Editor’s Note: This post was originally published on Seattle 2.0, and imported to GeekWire as part of our acquisition of Seattle 2.0 and its archival content. For more background, see this post.
By Janis Machala
We meet/talk with a lot of entrepreneurs who are raising money. In these conversations, in the executive summaries and investor PPTs there is often missing a breakdown on use of investor funds. It is important for an investor to understand exactly how you will be spending their money. Are you going to scale a sales force? Is the capital to build release 1.0 of your product? Is it for marketing and company launch? What is the breakdown of headcount versus other spending?
What we suggest is to focus on milestones and what can be accomplished for each round of money that’s being raised. Show investors what your operating plan looks like for each functional area of the company. They will be more comfortable if they see what your plans are for each quarter of a fiscal year and how you’re measuring each area of the company: development, sales, marketing, bus dev, G&A. If there’s an assumption of what you can accomplish if you raise $1M show that. If there’s another set of milestones you can accomplish with $2M then show the incremental between $1M and 2M. If you only end up raising $500K instead of $1M what would that look like?
Milestones are also helpful in assessing how the business is progressing and can focus your discussions with your board. If you find that your milestones are not reasonable then remap what is achievable based on what you learn along the way. Good information that materially changes your operating plan is to be expected and investors will appreciate that you’re building a “learning organization.”
Janis Machala is the Founder and Managing Partner of Paladin Partners.