March 16, 2009 in ATDC News

Dead On Arrival: Part 3

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Last year, I introduced a multi-part blog built on the premise that an effective fundraising program is investor-centric, milestone-driven, realistic, targeted, anticipatory, and market facing.  To date, I have written on the merits of strategic fundraising and discussed details on making your activities "investor-centric".  Today, let's discuss the concept of being milestone-driven.

One of my earliest lessons in entrepreneurship was the concept of the risk-return tradeoff.  Core to this concept is that investors are naturally inclined to avoid risk and, all things being equal, prefer less risk.  The corollary of this concept is that investors will only bear additional risk under the prospect of increased rewards. 

In applying this model to the real world, it is easy to see how an investment in a well established public company is less risky than an investment in a university spin out in nanotechnology.  It gets a little murkier, however, when you assess the riskiness of that same university spinout today and then again twelve months later.  Here is where milestones come in handy. 

Milestones are company acheivements that significantly reduce the risk of an investment. The key attribute of this definition is the adverb significantly.  From my experience, all company acheivements are not created equal.  Closing on a key hire is important but bringing a product to makret is big and getting someone to pay for your product is even bigger!  The latter two accomplishments are the type of milestones that significantly reduce the risk profile of your company and increase its attractiveness to investors.  Raise money in advance of such milestones and you run the risk of overpaying for capital and delaying additional fundraising while you try to achieve unrealistic milestones.  You may run out of money in the meantime!  The key is to commence your fundraising to coincide with the accomplishment of key milestones and it is equally important to present a plan to investors that achieves additional milestones with the funding you seek.  Good luck and stay tuned!

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