October 2026
(Based on a talk for an AI event)
“Venture capital is an outlier game where 15 companies generate 97% of returns. Invest in extreme strengths despite flaws rather than lacking weaknesses.”
– Marc Andreeson, A16Z
“So the basics I think would be you have to have a hell of a work ethic. You have to be ambitious, you have to be aggressive, and you have to be tough. Because starting a company is the hardest thing on earth to do. I don’t think people realize that until they do it.”
―Ron Conway, SV Angel
The way to raise venture capital is that it’s either super easy or super hard and there’s no in between. The same way it’s super easy to sail a boat with the wind behind you and very hard to sail a boat with the wind against you. There are 4 components at a high level that determine just about all outcomes.
Pedigree
Innovation
Growth
Market
The more you have of those the easier it is. There are no shortcuts to doing this. And frankly the uncomfortable answer is that the best way to raise venture capital is to be building the highest quality business that is growing super fast with great margins to the point that you actually don’t need it. Maybe venture capital in that circumstance helps you grow much faster while supporting negative margins until you hit scale but it’s basically underwriting something that is already working very well. You generally need some amount of all 4 and it’s very hard to do without 1 at all. Here’s an explanation of each.
What is pedigree? Basically the track record of the founder. The more brand names behind you the more pedigree you have. Recognisable university and employment names like someone who went to Harvard before working at Google before starting this startup. That’s pedigree and it’s an informal signal of capability because you have to pass multiple hard to jump over hurdles. It’s hard to get into Harvard and hard to work for Google so their screening process signals talent because you crossed multiple of them. Kind of like how a thoroughbred racehorce can run faster and win more races, the pedigree is the signal of how much of a thoroughbred the founder is and thereby the likelihood of winning races.
What is innovation? Basically the uniqueness of the business you are creating. The more unique it is the better it is because it increases the likelihood that you are either creating a new market or capturing an existing market in a new way by bringing a new way of doing things that is better than the old way of doing things. Thereby disrupting the old ways of doing things. But it has to be underpinned by the YCombinator axiom of “make something people want.” Uniqueness for the sake of uniqueness isn’t how you do this. Innovation is short hand for a new of doing something that is making something people want.
What is growth? Basically how fast your business is growing, in users or usage or revenue. The faster it is growing, the faster it will become a big company and therefore the more valuable it is because of the speed with which it will get huge. Venture is all about compound growth and the faster something is growing the faster it will get big and therefore investors want to throw money at the thing because their investment dollars will get the fastest and largest return possible because of the way the growth compounds. $1 million in revenue followed by a triple triple double double double is a $1 billion dollar company within 5 years time. That’s the power of growth.
What is market? Basically showing the size of the industry that your product is being built and released in. That lots of people are already paying for what you are making and searching for and want what you have. That if you build it, they will come. It is evidence that people want it and the bigger the market, means that there is more money in it that can be captured with willing participants to pay for what you’re making. Also the faster the market is growing, the more likely you are to be able to latch onto the market growth and grow rapidly as a result. Kind of like a surfer catching a really big wave, if there’s no big wave it’s next to impossible to surf. The size of the wave helps you to actually surf it.
Notice how I didn’t name this talk How To Raise Venture Capital. I named it how Raising Venture Capital Works. Because I can’t answer exactly how to do it because doing it means getting more of these 4 things and there a million ways of doing that. I can’t exactly tell you how to get more growth or how to get more pedigree or how to get more innovation because I don’t know you. You can get pedigree by having rich parents or going to Stanford or winning the Nobel prize or any one of a million different things. The exact path to getting those things is the unique configuration of your business and the founders of it, being you.
Also the silly but correct answer is the best way to raise venture capital is to have a business that is so innovative and growing so fast that the investors would be silly not to invest in it. This is something that sometimes people miss, raising money isn’t actually the goal. The goal is to build a big business and raising money is a fuel stop on the way to doing that. You’re trying to build a big business with or without venture money, getting it just accelerates you doing what you’re already doing. You almost have to try and show evidence that you’re going to win anyway.
