[#4] Do You Really Need Millions from VCs? The Surprising Truth!

Hi,

Welcome to this week’s newsletter. We will discuss fundraising, how VCs work, and how you can start your own business.

Most entrepreneurs I meet think they need millions in VC funding to build a successful company. But what if a $500K/year business could make you just as happy? Sure, aiming for a billion-dollar startup is the dream, but the odds are less than 0.1%. If you’re thinking about launching a startup, my advice is simple: DON’T.

It might sound harsh, but many people I meet believe raising money is essential to launching a startup. If you’re building something that could surpass $100M in sales and achieve a billion-dollar valuation, then VC funding might be worth it. But 99.9999% of the time, you don’t need VC money to start.

Starting a startup is incredibly hard. Why go through that when you can create a business that makes $100K or $200K per year more easily? You could convert your existing job into a business and sell directly to clients. Check out my previous newsletter for tips on creating a distribution channel and doing sales. Remember, the most important part of starting a business isn’t the product; it’s distribution and sales. If you can reach customers and figure out how to sell to them, you’ll succeed.

Also, why not create a business that makes you the same money as your salary? It’s surprising how few people think of startups this way. As a serial entrepreneur, I advise against starting a traditional startup because it’s just so hard. Instead, aim for a business that makes $100K or $200K per year.

When you earn through your business, there’s no limit to how much you can earn. When you have a job at a company, your salary has a max ceiling, and no matter how hard you work, you can’t get more money than your manager. For example, last year I helped Amazon make $32M in additional profit, and I saw zero dollars from that profit. But as a business owner, you can always grow your income based on your efforts and scale. Owning a business also means you own the downside – there’s no safety net of a salary. You need to do everything yourself, from hiring to managing sales and client expectations.

The VC Funding Myth

99% of businesses don’t qualify for VC funding. VCs look for opportunities with potential 100X returns. Even the most famous incubator, Y Combinator, won’t fund you unless you can be a unicorn. With VC money, you either grow or die. VCs fund 10 companies, and one of them needs to do at least 100X on the return. They expect the other 9 to fail. But all 10 must look like they have a shot of being a billion-dollar business or die trying.

Also, you need to understand what it means to be a billion-dollar business. It means that either you IPO, get acquired, or raise money at a much higher valuation. Usually, it’s the Series D or E funding round at over a billion-dollar valuation. That’s how VCs make money when other VCs invest later in the round at much higher valuations. It has nothing to do with profits or revenue.

In this process, since the incentives are wrong, the founders don’t really make much money unless the company is profitable and can do an IPO.

A More Achievable Goal

If you’re set on starting a company, I recommend learning the ropes first. Join a startup in your industry and learn everything they do. Look for businesses that are hiring and work with them for a few years. You might not get a high salary, but you’ll learn a lot. You could even land a CXO position or a similar role.

Instead, why not create a simple business that can help you earn as much as your current salary and be your own boss? Building a business that makes $100K/year isn’t that hard. Start freelancing or create an agency offering the same services you currently do at your job. If you have work experience, you can hire and train people.

Learning by Working for Others

If you’re unsure where to start, work for others first. Learn how to run a business. Here’s how to find good startups to work for:

1. The startup must have revenue or must have raised money in the last 90 days.

2. Use CrunchBase to find these companies. Filter by “recently funded <90 days,” then add filters like industry and keywords.

3. Use “hunter” to find emails of the founders and email them. Do try the product first and tell them why you are a good fit. Also, connect with them on LinkedIn and leave a note.

4. Usually, they won’t reply, so remind them on day 5 and day 10.

Make sure you try their product first and provide some good feedback on what is good and what they can improve. Check their landing page for spelling errors or even their docs. You don’t need to apply to more than 10 companies. The reply rate is usually 90% as these startups have no idea how to hire people and where to find them. So you reaching out to them is something they won’t be expecting. This only works for seed or pre-seed companies.

In the end, you need to find your own path. It is really lucrative to think you can also create a billion-dollar business, but to be honest, it is extremely rare to do so, But why not create a million-dollar business first and get that financial freedom? Let me know what you think!

Top AI tools this week: https://jenni.ai/

This tool was created by David Park and is doing over $5M in ARR. Jenni's AI-powered text editor helps you write, edit, and cite with confidence. Save hours on your next paper. This tool is used by a lot of students to write essays and papers.

Top Podcast this week: https://youtu.be/4lnS07jjcw4?si=rz-9HIbfOfF2lcju

I love the “My First Million” podcast. Shaan Puri & Sam Parr are the OGs of startups and earning money on the Internet. In this episode, they talk about “vantrumpreport” a simple newsletter that makes over $20M annually!

Also sorry for the spelling mistake last week. Here is the correct link for Top AI Tool last Week: Relume.io

On a side note, api.market crossed over 500 users last week (100% organic). This feels unreal and I feel truly blesses and grateful for all the support.

What did you think of this week’s newsletter? Was it helpful? Did you make it to the end? I'd love to hear your thoughts—feel free to email me anytime at [email protected].

Thanks for reading, and I hope you have a great day!

P.S. Please mark this email as “Important” to prevent it from going to spam.

Best regards,
Shashank Agarwal