You just signed a monster customer. They’re most of your revenue. Now you’re walking into a VC meeting…how do you explain this?

My Advice to a Great Founder

One of my investments is dealing with this issue right now…

“How did you wind up with a lot of revenue concentrated at one customer? You signed a huge contract. That’s a good thing!” I said.

“You could’ve said no to the big contract. Then you wouldn’t have concentrated revenue. But that would be crazy, right?”

This startup is just a few months old. I advised the founder to emphasize that when he talks with VC’s.

“You guys are still very early. Even if your revenue is highly concentrated, you’re growing so much faster than other companies at your stage.”

The Advantages of Customer Concentration

Customer concentration has one big advantage: it lets you focus.

So long as Megacorp is happy, your business will do great. What you learn from working with them will help you sign other major customers.

And if you’ve hooked a giant customer, you could do way more business with them in the future!

How to Handle Customer Concentration Risk In VC Meetings

There are real risks in relying on one customer. VC’s will ask you about them.

Acknowledge the risks. Explain how it happened: you signed a giant contract early on.

Then paint a picture of the future. Tell the VC about some other big customers in your pipeline and how they could diversify your revenue. 

Finding The Right Investors

Startups are a risky game, whether your revenue is concentrated or not.

Find investors that understand that. Fill your funnel with VCs who have invested in early stage startups before and had some big wins.

Those prior wins will make them eager to accept risk. They know risks mean opportunities!

Wrap-Up

VCs have all these weird rules like “customer concentration bad.”

It sounds good on a podcast. But it doesn’t make much sense in reality.

If you sign a giant customer early on, your revenue will be concentrated. That doesn’t mean you did something wrong!

The key is finding investors who get it. 

Who understand that getting a big customer early is a huge win, not something to apologize for. Who realize that just because your revenue is concentrated today doesn’t mean it will stay that way. 

If an investor can’t understand that, cross them off your list. 

More from the blog: 

Why Some Founders Raise Millions with a Text — And Others Can’t Get a Single Check: Traction vs. Track Record

You Finally Closed Your Funding Round — Time to Panic?

When Is It Time for a Startup To Do Huge Layoffs?

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