As a general rule of thumb, I’ve always used you can sort of raise $1 of venture capital for every $1 of revenue you have. If you have no revenue then you need lots of growth or innovation or great pedigree. The levers change based on what you have. If you’re trying to but struggling to raise venture capital, it’s because you don’t have enough of these 4 things so you need to go get more of them, the easiest one being growth. So when in doubt, grow bigger faster. Growth really does solve all problems in the venture world.
If you are trying really hard but getting rejected a lot then what the venture capitalists are secretly saying without saying it is that you don’t have enough of one of the four things. Venture firms are also made of people and people can be very wrong a lot of the time so just because you’re getting rejected shouldn’t discourage you from continuing on. That doesn’t mean that the business is bad.
You can in fact succeed without venture capital. Two things are true here at the same time. If you look at a spectrum of all the really big companies in the world, most of them have never taken venture money. But if you look at the very biggest companies in the world, they almost all have taken venture money, so if you want to get really really big you probably need to at some point.
Of the S&P 500 index, these are the 500 largest companies in America, only 20% of the companies in the index ever raised venture capital, but almost 40% of the value of the S&P500 index is made up by those venture backed companies. Another way of saying that is of the top 10 companies in the index, 8 of them raised venture capital. So the companies that do raise money and also win generally get bigger than the companies that win but don’t raise money.
It’s also important to remember 99% of businesses are not right for venture capital and similarly 99% of companies that a venture firm sees are not great investments. The entire industry is a meeting of those 2 separate 1%s which is the entire role of venture firms. Venture capitalists are needle in a haystack finders. They are constantly sorting through haystacks looking for needles that will eventually grow into unicorns.
Finding 2 separate 1% and merging them is actually a 1 in 1,000 so the entire venture industry is a low probability game with outsized returns to justify the risk. Most founders and also most venture firms underperform or fail altogether and never get enough needles for this to work and they spend their entire careers in the haystack side of it. What companies are doing when they are pitching venture investors is trying to convince them as quickly as they can that they’re a needle and not hay.
When you want to raise venture capital it is as simple as showing the venture capitalists what your product is and why it’s new, how fast you are growing, the pedigree of the founders and how big the market is. They are looking for all of those things to invest in the company. This says in a very direct but laymens way that the people founding the company are capable of building it, the market has enough space to grow and capture it, there are people who want and will pay for what is being made and that you are growing so going to get really big very quickly to provide a fast and large return to the investors.
You then have to also be doing those things not just faking those things. The growth has to be real. The product has to be real. The innovation has to be real. And so on and so on. Sometimes people try to grow really fast for a short period of time in a way that isn’t sustainable to try to lure investors. But this feels to me like playing the game of startups instead of actually building one. You’re building a company first, doing the startup thing of raising money second. The goal is to build a business not to raise venture capital.
The other thing I think sometimes surprises founders is how little the venture capitalists actually do after they invest in the company. What they do really is lend a shroud of credibility that improves recruiting and further capital raising. But they don’t actually do that much whereas most founders think of venture dollars as some magic bullet where the person providing it is some messiah who knows everything about business and by bestowing you with this cheque it annoints you automatically with success and accolades. But it doesn’t. You still have to do the work of building the company, just with more cash in the bank.
So that is how raising venture capital works. Anything that isn’t in this essay is not the high level strategy of venture capital but the low level tactics of how to do it. It’s a process optimisation whereas this is describing the process itself. There’s a million different tactics within it but all of them fit within the strategy umbrella of this is how it actually works.
I think also people get bogged down in the weeds of the tactics but don’t have the fundamentals right. Like it doesn’t matter how good your pitch is or your deck is if the business isn’t good and isn’t growing, it’s going to be hard to raise money. You have to build a business and make it grow first, then you can work on how to raise money for it. These are those fundamentals that you need to have right and I believe like most things, if the fundamentals are right then the rest is very easy.