5 Ways Raising Money For Profitable Startups Is Different From MVPs

From 2016-2020, there was a 30% rise in seed funding compared to the previous five-year period. In most cases, startups try to raise funding before they have a viable MVP and a proven business model. While venture capitalists understand that this is the norm, it determines how and when they choose to invest in these companies.

Established startups are playing an entirely different game. There are many differences that successful founders should take into account when they think about additional funding.

1. No searching for funds: Investors come to you.

The VC industry is accustomed to shouldering a substantial amount of risk when buying promising ideas. It's normal for there to be no physical product or business yet, so they invest with the hope of a profitable exit within a few years. 

The average pre-seed funding amount ranges from $50,000-200,000, with a targeted runway of 3-9 months. However, the risk here is that there is only a 30-40% chance that their investment will reach a Series A round. 

In contrast, none of these risks apply to a startup that is already profitable. When founders can show a proven track record with substantial profits over a few years, it is much easier to gain solid footing in the investment sphere. The figures speak for themselves, and investors can easily see a better balance between risk and potential income.

2. Less hustle over pitch decks. Investors can be convinced by trying your product.

The typical VC sees hundreds (sometimes thousands) of pitch decks and presentations yearly. They may take only 2-5 minutes to skim the pitch before deciding whether or not to move forward, which means that early-stage founders often spend considerable time trying to "get it right" and grab an investor's attention. 

This is where seasoned founders have an advantage. If your company is already clearly showing a profit, and you have a tangible product or service that investors can hold, test, or otherwise use, then the anxiety around "selling air" is nonexistent. 

People can see and try your product, which means there's always a chance that someone will offer funds. Solar Staff experienced this. We weren't actively seeking funding, but a current Solar Staff client happened to be looking for a startup to invest in, and after using our service for a while, they were so impressed that they offered an investment.

3. Your strategy is proven: Investors trust you because the company is profitable.

Founders who invest their own money in the early stages have a huge motivation to aim for success and quickly learn from any financial mistakes they make. 

More importantly, investors often raise a skeptical eyebrow at entrepreneurs who immediately try to raise external funding because it begs the question: If you’re unwilling to bet your own money on this idea, do you believe in it?

Mature founders who have willingly put up their cash and resources to test hypotheses and establish a working business model prove their commitment to investors. When founders and investors risk together, they reach a whole new level of understanding that creates more trust in both the founder and the startup.

It’s also important to note that even late-stage startups don’t immediately seek VC funding. Many opt for the intermediate step of bank loans, which is also positive in investors’ eyes because it shows responsibility and personal risk acceptance.

By establishing a track record of profitability over time, you are demonstrating to investors that there is far less risk of your business shutting down. This makes it much easier to attract funding and find support, and it also shows a path to a profitable exit for investors.

4. Lack of codependency: Profitable founders don't need handholding, just peer advice, and support.

Early-stage founders' needs are much different from seasoned founders. In the early stages, founders often need round-the-clock advice and support for every aspect of the business, including emotional support, guidance, and networking. 

Mature entrepreneurs expect a completely different approach from investors. They want freedom in everything they do and actively avoid codependent relationships with investors. Their needs often revolve around "smart money" – networking, crisis management advice, and inspiration with no strings attached. 

5. Good PR is more important than impressive pitch decks. 

Early-stage startups often don’t have a working product on the table, so they are not keen to participate in ratings and draw media attention. These founders are right to work on effective pitch decks, but this isn’t the case for late-stage startups. 

Established, profitable startups must focus their efforts on good PR, a solid media presence, and audience awareness. This means creating directory profiles, participating in industry catalogs, and seeking ratings from noteworthy organizations. The time for running around with a pitch deck has passed; now it’s time to step into the public eye and garner interest from investors and competitors.

Once Founders are Profitable, Investment Strategies Shift Dramatically 

Whether they bootstrapped their business in its infancy or went through the anxiety of selling an idea to investors, profitable founders must shift their mindsets regarding future funding. Once there is a proven record of growth and profit, investors take a different viewpoint on providing funds. 

Only about 40% of startups ever become profitable. This means that founders have a distinct advantage when seeking funding for their profitable businesses, and investors will be more eager to help the company grow and thrive.