You Show Milestones, Your Investors See Millstones
The Milestone Slide is for your audience's needs, not yours.
Once Upon a Pitch Problem #12
Your Milestone Slide appears on the screen and with the timeline on the slide, you explain the steps you are going to take to design, develop and deliver your product to market and how you are going to make gobs of money in about four years. Above the timeline, you start with the Seed Round you are currently financing, then 18 months later you have marked an A Round on the timeline, then another 18 months later a B Round, and then voila, profitable at about another 18 months. Below the timeline, you have testing and proof of concept marked as completed, then minimum viable product (MVP) at 24 months, then commercial release at 36 months, and customer adoption foothold at 50 months. You get your first question and wonder if the VC is even looking at the same slide you are presenting on the screen. Shaken, you politely ask for the question to be repeated. “Sure, I asked, what is your enterprise value at Series B and how do your milestones from Series A support that B valuation?” You immediately pray for the Internet to go down.
Solutions
Rational, not a rationale. The rationale of using a set cadence of time for milestones and fundraising is irrational. The accomplishment of your product development and product-market match milestones tell the rational story of company development, not random times like 18 months. The development events define both your capital needs (the amount of money banked to stay in business between company development events) as well as your enterprise value (fundraise only after development success to ensure enterprise value increases). If it is going to take 24 months to get from testing to MVP, why would you raise only 18 months of capital, knowing you are going to run out of money before the MVP is released? In this example, the Milestone Slide should seek 28 months of capital to keep the company afloat between testing and MVP and use the extra 4 months of capital as cushion including for runway during the fundraising period after the successful MVP release. Start with the exercise of mapping out the 4 to 5 huge development events that must occur to prove product-market match and the dates on which those events are likely to happen. Then you can build a Milestone Slide that has each event set on the timeline matched to each next capital raise, telling the story of how the milestones and the capital, in sync together, will bring the enterprise to life over time.
“And ever since that day . . ..” The Milestone Slide is the happily ever after to your tactical company development story; a mythical world where milestones are funded and achieved on time, product-market match is accomplished, and profitability flourishes. If you are an early-stage company, angel investors will tolerate a bit of ambiguity on the path your hero is going to take to slay the dragon, but if you are later stage, investors require the longitude and latitude of the path, a detailed description of when, where and why the hero is making a stop along the path, an understanding of whether the hero is making a sword or buying a sword from a third party, etc. The longer you are on the timeline raising capital, the more rigorous your Milestone Slide becomes because the hero is more mature, the adventures are more arduous against more dragons, and the audience has changed to later stage VCs and private equity. Every fundraise and development accomplishment advances your hero, your story, and the Milestone Slide.
Know your customer, the VC. When you approach a VC seeking investment, you need to know that VC’s business as well as you know your customer’s business. VCs need a minimum of a 10x return on investment and to beat the S&P 500, they need 15x returns. Christian Soschner, If You Don’t Understand the VCs 10x Rule of Thumb, You Shouldn’t Be Fundraising, December 3, 2021, Medium.com. If you think you are asking for $10M, you are woefully wrong and missing the entire purpose of the Milestone Slide. VCs are not banks making loans; they have to make a specific return on investment and your Milestone Slide has to show the VC that your business matches that math. It’s about their needs, not your needs. To ask a VC for $10M, you are pitching that you are going to deliver at least a total enterprise value at sale or IPO of no less than $1B, providing $100M to that VC at 10x return. Obviously, only a few businesses will ever have enterprise values that meet VC math (1.4% of startups) and your VC audience is praying that you are one of those companies. Start with the total amount of capital you are going to need to reach self-sustaining, multiply that by 10, and that is the lowest amount of the proceeds pie the VCs need to even consider doing the investment. Just as you wouldn’t try to pitch your product to the wrong customer, don’t try to sell your Milestone Slide to the wrong buyer.
What They Said
George Clooney spent his first years in Hollywood getting rejected at auditions. He wanted the producers and directors to like him, but they didn’t and it hurt and he blamed the system for not seeing how good he was.
This perspective should sound familiar. It’s the dominant viewpoint for the rest of us on job interviews, when we pitch clients, or try to connect with an attractive stranger in a coffee shop. We subconsciously submit to what Seth Godin, author and entrepreneur, refers to as the “tyranny of being picked.”
Everything changed for Clooney when he tried a new perspective. He realized that casting is an obstacle for producers, too - they need to find somebody, and they’re all hoping that the next person to walk in the room is the right somebody. Auditions were a chance to solve their problem, not his.
From Clooney’s new perspective, he was that solution. He wasn’t going to be someone groveling for a shot. He was someone with something special to offer. He was the answer to their prayers, not the other way around . . . The difference between the right and the wrong perspective is everything. - Ryan Holiday, The Obstacle is the Way: The Timeless Art of Turning Trials into Triumphs, pages 38-39.
See You on the Track
Rafferty Jackson
Author The First Principles Pitch, startup storyteller, board member, advisor and investor. Once Upon a Pitch is a weekly newsletter looking at one business pitch problem and offering storytelling solutions to help solve that problem.