Milestones in Venture Development

Despite the vast differences between one startup and another, we will attempt to describe the main stages in the development of ventures, which are common to all startups. An understanding of these stages is vital for planning the capital-raising process, since they are intimately tied to the startup's cash burn rate, its ability to raise capital, its value, and the amount of capital it needs to raise.

The development of a startup may be tracked along four principal development dimensions. Its combined progress on all four dimensions determines the condition of the venture, its value, its cash requirements, and so forth.

The Research and Development Dimension

The importance of this dimension varies in accordance with the nature of the startup and the degree of emphasis its business model places on technology. The ability to prove a technology—i.e., to build a product that is suitable to the market and which meets all the international standards and tests—is a material and basic skill that all startups require. The main milestones which may be listed on this axis are as follows: proving the feasibility of the technology, if it is in doubt; building a prototype in the laboratory; building a full prototype (for field trials, or the alpha stage); building a prototype for a beta stage trial with customers; building a full product; creating versions of the products and upgrading it. These stages and the emphases within them may change from one field to another. Where medical products are concerned, for instance, feasibility is highly important, and tests performed on animals and human beings are crucial; where software is concerned, proving the algorithms in the early stages is different from facing a challenge in the system in the later stages of the prototype development.

The Managerial Team Dimension

The importance of the leading team to the existence, growth, and success of a startup is self-evident. An excellent development team, business leaders, and talented managers with international capabilities are perhaps the most important variables in a startup's success and hence in its ability to raise capital.

The Business and Market Penetration Dimension

A central component in turning a project into a valuable company is its business structuring: an overall understanding and analysis of the market, the need which is met by the startup's products, the competition and competitors, and prices; a clear definition of the product; the structuring and current updating of the business strategy; the preparation of marketing tools and methods; the marketing itself; sales, and so forth.

The deeper and more comprehensive is a startup's understanding of these issues, the better is its ability to develop the correct product for the correct market and to break it into such market, and the higher its value. Likewise, the better a startup understands its market and its position in it, the more confidence will its management and investors have in it, and the better will be its ability to raise capital.

The principal factors which may be listed on this dimension are as follows: understanding the size, form, manner of operation, and characteristics of the market; understanding and analyzing the competition and competitors (both direct and indirect); defining the product; structuring the business strategy; marketing and sales.

The Revenue Dimension

There is an important difference between a startup which sells its products and services and a startup that is not yet present on the market. This difference is clearly reflected in the startup's market value for the purpose of raising capital. The company's ability to make sales, the feedback received from existing and potential customers, and the ability to measure the sales performance in real terms and not based only on models are all important components in the development of a startup, and from the investors' point of view they eliminate important sources of uncertainty.

The principal factors which may be listed on this dimension are as follows: beta sales; initial sales; a sizeable penetration into a certain market segment; and penetrating additional market segments and other vertical and geographical markets.