Latest / The Series A Show with Fexingo: Early-Stage Funding, Pitch Decks, and Startup Milestones / Why VCs Love Startups That Sell to Other Startups
Transcript
- Lucas: So you've got a startup idea. You're deciding between building a product for consumers or building something for other businesses — and specifically for other startups. Lately, I've been watching a shift where VCs are essentially saying, if you sell to other startups, we'll fast-track your Series A. Luna: I've seen that too. It's like the 'pick and shovel' play from the gold rush — sell tools to the miners, don't mine yourself. But is this really a new preference, or just a cyclical thing? Lucas: It's not new, but it's definitely more pronounced in 2026. Let's ground this in something real. Look at the ARKW ETF — that's the next-gen internet fund, up almost 143 bucks a share as of this morning. But it's down about 2.8% over the past five days. Meanwhile, Microsoft, ticker M-S-F-T, is down over 8% in the same stretch. The market is clearly rotating away from the mega-cap consumer platforms and toward the infrastructure layer. Luna: Right. And that infrastructure layer is often built by startups selling to other startups. I mean, think about it — who's buying most of the cloud tools, the API services, the data pipelines? It's other startups. Lucas: Exactly. And here's the thing — a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that support is literally what keeps this show ad-free and lets us dig into these patterns. So if you find these conversations useful for what you're building, that's where it comes from. Luna: Yeah, and it really does make a difference. We've heard from founders who say the show helped them rethink their pitch. So, thank you. Lucas: Okay, back to the startups. One of the classic examples here is Canva. They started as a tool for small businesses and eventually became the design backbone for startups. They didn't try to be the next Adobe overnight — they sold to the underdog. Luna: And Stripe is another one. They literally built payment infrastructure for startups that couldn't get merchant accounts from traditional banks. That market was tiny at first, but it grew as the ecosystem grew. Lucas: Right. And now VCs are applying a similar logic at the Series A stage. I saw a data point from a recent pitch deck survey — startups that sell primarily to other startups are raising at valuations about 20% higher than comparable B2B companies selling to enterprise or SMB. The reasoning is that if your customer base is growing fast, your revenue grows without you having to chase new markets. Luna: But isn't that risky? If the startup ecosystem hits a downturn, your entire customer base could shrink overnight. I mean, look at what's happening with some of the high-growth names — Palantir, ticker P-L-T-R, down over 11% in five days. If those companies cut costs, they stop buying tools. Lucas: That's the risk. And VCs acknowledge it. But their counterargument is that startups are more resilient than people think. Even in a downturn, new startups are founded — they're actually cheaper to start now because of AI tools. So the customer base is constantly replenishing. Plus, startups that sell to startups tend to have lower customer acquisition costs because the buyers are already tech-savvy and often come through word of mouth. Luna: There's also the network effect angle. If you build a tool that every startup uses, you become the default. Like how every new startup signs up for Stripe or Slack without even thinking about alternatives. Lucas: That's the prize. And that's what VCs are chasing. I talked to a partner at a top-tier firm last week who said they now have a dedicated 'startup infrastructure' track. They're looking for founders who can identify a friction point that every new company faces — like hiring, compliance, or sales outreach — and build a product that's cheaper and faster than the enterprise alternatives. Luna: So what does that mean for a first-time founder writing a pitch deck today? Should they explicitly position themselves as a startup to startup play? Lucas: If it's true, yes. But you can't fake it. VCs will look at your customer list. If your first ten customers are other startups, that's a signal. They'll also look at your net dollar retention — if those startups grow, do they spend more with you? That's the metric that matters most in this model. Luna: I've seen some founders get nervous about that because they think selling to startups means smaller deals. But the argument is that the lifetime value compounds as the startup scales. A $500 a month customer today could be a $5,000 a month customer in two years. Lucas: Exactly. And that's the pitch. You're not just selling a tool — you're betting on the growth of the entire startup ecosystem. And right now, with the market rotation we're seeing, that bet is paying off for the early movers. Luna: So if I'm a founder listening to this, what's the one concrete takeaway? Should I pivot my B2B startup to target only startups? Lucas: Not necessarily. But you should consider whether your product naturally fits that market. If it does, lean into it. Highlight it in your pitch deck. Show the VCs that your customer acquisition cost is low because your buyers are concentrated in incubators, accelerators, and online communities. And be ready to show that your revenue grows as your customers grow — that's the magic number. Luna: And if you're not selling to startups, maybe there's a lesson in the model anyway — find a growing niche where your customers pull you into the market, rather than you pushing your way in. Lucas: That might be the broader takeaway. The startup to startup trend is just one example of a larger principle: the best businesses often grow by riding a wave, not by making one. And right now, the wave is the startup ecosystem itself. Luna: It's a good reminder that sometimes the smartest move is to sell shovels in a gold rush — especially when the miners keep multiplying. Lucas: Alright, that's our show for today. We'll be back with another episode soon. Until then, keep building.