Venture capital has bounced back from 2021, but the competition to get into the hottest companies has continued to drive valuations to extreme heights. It’s still routine to see seed rounds at $50M+ post-money (sometimes much higher)—often for companies with no product in market and no real traction.
For truly breakout companies, this strategy can be a feature, not a bug. It helps founders minimize dilution and ensures large funds maintain meaningful ownership in the winners. But here’s the issue: not every company has a straight shot to $50M+ in revenue—and when that becomes clear, an overfunded cap table can turn what could have been a solid business into a dead end.
Unlike typical shareholders, large funds need massive multiples to move the needle. A $100M acquisition? A rounding error for a multi-billion-dollar fund. A return of capital? Not interesting. But for founders, a $100M exit could be life-changing. While even smaller funds may not see meaningful returns from such an exit, it’s often a far better outcome than continuing to double down on a strategy that isn’t working. While there are certainly times to go all in, it’s important to also consider your options, and it’s much more a spectrum than a binary unicorn or bust.
Inadvertently, this dynamic reduces the number of successful exits in the ecosystem. Had these companies raised at more sustainable valuations, many could have exited at reasonable multiples—delivering solid outcomes for founders, employees, and early investors. Instead, they’re often forced to chase unrealistic growth or shut down entirely because their last round priced them out of rational outcomes.
When you take venture capital, the implicit agreement is that you’re aiming for a 20x+ return at the exit. If you’re a founder with deep conviction that your business can scale, then by all means—raise a lot, dilute as little as possible, and go for it. But let’s be clear: that’s the exception, not the rule.
The best founders are the ones who, much like Admiral Jim Stockdale during the Vietnam War, can confront the brutal facts of their situation—knowing how difficult the road ahead will be—while maintaining unwavering faith that they’ll prevail. In venture, this means acknowledging that building a great business isn’t easy, but still holding firm in your belief that your company can scale and succeed.
Many businesses that have done well took long, winding paths. There’s no one-size-fits-all trajectory. The key takeaway here is don’t go into fundraising assuming your business should be valued at the median or mean of others in your round stage—something I hear far too often as an argument for valuation. Every business is different, and it’s important to go into fundraising with eyes wide open—understanding the stakes and the potential pitfalls.
It’s worth asking: how many more successful startups would we see if early rounds were done with a bit more restraint?
