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The Rise of Revenue First Startups

by Allan Tear

The Unicorns have fallen. Some didn’t run fast enough, and others have been felled by their own hand (hoof). Unicorns after all are mythical creatures - once you stop believing, they no longer exist.

Whenever a “belief bubble” bursts in startup land, everyone gets revenue religion. This time around is no different. Fast on the heels of the unicorn obituaries come the blog posts praising real business models, sustainable growth, and profitable unit economics.

It turns out that a silent majority of startups have been growing that way the whole damn time. Most people are surprised to hear that 93% of the companies on the INC5000 list haven't raised venture capital. (1) They are companies that are growing to $10M, $50M, $100M, maybe running a little slower than a unicorn, but with impressive bottom line results. They aren’t lifestyle businesses, they are Businesses. And they grow by being Revenue First.

Revenue First businesses are all across this country. Their founders are talented, knowledgeable and hungry. Many won’t be “venture scale,” fancy language for “I can’t make enough on an exit to make a meaningful return to my fund.” And that’s OK, as most revenue first founders see themselves running and growing their businesses for a long time. Although open to an exit by acquisition, they don’t need one to succeed. Their relative stability, and their ability to thrive outside of the top venture markets, makes them crucial to our national future.

We launched RevUp by Betaspring in 2015, because we saw that these startups were underserved. Nine out of ten of the fastest growing private companies by revenue, and no one has a viable investment approach to help the next crop of them grow. Banks see them as un-bankable in their early days. VC’s see them as too niche, too unsexy, or un-exitable. (2)

The investor world just isn’t being creative enough in finding ways to profitably work with these companies. So, after six great years in the equity accelerator model, we re-engineered Betaspring to focus on revenue. We select for it, we accelerate it, and we make our investment return on it. (more here)

It is fantastic to see the startup world get revenue religion. I believe it will bring more recognition, and resources to Revenue First startups. But we should resist the impulse to turn all horses into unicorns, and challenge ourselves as investors to come up with models that don’t rely upon an exit or IPO in a winner-take-all market.

Each time a “belief bubble” bursts in startup-land, it gives us a chance to do something different. What will we do this time?

  1. This datapoint is from the 2014 INC list, and is a snapshot of the companies at the time they are put on the list. Some of course may add VC $ later, and the list doesn't represent all high-growth companies in the US. The percentage has run about the same for at least the last decade, and is proportionally consistent with other studies of private US growth companies. 
  2. Most companies won't match a VC investment filter. Fund return models demand a way to exit, an exit horizon, and a chance at a high multiple on your invested capital after dilution.  The best VC's say publicly and often that very few companies will match their investment model.
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