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Here's how to raise $25M in VC, get acquired and make no money (a startup case study): YEAR 1: Initial Success and Seed Funding John and Amy, decide to start Acme, Inc., in a niche vertical SaaS market. Within four months, they develop the initial software and gain early traction. By month six, they accept a $500K seed investment. Competing against a billion-dollar company with an outdated solution, they see an opportunity for disruption. Year 1 Metrics: - Customers: 25 - Average Revenue per Customer: $20K/year - Total Revenue: $500K ARR - Employees: 5 (plus contractors) - Total Funding: $500K - Total Expenses: $90K/month At month 12, facing the end of their initial funds and contemplating a Series A, Amy suggests focusing on revenue growth to $1M before further funding. However, their lack of GTM experience and advice from their seed investor, lead them to pursue a Series A round... ____ YEAR 2: Growth and Series A By month 14, Acme, Inc. secures a $6M Series A at a $40M valuation. The founders spend the next year building their team to drive growth. Year 2 Metrics: - Customers: 175 - Average Revenue per Customer: $16K/year - Total Revenue: $2.8M ARR - Employees: 24 (plus contractors) - Total Funding: $6.5M - Total Expenses: $380K/month While they grow, they face hiring mistakes and struggle with PMF. ____ YEAR 3: Growth with Significant churn and Series B Funding They raise an additional $18M at a $150M valuation, but are unable to accept an acquisition offer due to their high valuation. With the new fund raise, Acme is instructed to go enterprise, compete with the larger vendors and increase their prices. With a total of $24.5M in funding in 3 years, Acme is everyone’s favorite. Year 3 Metrics: - Customers: 350 - Average Revenue per Customer: $24K/year - Total Revenue: $7.8M ARR - Employees: 68 (plus contractors) - Total Funding: $24.5M - Total Expenses: $1.5M/month - Churn: 30% The timing is unfortunate; price increases and low end competition leads to rising churn (30%), threatening the business. On the board’s advice, they hire a Director of CS and a 15-person CS team. However, cost increases and churn continue to grow... ____ YEAR 4: Market Challenges and Leadership Changes Acme, Inc.’s revenue hit $10M in its fourth year, but growth stalls shrinking their TAM. New competitors and a price war increase churn to 45%. Despite hiring a CS team to tackle churn, costs soar and churn worsens. Board brings in a new CEO, replacing the founders. The new CEO in turns brings in a new management team. ____ YEAR 5: The End None of this helped and the company accepted an offer to sell to their largest competitor for $35M that barely paid the preference shares. The founders make no money. The investors and founders congratulate each other on Linkedin for a successful exit! Where did the founders go wrong? Did they raise the $6M too early? Should they have pushed back on price increases or move to enterprise?