How Venture Capital Accelerates Startup Growth

Happy Saturday to the 6,500 builders, marketers and unicorns reading this newsletter.

Today we're going to look at four ways in which raising VC money is a growth strategy.

We'll hear from Michael Houck, co-founder of Launch House, about his and his co-founder's experience raising a $12M Series A led by a16z and mentoring other founders through the Launch House community.

Launch House is a year-round accelerator built to help founders level up and live better, and you can apply here.

Time to read: 4 minutes

Difficulty level: HARD (raising VC money is hard, time consuming and distracting)

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Now on to the main event:

Four Ways Raising Venture Capital Accelerates Growth

HYPE: Landing marquee investors leads to hype around your company, which generates free publicity and increases your appeal to potential new hires.

Many VC firms have their own hype machine and media contacts to amplify the brands associated with them.

Y-Combinator (YC) is proudly branded across the startup ecosystem and signals quality to others. It's a network effect.

FURTHER INVESTMENT: when a name-brand VC firm invests in a company, it's a sign of confidence to other investors that the startup is worth a look. It becomes easier to raise more money when your lead investors are well regarded.

NETWORKS: strategic investors bring connections to potential customers.

Well-connected investors can introduce you to other companies that may want your product. Y-Combinator has famously become a breeding ground for SaaS companies that get their start by serving other YC companies.

EXPERIMENTATION: Funding for growth experiments

The funding itself allows you to experiment with growth marketing strategies that you otherwise may not have been able to invest in.

Early stage companies in particular may require significant marketing investment before finding the most effective angles and ad platforms.

Michael Houck, Co-Founder of Launch House, on Raising Venture Capital

How should you be thinking about your growth strategy as you identify potential investors?

When you're very early - pre-seed / seed raise - you really want to optimize for the investors who can help you the most in your space. They can be people who give you credibility.

Our first investor was Balaji - he has a thesis about building a network state. If you can build a community of startup founders, maybe you can build a country of founders.

Once we had Balaji on board, we were able to kickstart the round with institutional investors. 'He's a smart guy, maybe he knows something'. In some way you're paying for their credibility. In another way, you're paying to get their connections.

In some industries - for example, SaaS - you're paying for access to customers. A great example of that is Y-Combinator. If an investor can introduce you to potential customers, the potential value is huge. Y-Combinator is huge, because you can sell to all the other 1,000's of Y-Combinator companies.

Series A / B range - if you can land a tier 1 investor, it's a whole another level of trust and notoriety. You can close bigger deals, customers trust you and it validates that you're not going anywhere.

You talk about having a unique POV when pitching investors. Can you explain that?

We ran a launch house in Mexico during COVID and a YC company came out of there. So we thought - why can't we do this at scale, building network effects over time?

We positioned Launch House as an education company. People get MBAs for the network of high achievers. It's not actually to learn in classes.

Our initial insight was that you can now build Silicon Valley startups from anywhere and that the world needed a new institution to support them.

Why can't we build what an MBA community ought to be, and from there we can go up market and down market over time?

How did you think about growth?

When you're a community company, growth is tough. Growth at all costs is bad. When you have too many people rushing into a vetted community, it dilutes the quality. When people are paying money to get in and you want there to be credibility with the credential, you have to deliver with the people who are there, and you have to maintain the FOMO of people wanting to participate.

We were very conscious of our brand image and the need to stay small.

We always thought that the product we were building in the early days wasn't the mass market product, but it was essential to build the mass market product.

What are the hallmarks of the founders who typically do the best within the Launch House community?

Founders with the most concrete goals for their month in the house did the best. For example:

• "find 10 new enterprise mid-market clients"

• "grow weekly active users 2x in a month"

Whatever the goal might be, the Launch House team would then spend their resources helping them on.

Who shouldn't pursue VC funding?

The obvious examples were some of the crypto companies who went out and raised a ton of money at sky high valuations. Some didn't have product market fit - or even any users.

It's really important that you have a business with real fundamentals underneath it before you go out and decide you need venture capital.

If a problem isn't common, big and painful, you're just raising money to have 10 years of runway when you don't need it.

Do potential growth strategies come into play when you think about what companies to invest in?

1,000%. The most common reason I'm skeptical about a company after seeing their deck is that they don't have a customer acquisition strategy. Is it organic, paid, mixed? Some companies don't put a go-to-market strategy in their decks at all.

Are there any growth strategies that are particularly relevant at the moment?

Content-based marketing and companies with strong referral loops that people want to contribute to and participate in.

I think this year we'll see a resurgence in paid marketing through social.

A lot of people get hung up on a channel that works for someone else instead of thinking about where are the people that are looking for my product.

Meet your users where they are.

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Before You Go:

✨ That's it for today.

Some companies wouldn't exist today without VC funding.

And some unicorns were bootstrapped.

I hope these insights help you in your growth journey.

That's it for this week.

-Brian 🦄

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