Today I had the pleasure of spending time with an entrepreneur planning a seed fund raise for his startup. While most of my fund’s investments are at the Series A stage, we do occasionally get involved with businesses raising a seed. We (several partners, the CEO and me) put together a pretty simple list of objectives that we hope the startup will accomplish with the seed financing. While this list is pretty simple, I thought I’d share it since it makes a lot of sense, if I do say so myself! (It is important to note that this list is for a web service company that already has a bit of traction; the list would be different for a startup in a different space or at an earlier stage.)
Milestones (for more of my opinion on why milestones are important see my post on setting them check out my previous posting) By the time that the company has run out of the seed financing the following should be accomplished:
- Team - Critical technical, business and customer support team members should be in place and fully functioning.
- Approach - The company’s positioning and messaging should be fully baked and tested in the market.
- Monetization metrics - There should be evidence that the company can monetize its users and some preliminary metrics around this monetization potential.
While this appears ridiculously simple, there are some rather complicated business implications going on underneath these milestones. For this particular business, the first two items will directly impact the operational plan for the duration of the seed financing. Employee expenses will be close to 80% of the use of proceeds from the seed, and the particular employees hired will impact the level of technical and product development that the company can accomplish. Furthermore, the company’s product and feature development will flow directly from the positioning strategy. For some businesses, the last point would also impact the operational plan, but in this particular case we aren’t assuming real monetization will occur so cash flow won’t be seriously impacted.
There are hard numbers/stats assigned to each of these milestone; they aren’t just fluff. Specific numbers of users interacting with specific numbers of features, particular team spots filled, A/B testing on different positioning, pricing tested for different features. Not stuff to be publicly shared on this blog, but real goals that we’d hope to achieve with a seed investment.
I realize that most entrepreneurs will not be in the same exact situation as the startup I met with today, but thinking about setting milestones before raising funds is a really solid idea. I’d encourage founders to spend serious time figuring out what you want your startup to look like when it is raising its next round of funding and work back into the resources you’ll need to get there.
