Why unprofitable startups are popular again

Key Takeaways

Investors want startups to lose money again. All through 2023, we saw this pile of companies go out of business because they were unprofitable. Because companies were supposed to make money. >> I was never in this for the money, but it turns out that the money was an absolute necessity for me. >> The currency for startup valuations back in 2023 was being profitable, but not anymore. AI has created new circumstances for fundraising. And it's not just about AI, it's about more money flowing into fewer companies. And it's crucial knowing which cycle we're in. If you want your company to stay alive for this fundraising process that you're walking into, you want to time not just your current funding round, but the milestones that you need to hit for the next one. So, if you plan to raise capital for your startup this year, here's a quick breakdown of everything that you need to know. Okay, getting the very basics out of the way. Startups raise money in phases, preede to C to series A, and all the rest of the alphabet. Normally, those happen every 18 months. Though in 2025, the time between rounds actually grew, getting much closer to 24 months. What lets you raise a round is not so much how many months have passed since you last got money, but the fact that you hit the milestones needed for the next round. In seed, that's about $40,000 in monthly revenue. In series A, that's about $200,000 in monthly revenue. We have a whole video dedicated to what those milestones are. Now, these startup cycles are not in a vacuum. They inevitably align with fundraising cycles. The current idea of preede and seed exists more or less since 2010. Convertible nodes, flexibility on marketing your fundraising rounds, talking publicly about them, and then accelerators and then Y combinator creating the template for the safe. That's in 2013. All through 2014, there was a lot of money chasing few ideas. So, it was easy as a founder to get investors to even outbid themselves on the term sheets that they offered you. But around 2015, all these startups that had raised money easily in the years before started struggling cuz raising the next round, the institutional round got hard. There were a lot of companies and not many of them had hit the metrics that they needed. Then in 2017, we got the soft bank effect. $93 billion committed to big starter bets. More excitement about becoming the next SoftBank funded startup. That means more money trickling down again to seed companies. And then co mania, right? Great stock market performance, stimulus checks, everyone has money to throw around, crazy rounds at crazy valuations for companies that are still not even sure what they're doing. Disclaimer, this is an early stage funding curve. Late stage funding also works in cycles, but those cycles are off by a few months compared to early stage. Also, you might hear conflicting information about this. That's perfectly normal. An article from 6 months ago was written in a very different position of this cycle. to always check when the article or the video was published. But then once again, 2023 hit and just like it happened back in 2016, all these companies that raised huge rounds of funding in the past couple of years didn't hit the metrics that they needed for the next one. Everybody realized that those valuations had been a bit too crazy. So things scaled back down and profitability became the key. But then a new cycle, money invested in startups started growing again, fueled of course by the big hype around AI. 48% of all VC money went to AI leveraged companies. But something is different this time. More money is flowing, but fewer deals are happening. The new reality is that capital is getting concentrated in fewer companies. Or put differently, fewer companies are managing to raise money, but those that do are raising more, a lot more, because they want to be absolutely sure that they hit the next milestone. Now, if these cycles continue, at some point we're going to hit peak AI funding. And when we do, the money that those companies raised will need to be enough to catch the very little capital that comes in a down cycle. For context, the median preede round in 2025 was $900,000. The median seat round was $3.6 million, which is crazy. That used to be, you know, series A round back in the day. So, right now, profitability is not at all important. Right now, because there's capital flowing, growth is what matters. Now, that also connects to the massive amount of companies in the AI space all competing to be heard through all this noise. The fact that you're working in AI doesn't mean that you're special anymore, cuz every company is an AI company. By the way, Silicon Valley Bank found that even in consumer tech, only 25% call AI a key vertical. Yet, the ones that do get a 2x early stage and a 4x later stage valuation premium. But what makes you special in the next funding cycle is not AI. It's not your valuation in the previous round. It's proof that you figure out how to get customers fast despite all this noise. This was the graduation rate as of 2023. Companies that made it from seed to series A within 2 years. However, Incisive VC already reports those down by 15% for the newest cohorts. Silicon Valley Bank data shows what's happening under the hood, which is that graduation is falling faster than seed extensions. So more starters are basically stuck doing extra seed rounds post seed while they wait for this series A window. So how does this apply to you? First, raising preede and seed is still easy today. But if you want your business to survive, you've got to have a plan to hit series A metrics before you run out of money. Doing that is not rocket science. It's just a good bit of budgeting. We have a whole boot camp dedicated to budgeting funding rounds and making sure that you don't run out of money halfway. Now two, remember that fewer rounds are closing. That means that the founders that are getting money are probably founders that are better connected or who have more experience. Now, that doesn't rule out first-time founders. Not at all. But the time for first-time founders, the ideal time was back in 2012 or back in 2021, but it's not right now. And three, you want to raise a lot of money and move fast. Right now, that's much better than raising less and moving slow. Sometimes the startup currency is profitability. Sometimes the currency is growth. And you've got to know which one you want to be pushing for. Now, another big problem today is that despite all of this AI hype in private markets, startups are scared to go public. The average unicorn now is 10.3 years old. And even with a generous IPO benchmark, only a quarter look like decent IPO candidates. And IPO means liquidity for investors. Money to reinvest again. But there's a good chance that is not going to happen for many of these rounds. Our companies don't care about bubbles or not bubbles. Our job as founders is just making sure our company doesn't run out of money. So, if you want deeper stats on what's going on, we made a whole video with a much deeper dive into the current economics of fundraising. And also, if you don't want to run out of money, don't forget to check out our boot camp on budgeting your startup cycles. Catch you on the next