In the quest for 5x and 10x returns, venture-backed companies engage in many unnatural acts. Decisions that VC-backed companies take every day, would be considered suicide for “normal”, organically-grown businesses.
When startups raise capital, it goes without saying that the intent of this money is to “spend forward“. i.e. to spend on people, programs, projects, etc well in advance of when actual sales volume would warrant this spend. The reason, of course, is to propel the business forward, capture market share and grow.
While new capital enables us startups to do many wonderful things, at all times, we must ensure that we measure the return on our spend. Every $ is precious. And in fact, every $ must earn 35% per year. And of course, you’d better hit your milestones before you run out of said $ or you’ll be in for a World of hurt.
Continue reading Spending forward
Today we pitched a senior partner from a tier 1 east coast VC. This gentleman does nothing other than look at deals in our space (broadly – mobile communications). It took us a while to get him and it was worth it. He instantly got our story and value and is moving to the next step.
It can be tempting for us startup folks to take meetings with any VC who could write a cheque. Often for an A round this is OK. You work with someone local who can get you started. After that however, finding the right VC, one that lives and breathes your space, can make a big difference.
This was only meeting 1 of many. There is a 1% chance in general of closing a deal with a specific fund. Especially, when that fund is tier 1 and can pick and choose its dealflow. Still, it was a nice victory moment for us and we are excited to continue our discussions.
Yesterday, we presented our budget for approval. As a Canadian, I couldn’t help thinking about our Federal Finance Ministers who always buy new shoes on budget day. Being in a startup, I bought new shoe laces.
Budgets are a strange thing. The actual budgeted numbers are not that useful, but the budgeting exercise when done right is invaluable. It’s all about thinking through the key assumptions and metrics of your business. What are the key drivers? Model them. What people will you need and when in order to achieve plan?
I firmly believe that if you don’t measure something it’s because that thing is not important. Therefore, once your budget is approved, it is vital that you track actual data for your key variables / assumptions. This will help you determine if you were correct in your hypothesis for the business. It also helps you determine whether, as managers, you are making good decisions and predictions for your business.
Our budget is approved now. As one of our investors said: It’s all about execution now…