Financing Stage Milestones

An entrepreneur must be able to articulate a path to sustained positive cash flow to the investor, at the lowest cost and in the shortest time. A startup is a series of stage experiments, and each stage requires sufficient funding to test the critical assumptions and mitigate the stage risks efficiently. An entrepreneur should nail the customer value concept first before approaching the investors for funding. A startup should not lock into key hires and partnerships too early, and the investment in the startup should be kept at a minimum before the path-dependent risks are mitigated and the business model is stabilized. This chapter presents the seven rules to bootstrapping a startup, including consumer-funded and crowdfunding models, a framework to estimate the critical resources and operating budget, and a framework to estimate the venture’s financing needs and the time to achieve sustained positive cash flow. A framework is also provided to develop a milestone-based operating plan. A startup must first complete an operating plan prior to estimating the financing needs. The experience curve effect and a sensitivity analysis of the critical assumptions should be considered when determining the financing needs of a startup.