So What is a “Concrete Milestone”, anyway?

In my previous post we talked about the timing for raising capital, and how a “significant milestone” is when a deal can become serious enough for a VC to start looking at it more closely.  As discussed, this does NOT mean that you shouldn’t be trying to get on their radar before that – I believe establishing a relationship is critical, especially when we’re talking about seed and early stage investments.  Rather, while a deal might be known to a VC, it suddenly gets a lot more attention when the company appears to be on the way to success; a concrete milestone reached is a strong argument for that.

So what exactly is a significant milestone?  Well, that depends on your industry and technology.  Below is a chart known to most entrepeneurs, which breaks down the challenges a start up faces in the early years.  There are certainly exceptions, but I believe it captures the general steps fairly well, which is while I’ll use it for this discussion.

(You’ll notice that “Idea” is farthest and smallest to the left.  I wanted it to be included, but couldn’t make it so small you couldn’t read it – but basically the “idea” itself is worthless in terms of value to the company.  Execution of the idea is the big value driver).

Valuation vs Time at Stages

Valuation vs Time at Stages

(By the way, I invest in tech deals in the seed stage, so my focus is nearly always on the technology part of a start up.)

Technology-Product Milestone:  These are often the hardest to evaluate, since the potential revenue is so far in the future. On the biggest extreme would be pharmaceutical deals, where the benefit from the technology could be 10 years away.  In these cases developing and completing the technology into a product is possibly the biggest break thru for the company.

Product-Market Milestone: Most of the deals I see are new products based on existing technology.  Since the technology already exists, making it into a product is typically not impressive.  There are many reasons for this, not the least of which is the IP on the deal.  What can be impressive, however, is finding a market for that product.  This is demonstrated most easily thru the elusive traction that VCs often are seeking in a deal.  What “traction” means can itself also depends on the product.  It could be that some LOIs (Letters of Intent) are sufficiently convincing, but typically an established revenue stream is what the VCs will want to see. Here you need to show not just revenue, but month over month growth, etc.

Growth and Competition are typically outside of my focus in seed stage investments, though of course they are examined.  However, if you are bringing a deal to a VC which no new technology, no new product or new market, and are instead trying to take on existing players in an established market, you will need to be very, very convincing on your competitive strengths.  For example, nearly every week I see Facebook and Groupon clones.  These clone-deals are using existing technology, existing products, in an existing market, which has already shown high growth.  So the question is, what distinguishes these deals from the crowd?  Normally not much.

So the thing to remember when making your narrative and pitch, is to keep in mind what stage you are in and what milestone you need to reach or show that you are able to reach.