[Guest Post] Blake Patton is a close friend and founder of Tech Square Ventures, a venture fund focused on seed stage technology companies. Blake is the former General Manager of the Advanced Technology Development Center and Chairman of Venture Atlanta. He is a graduate of Georgia Tech, a serial entrepreneur and a gifted leader. He is also well-connected and informed on the Atlanta startup sector. -cp
My brother, Mark, is a career soldier in the Army and a real hero in my book. Recently, my daughter and I visited him at Ft. Leonard Wood, MO. During the visit, he told me about a time during his second tour in Iraq when his unit was transporting a General to an Iraqi police academy in Mosul.
Moving around in Iraq was challenging—especially when transporting a General. The roads were full of hidden danger. At any moment, an improvised explosive device (IED) could pierce their vehicles. Soldiers could die. Mission halted.
As they approached Mosul, they stopped at an area known for IEDs and an Explosive Ordnance Disposal (EOD) team moved forward to clear the route ahead of them. Once they cleared the way, the convoy moved forward.
His account highlighted that having a team clear the road was a big milestone on that mission. The soldiers were well trained and knew what to do once they reached Mosul. The biggest risk was getting there in one piece and avoiding roadside bombs.
They identified that risk, planned ahead and lined up the team. After the explosives unit cleared the road, the risk was mitigated and their chance for a successful mission improved.
Determine Your Milestones
When planning for your startup, identify the biggest risks you face, develop plans to mitigate those risks, and define junctures in your plan that provide proof you’ve overcome those risks. Those are the milestones in building your startup. Milestones are the points in your startup’s growth that demonstrate traction and effectively take some of the risk out of the opportunity.
Working backwards from those milestones enables you to determine what resources you will need and how long it will take. Your burn rate between milestones defines the capital you will need to grow your business.
Milestones form the roadmap for how you will build your startup and should correspond with evidence that the startup’s chance of success is increasing. Typical startup milestones include:
• Prototype—Evidence you can build it
• Minimum Viable Product—Evidence you can solve the customer’s problem
• Initial Customers—Evidence customers will pay and market validation
• Business Model—Evidence you can charge enough to sustain customer acquisition and growth
• Revenue & Customer Growth—Evidence you can scale
As an investor, I know the value of a startup does not increase linearly. It looks more like a stairway. You can make a lot of progress and have a high degree of confidence that you are almost there, but until you reach the milestone, the value of the company doesn’t change from the outside looking in.
When evaluating the market opportunity, timing, and team, I am looking to understand your milestones and what resources are required. I want to make sure the startup is raising the right amount of capital to avoid falling short of key milestones while minimizing the amount of capital at risk. By doing this, you increase the chance that the next time you raise money the startup’s valuation will have increased.
Raise Money at Value Inflection Points
If you want to raise money, define milestones and hit them. Milestones are important to investors because it shows how much you need to raise, how you will use the money and how the value of their investment will increase.
Milestones define the key value inflection points in your startup. The best times to raise money are at these key value inflection points. The worst thing you can do is run out of money and fall short of your milestones.