Yesterday at the SEVC event, I was talking to an entrepreneur who was in the middle of trying to raise a Series B round from venture capitalists. We were talking about how VCs want to see a repeatable customer acquisition process whereby it’s clear that if you put in $1, you’ll get $2 back (or some multiple of the investment). The idea is that venture money is almost always used to accelerate the growth of a model that’s already working.

After asking him about his metrics related to customer acquisition costs, gross margin, lifetime value of the customer, and more, it was clear that the story wasn’t sound yet — stage two of the B2B startup lifecycle hadn’t been achieved. Talking more about the existing customer base, I then realized that product/market fit wasn’t in place yet either (see Assessing Achievement of Product/Market Fit). It then struck me that even though they had raised a Series A in the past, and were now raising a Series B, they hadn’t proven their product fit the needs of the market.

Just because an entrepreneur raises a Series A round, it doesn’t mean that product/market fit has been achieved.

What else? What are some other thoughts on fundraising and product/market fit?