors are forced to find high-quality businesses with immense potential for scale. These are companies with:

• Enormous, growing markets ($50B+).

• Real differentiation, technical or otherwise (I’ll have some pieces on this in the future).

• Obsessed founders who are crazy enough to truly believe they can change the world.

Most businesses do not fit within these confides. And that’s okay. You don’t need to start the next $10B company to do well for yourself.

But if you try to raise a round anyway, here’s what will happen.

The Consequences of Raising a Round

The average round takes roughly three to four months. Unless you’re a veteran founder or some big shot, each time you raise, you’ll spend 12-16 weeks buried in relentless cold emails, pitches, and diligence calls, only to get the classic, “We don’t lead, but if you fill out the round, let’s talk.”

Right off the bat, that’s a lot of time and effort that could be spent working on your product, building your brand, optimizing your marketing, etc. If you’re going to spend that time raising, it better be worth it.

If you decide to raise, here are the positives:

• 💵 You’ll have money in the bank and a small credibility boost for future sales, hires, etc.

  📚 You’ll have industry veterans with valuable knowledge & experience to help you make decisions and grow your business.

• 🙋🏽‍♂️ Your investors will provide small immediate value — a customer introduction, a potential hire, a publicity stunt, etc. It's nothing game-changing, but it’ll move the needle since you’re early

• 🔗 Your network will expand exponentially. Investors are almost always well-connected and can get a foot in the door for you when the time is right.

• 🤞🏼 If you do your diligence and understand who you’re partnering with, you might secure a truly valuable investor. This person will roll up their sleeves to be your shadow CFO, answer your 2 am Saturday night calls, and be in the ring with you day in and day out. Just know that these people are rare.

And here are the negatives:

• 🤔 Reduced control. Your lead investor will likely take a board seat, thus influencing key company decisions. In other words, you no longer work for yourself.

• 🔥 You’ll be forced to pursue growth at all costs. If you keep adding fuel to a fire, sometimes it gets bigger, but sometimes it implodes. The same goes with companies — more money is not necessarily better.

• 👨‍👩‍👦‍👦 You’ll have a complex and crowded cap table with a lot of people who will do very little to help your business.

• 🦈 Your ownership and exit potential will adjust significantly due to dilution + predatory deal terms. I’ve seen founders with 30-40% equity ownership in their business receive $0 from an exit due to stock preferences, liquidity preferences, etc.

In summary, raising a VC round gives you experience, capital, and a network to help grow your business. In return, you’ll give up control, decision autonomy, and upside.

Luckily, startups aren’t black and white, and you CAN emulate the value of most VC rounds without actually raising. Here are some alternatives.

Creating VC Value Without Raising

Experience — Create a Board of Advisors

Relevant business experience is arguably the single most important thing a VC brings to the table. Someone on your side of that court who has dealt with similar problems but isn’t caught up in the day-to-day minutia of your product.

This is often the best argument for raising a round. An active, high-quality VC with an incentive to see you succeed is very hard to replace. But these people are exceedingly rare.

More often than not, your VC will be less active than you’d like and less helpful than expected. It’s not that they don’t care… it’s simply hard to give your best to a portfolio of 20-30 different companies.

Instead, I often recommend companies create or add to their Board of Advisors.

When most founders go to raise, they like investors to fill certain gaps in their business. These same gaps can often be filled through a well-thought-out BOA. Want operational experience? Find an ex-CEO or COO in your niche. Want to focus on product optimization? Consider a Customer Advisory Board (CAB).

Long story short, get creative.

As you might expect, your BOAs involvement will vary based on their compensation. Members of a BOA are typically compensated with a small portion of equity (maybe 0.1-1%) through RSAs or stock options. I’ve also seen boards compensated with cash, product discounts, and revenue-sharing deals.

Regardless of your path, consider your BOA’s incentive structure carefully. In return, they’ll provide advice, connections, and know-how — much like a good VC.

Capital — Alternative Funding

VC exists because most other parts of the financial world don’t care to underwrite startup risk. But alternative funding does exist. If you need money and don’t want to raise a VC round, there are other options.

Some may be relevant to your business. Some may not.

• Bank line of credit — If you have recurring contracts, you can generally borrow around 3x of your monthly recurring revenue from a bank in a line of credit. This isn’t game-changing money but can help with new product launches, inventory issues, and more.

• Crowdfunding — This is generally available only for consumer-focused businesses, but it can be very helpful for getting a somewhat capital-intensive product off the ground. Generally, crowdfunding platforms like Kickstarter and IndieGoGo are all or nothing. You determine the amount you need to develop your product, and if you raise that much within a timeframe, you get the money and launch. If you don’t raise the target amount, the project is canceled. These platforms charge between 5-10% to help you raise.

• Revenue-based financing — This is only relevant to post-launch-SaaS companies, but those with a few hundred thousand in Annual Recurring Revenue (ARR) can often raise a percentage of their ARR in exchange for passing the invoices Companies like Lighter.

• Pre-orders — You can offer regulation-compliant preorders for consumer products as long as you:

  1. provide a fair estimated range of delivery

  2. communicate delays as quickly as possible

  3. offer full refunds in the event of a delay.

  It’s unlikely you’ll raise large amounts of capital for this, but it could help you get a feel for customer demand while providing enough money to help with the initial development of your product. You can read more on the regulations here.

• Revenue-sharing deals — This is where you pledge a portion of future revenue / profits to an investor. Certain angel investors / funds will sign deals focused on revenue sharing instead of equity. These deals are often a little tougher to find, so you’ll want to be extra careful with terms and the “fine lines.”

• Invoice financing — When a company buys your unpaid invoices and pays you a portion of the invoice. This is helpful for companies with long sales or cash flow cycles. This is generally suited to developed companies with more financial certainty. Companies (Factor Finders, Capital, etc)

• SBA Loans (Microloans, 7(a) loans, 504 loans) — These loans are very administratively intensive but allow you to raise up to $5M, depending on your business. The most common is the microloan, which maxes out at $50K and is used to start or expand businesses. The SBA generally prefers to work with “physical” businesses that provide products or services outside the Internet.

• University VCs — This one is super niche, but if you’re an undergrad, master's, or Ph.D. student, many universities have non-dilutive “funds” that support student-run startups. UT Austin (my alma mater) has Genesis, a student-run fund that writes $1-15K checks to UT students starting great businesses.

Venture Platform

The final thing most VCs offer is a platform & expanded network. Venture platforms are unique and varied. They can offer supplier & distributor partnerships, assist with hiring, act as a shadow CFO, and so much more.

However, these platforms are gated. You need to receive an investment to benefit from them. And I strongly believe that’s created a gap in the market. Something should exist to provide venture value to companies without requiring an investment.

Rogue VC exists to fill this gap.

First, by spreading the knowledge and information hoarded within VC firms (this newsletter). Then, with self-serve templates, frameworks, and prenegotiated deals for use by our members (our first product).

And eventually, through a full-service platform that will assist with every aspect of starting and running a business. All of the tips and tricks that make VCs “valuable,” available at your fingertips.

If that interests you, I highly recommend you claim your spot in our first cohort by hitting that button below. We’ll roll this out slowly over the next several months, building and iterating based on the feedback from entrepreneurs like yourself.

Let’s Review

In summary, I believe 90-95% of legitimate businesses have no business 😏 raising a venture round. Not because they’re illegitimate but because the model simply doesn’t fit.

Moreover, if you can replicate the value a VC provides AND maintain control of your company, that seems like kind of a no-brainer.

That’s all for today. If you enjoyed this, let me know in the comments below.

See y’all next week ✌🏽