18 months between rounds doesn’t work here

Early on in my venture career I asked a very experienced VC investor why we were guiding our portfolio company executives to towards an 18 month runway between rounds.

The answer I received was that 18 months is the approximate time it takes for a company to hire and develop a team, and run two successful sales cycles. The reason? Two successful enterprise sales cycles should show market adoption, new feature feedback, cohort growth and, of course, revenue growth and early signs of operating leverage. With success, a company’s progress and team development over the 18+ months de-risks an investment. And the future upside and opportunities available to the company should be more clear, resulting in a higher valuation.

Unfortunately, this timeline prescription doesn’t fit well when a technology company serves the energy & industrial customer base. The fact is that these industries have longer sales cycles: usually around 9-12+ months. While accounts are ultimately bigger and worth the acquisition investment, the sales cycle is deliberately slow. Critical infrastructure firms use a slow decision process as a feature, not a bug. Everything has to work, perfectly.

Given these sales cycles and the need to better curate a startups go-to-market team, I generally recommend a minimum of 24 months runway between rounds for our investments. And for companies early in commercialization, I recommend that the execs slow down sales hires until more of the narrative and value proposition is quantified and marketable. These industries are slow to adopt technology, but once a solution proves value, the broader industry rushes to adopt the solution. And that ultimate payoff is worth the extended runway.