VC Funding: Do You Need It, How to Evaluate It, and How AI Is Changing the Math
A few weeks ago, I attended Michigan Tech Week at Newlab in Detroit. One of the sessions was an investor reverse pitch where a panel of pre-seed and Series A investors talked about what they look for when considering an investment opportunity. I went for educational reasons since I have never been involved in a true VC-funded startup, and I wanted to understand the world I have spent most of my entrepreneurial journey deliberately outside of.
Honestly, it was more useful than I expected and I was feverishly taking notes. The panelists were candid about when VC funding is the right move, when it is the wrong move, and how AI is shifting the math for both founders and investors. I want to share what I took away because I am not sure that it's everyday you get such candid advice.
Do You Even Need VC Funding?
The first question to really challenge yourself on is whether you should be raising VC money at all. It was interesting to hear how many people think they will need VC funding for their business and the discussion that it almost is a badge of success if you are VC funded. But, the panel was almost unanimous in clarifying who should consider vs not consider this style of funding: VC funding is for founders who need to scale fast, like Jimmy Johns freaky fast. The analogy one panelist used was jet fuel. If you need jet fuel to fly, then that is what you go after - VC jet fuel. If you do not, you are taking on a passenger you do not need.
A rule of thumb that came up: if you are targeting $100 million in revenue in seven to ten years, VC may make sense. If you are building a business you want to hand to your kids, VC is the wrong fit. VC investors want an exit and that isn't in 20 years when you transfer the company to your heirs. Whether that exit comes in five years or ten, they want their money back, and they will want you to reverse-engineer your company as you are building to have a plan to get there.
That second point from the moderator was key: less than 1% of companies in the U.S. are actually VC funded. The irony is the room had more than 1% of hands go up when the panelists asked who was looking for VC funding. Several of those same people raised their hands when asked who was building a business for their kids to take over as I previously mentioned. The disconnect was visible. People are clearly pursuing a funding path that is not aligned with the business they actually want to build. And, you may not even need it as much as you think (spoiler alert, the investors and founders all talked about how AI is changing the game…shocker).
If You Do Need VC Funding, Look Past the Money
If you decide VC is the right move, the panelists were clear that the money is the least interesting part of the conversation, for the founder. A VC is a partner, sometimes for a decade. Take their money and they are essentially on your team. Do you want them on your team?
Things to do before saying yes to specific funding:
Look at their portfolio. It tells you what they invest in and what they look for.
Talk to the founders in that portfolio. Find out what it is like to be backed by this VC.
Ask what they bring beyond money. Connections, advice, industry insight, network access.
The panel was direct about this. If the only thing you are excited about is the check, do not take it. The reason is simple: you are signing up for a long relationship with someone whose incentives are not identical to yours. This will cause conflict and angst and you need to make sure these partners will be with you through those tough times.
That also means thinking about the exit from day one. If you take VC money, you should be reverse-engineering your company to make it easier to sell and to increase its value over time. That is hard to do while you are also trying to grow, but it is the deal you signed up for the moment you took the check.
What Investors Look For: Traction
Once you are pitching, the word that came up repeatedly was traction. Traction is progress over time.
The example one panelist gave: ten customers in a year is interesting but not exciting. Ten customers in two weeks is exciting. The number is the same but it is the slope of progress that matters. When you are pitching, show your progress over time, not just your snapshot.
A few other things the panelists emphasized:
Start small in your pitch. Do not pitch the ten- or twenty-year vision of solving for every customer in every sector. They can see the vision. They need to believe you can execute the first step because if you cannot, you won't make it to the future vision.
Connect the dots to their portfolio. If they are heavy in healthcare and you are in industrial manufacturing, explain why your business balances their portfolio. The more you reduce the mental load for them, the better your chances. You will need to do homework ahead of time and understand their current portfolio position.
Pitching is a grind. Expect to talk to 60 to 70 investors and most will not respond. The panel said they screen 30 to 40 to pick one to talk to and they talked about how it's not easy on them either. They were clear that there is no 'shortcut' to the process but they said networking matters. Relationships matter. Warm introductions into their network is much more helpful for you and them then filling out a form on their website.
AI Is Changing the Math
This is where it got really interesting, but not surprising.
A founder in another session said that if they were starting their same company today, they would delay VC funding by years, and possibly not raise at all, because of AI. The reasoning is that a lot of VC money historically went toward human capital because bodies are expensive. AI is making it possible for one person to do the work of several, which reduces the need to raise to fund a team when starting off.
The investors on the panel acknowledged this is changing how they think about their own investments too. One panelist mentioned that just a few years ago, founders would come to pre-seed or Series A asking for money to build a prototype. Now founders are showing up with full working prototypes already built.
If you are building a physical product and you are thinking this does not apply to you, it does. In other sessions I learned about how AI can help you generate 3D-printable files without ever touching CAD. There are even virtualization tools that let you model physical products before you ever produce one. The barrier to a working prototype is lower than it has ever been, whether your product lives on a screen or in the physical world.
The investors on the panel were also clear about one thing: AI is not a sector. They compared it to mobile. Everything has to work on mobile now, just like everything is expected to use AI now. So if you walk into a pitch saying you are building an AI company, the response one of the panelists framed it as was: is your name Anthropic? If not, you are not building an AI company. You are just using AI.
So the takeaway was using AI is the baseline expectation now, not a differentiator.
What I Took Away
There is an image problem in entrepreneurship. The belief is that you are not a real startup or a real company if you are not chasing VC funding. Sitting in that room, I heard something different. Even the VC funders themselves had a clear appreciation for bootstrapping and a clear sense of when VC is the right fit and when it is not. The pride and the image are getting in the way of founders making the right decision for their business and their long-term success is hinging on doing this right.
The honest move is to set the ego aside and ask what is actually best for the business. For a lot of founders, that means bootstrapping and skipping the fancy VC path entirely.
AI is also changing this calculation in a real way. The ability to delay raising funds because AI can carry work that used to require a team is a significant shift. A few years ago, founders raised pre-seed money to build a prototype. Now they are walking into pre-seed with a working prototype already built. That applies to physical products too. You can use AI to generate 3D-printable files without knowing CAD. You can virtually model products before you ever produce one. Whatever you are building, the path to a working MVP before any outside money is shorter than it has ever been.
The principle that lands for me: only raise when you actually need to hit the rocket boosters and fly with jet fuel. Until then, keep bootstrapping and make sure you are leveraging AI. Your options and your flexibility thereafter stay open.
If VC is right for you, that is fine. Just be aware of what you are signing up for and make sure to select the right partner that offers more than a deep pocketbook.
