Read $1MM Ticket to Nowhere - Part 1 here. 

The employment market for developers is incredibly competitive, and they are worth every dollar. A good startup can not be dependent on an outsourced dev shop: They need to own and build their stack.

As an example, if you have a five person team with resources heavily weighted towards developers and cheap office space, a $1MM bank account will give you less than 12 months runway. Startup years are like dog years — you age seven years for every one year you are responsible for delivering and keeping a company afloat.

$1MM and a 12-month runway will dwindle quickly and ultimately disappear if companies are not myopically focused on recurring revenue opportunities.

From a revenue perspective, if you look at hitting a $1MM revenue goal, you need to be very careful that it is true recurring revenue, because any revenue derived from a one-time event or without an associated  renewal contract will be excluded from the valuation.

As the old saying goes: "The first million is always the hardest," but revenue for revenue's sake is the last thing a startup should chase. Yes, revenue in any form helps pay the bills, but it only delays the inevitable and serves as a distraction from the top priority — recurring revenue.  

Achieving the next major milestone requires VCs and entrepreneurs alike to be grounded in reality. Entrepreneurs should be comfortable presenting business models that align with their capital (and runway). They should be honest in their assumptions and err on the side of caution.  

In addition, entrepreneurs need to realize how much money and how long it will really take to get to critical mass — not just ask for $1MM because it’s an easy number to ask for. Whatever they think their cost of operation will be, estimates tend to be at least 50% to100% below where they end up. If an entrepreneur’s idea is a true game changer with the potential to put up big numbers, they should ask for more money from the financial backers who truly understand what they are doing and have the ability to make the company successful.

Likewise, VCs should place a higher value on honesty and accuracy, roll up their sleeves and truly help accelerate their portfolio companies, not just buy an expensive lottery ticket.  

Every startup management team needs their help; they don't have the same network or depth of experience (either first hand or by observation) that a VC can tap into. VCs should feel obligated to both their startups and their LPs to make sure the companies are successful and not just eating their own dogfood.

When I look around, I feel truly blessed to have joined the Vestigo team. Dave, Mark and Ian have incredible experience; and work closely with existing and prospective portfolio companies. They tap into their networks and share insights that can truly transform a company.  The combination of this approach/culture and Cobo Labs’ technology assets instills in me a high level of confidence that our portfolio companies will truly take off.

Mike Nugent
Managing Director