By focusing a majority of their time and effort on their most promising portfolio companies, GPs are anticipating that they can secure overweight returns (compared to the other portfolio companies) and deliver a compelling narrative for their limited partners. But that means, those lower priority portfolio companies receive limited assistance at this critical and challenging stage. With GPs stretching across numerous companies, few VCs have the resources or the dedicated teams to support every founder. 

To bridge this gap, many firms have developed platform initiatives in-house with teams to support talent acquisition, marketing, and go-to-market execution. However, if a portfolio company fails to show true product-market fit –or is unable to – platform support won’t address the core issues fundamental to growth. 

The Series A Hurdle

Coupled with the above, the graduation rate from Seed to Series A has become a pain point for many investors and founders alike. According to Lightspeed and other recent studies, fewer seed-funded companies are progressing to Series A rounds compared to historical trends. 

VCs are raising the bar, demanding clear evidence of traction and strong supporting metrics to drive tangible revenue forecasts that can be validated and meet elevated expectations. But many first-time founders, particularly those with limited business experience, navigating and demonstrating this level of validation is a tall order.

So why aren’t these startups hitting their Series A milestones? For most, it boils down to gaps in experience. Many founders have yet to fully prove product-market fit and, when faced with this challenge, tend not to explore alternative markets or monetization models and may lack the experience to systematically test and scale their hypothesis. Without comprehensive support, most founders fail to graduate to Series A.

The AI Boom’s Operational Challenge

The explosion in artificial intelligence (AI) funding has drawn a flood of talented technical founders with visionary ideas. However, building a high-cost, high-tech product does not automatically translate into scalable business success. 

If their business experience is limited, AI founders find themselves struggling to transform vision and concepts into meaningful revenue. To mitigate this, VCs expect a surge in operational hires over the next three to nine months—new personnel capable of supporting these ideas as they move from the lab to market.

However, this demand for operational expertise comes as companies are also seeking to conserve capital as they validate product-market-fit , opting to go leaner and avoid hiring high-cost talent too early. While the market is ripe with innovation, a severe need exists for strategic partners who can help founders navigate the journey to scalability without risking the burn associated with top-dollar hires.

Navigating the headwinds

Changes in policy will make it even more challenging for firms struggling to break out from a stagnant growth trajectory. This means VCs will be under even more pressure to support founders as they build commercially ready solutions that are not reliant on government incentives or policy. 

As the landscape continues to evolve, Sightglass has been partnering with VCs to support startups in prioritizing and executing on the fundamentals that can shift a cycle of stagnation to a pathway of sustainable growth. Isolating and zeroing in on a company’s product-market fit, solution scalability, and organizational design can go a long way in turning portfolio companies into top performers.