The Anatomy of a Startup
Based on our 20+ years of experience we have created a Startup Development Table that allows us to create the company investment risk-category fairly quickly and establish the company’s initial Investability rating benchmark. Given that any venture investing comes with a certain level of risk-reward, it is not an absolute science, but it provides investors with a starting point and allows them to use this table to qualify the opportunities based on their individual risk profile.
It allows investors to determine the risk-profile fit into their investment strategy and serve as a guiding principle to the next required actions and resources, and help them qualify the deal and create a baseline to start the valuation process.
Startup companies can be in 7 (seven) the different Development States.
|7-State||Capital||Dev Stage||Market||Risk Level||Valuation||Timeline||Investable|
|Ideation||Self -Funding||Concept||Research||VVH||VVL||0-6 Mo||VVL|
|Formulation||Pre-Seed F&F||POC – Alfa||Validation||VH||VL||6-12 Mo||VL|
|Concentration||Seed||MVP – Beta||Market Fit||H||L||12-24 mo||L|
|Momentum||Series A||V 1.0||Positioning||H(-)||H||24-36 Mo||H|
|Stability||Series B||Full Product||Expending||H(-)(-)||VH||36-48 Mo||VH|
|Breakthrough||Series C-D||V 2.0||Growing||H (-)(-)(-)||VVH||48-60 Mo||VVH|
|Scalability||Growth Capital||V 3.0||Exploding||L||VVVH||60 Mo+||VVVH|
The technology of the Development States represents a set of operation distinctions regarding the states in which a business goes through in the process of developing the business from Ideation to Scalability.
Identifying the characteristics of each development stage are not descriptions or facts. It is a model that will provide the investors with a way to analyze the investment opportunity and the required resources and time it will take the business to reach its ultimate goals.
The state that identifies, at least from the founder’s perspective, a new and innovative way to address an existing problem or a need. There is no structure for its existence yet, it is merely a suggestive point of view about a perceived opportunity the founders might identify in the market.
Starts with creating and articulating an intention and builds a framework or assertions around your ideas. Recognize that there may be almost nothing in existence to support your idea initially. The business starts creating the data sources to support the concept and how it may approach and introduce new ways to address the problem it intends to solve. It is not proven yet, although there is enough data to build the first concept.
Concentration is about starting to get to work. It is the state in which you build your business case and the first POC. In concentration, the founders begin to bring something into existence, from an intention into reality. This takes a very concentrated effort. This state tends to require very high input and activity on the founder’s part, with very little return initially. It is the state in which you either prove your concept beyond a reasonable doubt or not. Building a bulletproof concept – best solution offer. Completing the go-to-market strategy – product-market fit. Working in concentration requires discipline and integrity. It is where 90% of startups fail – The valley of death.
After working in concentration and having started to produce some results over time, a company begins to gain some momentum. You start to gain traction and effectiveness and market adoption – first customers. Results start to equal the actions and the activity you are putting into the company. In momentum, the business starts to promote what it is accomplishing and make it well known in the market. The excitement starts to occur. You want to start to enroll others in participating – effective selling. The founders start providing power versus force. The market provides data to support the original projections and establish a real dashboard of performance. The founders must always watch the integrity of its strategic business plan — the business momentum will come to a halt if you stop working and think that you have made it.
The founders and the business need to be completely reliable in delivering the intended results. It requires that you demonstrate being able to work on the same thing repetitively and routinely. Stability requires being very well organized and in many cases having things automated. In this state, you systematize structure and plan. Start to measure more and create new statistics to monitor. In the state of stability, there begins to be a consistent surplus of results and you start managing the company from the point of view of developing and empowering others to produce the results. Do not change anything that is working and does not experiment without keeping reliable management in place.
In the operating state of a breakthrough there is a sudden, unexpected rise in the results. Things speed up and you must demonstrate that you can handle power and velocity. In this operating state, you work on strengthening your ability to deliver. You manage the company in this operating state with powerful and clear communication. The founders are well supported and organized. Any breakdowns that happen should immediately become an opportunity to produce a new result and should be dealt with that way. In a breakthrough, you have to get out in front of the market again. The danger zone is that in this state the founders might be fascinated with the results and decrease the intensity
This operating state has to do with the business’s original vision and intention is being fulfilled. Not only will the goals and intended results have been produced, but also the founders will be able to turn the management to others to manage. In this operating state, there is nothing that is incomplete. It is about the domain of excellence. The company tends to have a life of its own and continues to grow organically and consistently. Time to take the pedal to the metal – to go for it.
Using this table for many years allows us to go through more deals in a given time quickly and efficiently, saving time and money and in some cases avoiding “bad deals” or non-qualified deals altogether.
Regardless if you recognize it or not, each startup company will go through the 7 (seven) development stage in their own pace, some will do it with a certain degree of velocity and some companies in a much slower pace, it is all depending on the “Drivers” – the founders and the management team that is behind the company.