Investing in startups can be an art and a science. While intuition and market trends can play a role in investment decisions, there are milestones investors should consider when assessing a startup’s potential growth, scalability, and long-term success. In this blog, learn more about some of the startup milestones investors should keep an eye on and how to evaluate startup milestones.

Key Startup Milestones to Consider

Startup milestones can serve as checkpoints for investors to assess whether a company is on the right track or facing challenges that need addressing. The following are some of the milestones investors should keep an eye on:

Founding Team Assembly and Early Execution

Before a startup even has a product, its founding team is important. Investors should assess whether the founders have the skills, industry expertise, and the resilience to navigate challenges. Having a well-rounded team can help a startup overcome early hurdles. Investors may want to look for signs of execution, like prototyping, early customer conversations, or securing initial advisors, as milestones in the earliest stages of a startup.

Minimum Viable Product (MVP) Development

An MVP is the first functional version of a product for a startup. It doesn’t need all the bells and whistles of a final product, but it should solve a core problem and demonstrate value. Investors may consider how quickly the MVP was built, if it addresses a real pain point, and initial user feedback when assessing an MVP. Having a successful MVP can validate demand for a startup’s product and if early users are engaged, it can signal potential market fit.

First Paying Customers

Another startup milestone is achieving its first paying customers. Once a startup begins generating revenue, it can be a major milestone for the company. Whether through direct sales, subscriptions, or pilot programs, securing the first paying customers can further validate market fit by demonstrating that a customer values the product enough to spend money on it. Paying customers can help validate the product’s pricing model and provide cash flow to help fuel the startup’s growth. Key metrics to consider at this startup milestone include customer acquisition cost (CAC) and lifetime value (LTV).

Product-Market Fit

Once a startup has paying customers, the next milestone to keep an eye on is product-market fit. When a startup’s product satisfies market demand, it can validate all the earlier efforts of MVP development up to this point. Signs of achieving product-market fit include high user retention and engagement and organic word-of-mouth growth.

Scaling Customer Acquisition

After a startup has achieved product-market fit, the focus typically shifts to scaling operations to support growth. Startups can refine sales and market strategies to acquire new customers more efficiently. At this stage, investors should assess whether or not CAC is increasing or decreasing over time, the conversion rates of leads to customers, and how the startup is expanding into new customer segments or geographies. Efficiently scaling is important for startups, growing with significant increases in spending may indicate an unsustainable business model.

Revenue Growth and Monetization

As a startup grows in terms of customer numbers, investors should also keep an eye on revenue growth. Are there metrics like monthly recurring revenue (MRR) or annual recurring revenue (ARR) that could help indicate future growth? How are the startup’s margins? Consistent revenue growth can demonstrate strong market demand and operational execution. Declining growth rates or plateauing revenue could signal competitive threats or a speedbump in the startup’s scaling efforts.

Partnerships and Alliances

As a startup grows, achieving key partnerships and alliances with more established companies can help accelerate distribution, enhance credibility, and even open new revenue streams. For software companies, integrations with major platforms can help acquire new customers and limit friction points if potential customers are already using those more established companies’ products. Co-marketing efforts can also help a startup’s growth.

Expansion into New Markets

Once a startup has been growing in its existing markets and scope, entering new geographies or verticals could be the next milestone. At this stage, investors should assess market research, regulatory compliance, and early traction in the new market. Successful expansion can indicate further scalability. However, expanding too quickly can strain resources so the timing of a startup’s expansion efforts is important.

Path to Profitability

Once a startup has launched a product, begun generating revenue, and scaled up the product line, investors should begin to assess the path to profitability. At this stage, startups should have an idea of their ideal exit plan, whether IPO, acquisition, or merger. Investors should consider burn rate and runway, potential acquirers, and IPO feasibility at this stage. Without profitability or a viable exit strategy, a startup may not be able to provide growth for investors.

Final Thoughts

Startups go through many milestones during their lifecycle, and tracking these milestones can help investors make data-driven decisions when it comes to their investments. By identifying red flags early and supporting startups in their efforts to scale efficiently, investors can use these benchmarks to provide a framework for assessing progress and potential.

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Want to learn more about investing in startups? Check out the following MicroVentures blogs to learn more:

• Spotting Red Flags: Evaluating Startup Financials
• Diversifying Your Portfolio: Public and Private Markets
• From Private to Public: Understanding the IPO Process
• Understanding Equity Deal Terms
• The Investor’s Toolkit: Keeping up with Portfolio Company News

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The information presented here is for general informational purposes only and is not intended to be, nor should it be construed or used as, comprehensive offering documentation for any security, investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest, directly or indirectly, in any company. Investing in both early-stage and later-stage companies carries a high degree of risk. A loss of an investor’s entire investment is possible, and no profit may be realized. Investors should be aware that these types of investments are illiquid and should anticipate holding until an exit occurs.