Capital clarity: Questions to ask before raising

Founders have no shortage of advice on how to raise money, including how to pitch, price a round, and survive due diligence. Yet almost none of it addresses the more fundamental question of whether to raise venture capital in the first place.

That question is especially important in health technology, where long sales cycles and cautious buyers can make the implications of outside capital particularly significant. For some companies, venture capital is simply not aligned with their long-term goals. In those cases, customer revenue may be a better source of financing and a better fit for the kind of business they want to build.

Conversations about that trade-off are still relatively rare. Investors are conditioned to be ready to write checks, while founders are often taught to see securing funding as a measure of success. But venture capital is not simply financing; it commits a company to a particular path, with particular owners, milestones, and timelines.

So, before raising a new round of funding, founders at any stage should ask themselves: Where do I want this company to be in 10 years? How much of the company do I want to own? What will this round force the company to become, and is that what I actually want?

The answer will depend partly on stage. Early on, the question may be whether outside capital is genuinely needed to reach the next proof point, or whether customers can fund that progress. Later, it may be whether the business truly requires more capital or whether the pressure to raise is coming from investors, peers, or the expectations that surround venture-backed companies.

The size of your market dictates how much capital you can responsibly accept, not the other way around. While early checks are often inexpensive enough to test product-market fit, later rounds can force a company to outgrow its market.

If your target market limits growth to a healthy but modest size, raising capital beyond a certain point creates unnecessary risk. Capital demands growth, and expanding beyond your core market pushes a company into adjacent segments and foreign regulatory regimes before it has established itself in its original market.

Similarly, the size of the fund shapes the company you are signing up to build. Venture funds need to generate returns, so a portfolio company must be able to grow significantly. The larger the fund, the larger the required outcome.

A fund of around €2 billion that aims to return three times its capital must generate roughly €6 billion in proceeds. At a typical ownership stake of 10-15% at exit, that implies a combined exit value of over €40 billion from a single portfolio.

A fund of around €100 million requires a fraction of that, enabling it to make concentrated, patient investments and achieve outcomes that the larger fund cannot. Taking money from a large fund means signing up to build a company that can produce a large-fund outcome, with the growth, burn rate, and exit timing that implies.

However, accepting money from a specialist, smaller fund means receiving capital and governance that measures startups against sector reality rather than index ambitions.

In recent years, venture capital has become more concentrated in the form of mega-funds, and this shift has raised the bar for Seed founders.

According to PitchBook, in 2024 about four out of every five dollars raised by US venture funds went to established, mostly large, managers: 30 firms captured three quarters of all the capital raised, and just nine of them took in half. These are the managers now pushing check sizes down into the Seed stage.

This inflates default round sizes, valuations, and growth expectations, meaning every Seed founder now faces greater demand for early traction and a steeper growth curve before a company has proven that it needs one.

For many startups, customer revenue is a better source of financing, and there are several signs that a business will grow better, faster, and more safely on revenue alone. These include recurring revenue that covers costs; customers who pay for the exact capability you would spend money on; high gross margins; a repeatable sales process; and a burn rate low enough to survive the learning curve.

In healthcare, where buying decisions take time and depend on clinical validation, revenue is often the strongest proof of value. The test is straightforward: compare the value of the equity that a funding round would consume at today’s price, with the cost of achieving the same milestones through revenue funding. When the equity is worth more than the capital it buys, the decision is clear.

There are other ways to scale a business without venture capital. Bank options, such as asset-backed loans and invoice financing, can provide working capital without affecting equity. Revenue-based financing allows founders to repay using a percentage of future sales. Assuming alignment with necessary R&D expenditure, startups can also apply for grants, especially in European HealthTech, to fund milestones without dilution.

Furthermore, strategic partners, including large pharmaceutical companies and health plans, are increasingly writing checks alongside co-development agreements. Foundations are also making more equity investments in healthcare startups, where impact and financial return often align. While none of these options suit every company, every founder should be able to explain why selling equity is the better choice for theirs.

The decision to raise is more important than ever

Exits have slowed, liquidity is scarce, and valuations are correcting in overheated corners of the market. When exits are further away, the cost of accepting the wrong capital is even higher. In this environment, having the discipline to say no is a genuine advantage. None of this is an argument against venture capital, as startups may need multiple rounds to secure enough growth to allow them to be financed by customers.

The difference between these founders and those who take no or minimal capital is not appetite for risk, but the shape of the outcome: market size, the exit it can support, and the speed required to get there. Some opportunities warrant large investments because they can return significant value, while others are structurally unable to deliver huge exits, and that is fine.

For an investor, this discipline is not modesty; it is how a Seed fund preserves the ownership that lets the winner return the fund, and how the rest of a portfolio avoids being buried under preference stacks it can never clear. The goal should never be to raise the most capital possible, but to build the right company, on the right terms, for the market you actually have.