Can you guess the No. 1 reason a startup goes out of business?
Here it is:
Because it runs out of money.
Sounds simple, but it's true. If a company can’t pay its bills, it’ll go belly up. Meanwhile, if it can keep the lights on, it can live to fight another day — and potentially make its investors a bundle.
But how can you tell if a startup has what it takes to keep the lights on? As it turns out, there's a trick for that.
So, today, not only will I reveal this invaluable trick…
But I’ll show you three startups you can invest in that fit the bill.
How Startups Stay Flush
To set the stage here, let me explain the two ways a company can keep cash in the bank.
The first is by generating profits. But since startups typically lose money for several years, this is an unlikely path.
The second way is more reliable: by raising money from investors.
That's why, when you're evaluating potential startup deals, you should assess a company's ability to raise money.
And that brings us back to the trick I mentioned earlier…
Simple Trick
A few years ago, a well-regarded venture capitalist named Tomasz Tunguz published a study.
His study compared two types of startups:
- Startups that raised a first round and a second round of financing.
- Startups that could only raise a first round.
As his study determined, if a startup raised its first round from a venture-capital fund — a professionally-managed fund that only invests in startups — it had a 54% chance of raising an additional round of funding.
But companies that didn't have a venture fund involved in their first round had only a 33% chance of raising more funds.
In other words, startups that were initially backed by deep-pocketed venture funds were 63.6% more likely to be able to raise more money down the road.
Bottom line? To increase your odds of investing in a startup that can keep its lights on, invest in startups that are backed by a venture fund.
Venture Capitalists Already Take This Advice
It’s interesting to note that professional venture capitalists follow this strategy themselves.
According to a new data analysis by PitchBook, the top 20 U.S. venture firms collaborated with at least one peer — i.e., another venture firm — nearly fifty percent of the time.
For example, look at Benchmark, one of Silicon Valley’s leading venture firms. On average over the past ten years, 55% of the deals it led or participated in have included another top 20 venture firm.
Or look at Redpoint Ventures, with a 49% average.
In other words, rather than being bold contrarians, top venture firms are very happy to follow one another into a deal!
VC Funds versus Angels
Many of our readers ask if it's the same logic for angel investors, the wealthy individuals who invest in startups out of their own pocket. Here's the answer:
Following a well-respected angel into a deal is a good bet. Angels like that can add capital, credibility, deep knowledge, and more.
That being said, following a venture fund into a deal is even better.
First of all, venture funds typically have more capital than individual investors. So they have the capacity to invest in multiple rounds of funding for a company over many years.
Secondly, venture funds are in business to invest in startups. That's their mission. Most angels, on the other hand, invest in startups as a hobby, and don't commit a specific amount of capital.
So if an angel buys a new house or is suddenly footing the bill for two kids in college, he or she might decide to not put more capital into one of their startup investments.
Be a Follower
Now that you know the benefits of investing in startups funded by professional investors, here are three venture-backed startups currently raising capital from investors like you.
Spill — Spill is a VC-backed social-media platform built by former Twitter executives. Since launching in mid‑2023, it’s amassed over 500,000 downloads, and hit #1 in the App Store.
It was named one of Fast Company's “Most Innovative Companies of 2024.” Its advertising customers include Paramount+, CBS, Showtime, and Amazon Prime. With more than $6 million in venture funding, it’s now raising a round that’s open to you.
Spill’s existing venture investors include Greylock Partners, Kapor Capital, and Collide.
RISE Robotics — RISE is a VC‑backed startup disrupting the $600 billion heavy-machinery market with its patented Beltdraulic™ technology. This is belt‑powered, fluid‑free linear actuators that are up to 3x faster, 3x more efficient, and 20% lighter than traditional hydraulics.
The company has already brought in more than $9 million in revenue, earned a Guinness World Record, and has a collaboration with the U.S. Air Force. Its world-class team comes from MIT, RISD, iRobot, Apple & Forbes 30 Under 30 Manufacturing.
The company has already raised $22 million from top VCs including Techstars, MIT’s The Engine, and Fortistar Capital.
TMA Precision Health — This is a VC-backed HealthTech startup. It offers an AI-driven precision medicine platform that helps health plans proactively identify high-cost, rare-disease patients and deliver actionable care insights. Its solution can compress a typical seven-year diagnostic journey into just 12 weeks.
TMA has strong traction, including 90% patient opt-in and projected $2.3 million revenue in 2025.
The company has already raised $2.6 million from venture capital firms including lead investor Saturn Partners.
A Great Place to Start Your Search
Keep in mind, I'm not recommending that you go out and blindly invest in these companies.
These are still early-stage ventures. So even though they're already backed by venture capitalists, you still need to do your own research before making an investment decision.
But if you're intrigued about following deep-pocketed professionals into startup deals, these are a great place to start your search!
Happy Investing.
Please note: Crowdability has no relationship with any of the startups we write about. We're an independent provider of education and research on startups and alternative investments.
Best Regards,
Founder
Crowdability.com
