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I had two conversations last week, each of which reinforces a simple phenomenon that I have constantly emphasized over the last five years in my writings.
On Wednesday, I had lunch with Brian Jacobs, General Partner at Emergence Capital. We were discussing our respective startup portfolios, and Brian mentioned that his firm’s preferred stage for investment is when a company has about a million dollars in revenues. Presumably, at that point, the experimentation with product, business model, pricing model, customer acquisition strategy, cost of conversion, and other key issues have settled down. That means, a cash infusion of, say, $7 million will result in a somewhat predictable set of outcomes. Most importantly, the fresh cash would accelerate customer acquisition, and hence revenues.
On Friday, I spoke at MIT’s Digital Economy event in San Francisco. Sharing the stage with me was Doug Leone, Managing Partner of Sequoia Capital. We discussed a company that Sequoia has recently invested in called AgilOne. Before raising a Series A round, this Big Data company had built up substantial revenue, customer traction, and validation. In a sense, raising money from the best-in-class VCs in the Valley was easy because of the unambiguous customer momentum.
Both Brian and Doug agree that getting enough customer validation, business model validation, pricing model validation, and customer acquisition strategy validation makes it significantly easier to get venture financing.
So, at the risk of repeating myself, folks, please remember: Validation is the operating word. Bootstrap first, raise money later. And ideally, get into the Million Dollar Club before you go out to raise serious capital.
Today, in support of this premise, I will introduce you to some 1M/1M portfolio companies who have already made it into the Million Dollar Club, as well as some that will in 2013. If you follow my writings, you have heard of some of these successful companies before.
Note: (On May 20, 2015): The company in the 1M/1M portfolio that has raised the maximum funding is Freshdesk (over $90 million). They have over 40,000 customers globally. The company ALSO bootstrapped first, validated business model, pricing model, product-market fit, and THEN raised its Series A from Accel. Today, they have ambitions of becoming a Billion Dollar Unicorn.
This segment is a part in the series : The Million Dollar Club