investmentStartups go through different stages of funding and usually must target a certain milestone for that stage.
Some of the stages are: (Feel free to edit)
What are generally accepted milestones for each of these stages?
I think the expected milestones have changed in the past three to four years.
Lower startup costs and more availability of seed funding have lowered expectations at the seed stage, but that's led to more companies with traction, higher seed valuations that are harder to accommodate, and overall higher expectations at the later stages. This has been called the Series A crunch and Jeff Jordan of Andreessen Horowitz has a great post outlining its traits and what to do about it.
(Note one set of data suggests seed funding is declining but is still 5x higher than 2010.)
The milestones at each stage will depend on your industry and company but these are rough estimates for internet companies:
Pre-seed/incubator ($50k-$100k): No revenue or traction expected. A strong team and a good idea can be enough. A built product is very helpful but not strictly necessary.
Small seed/angel ($100k-$500k): A launched product with some positive customer feedback or metrics. No revenue expected and team can still just be founders.
Large seed/angel ($500k-$2M): Same as small seed but more often with stronger feedback/metrics, a hot space, and/or a very strong team. Being part of a prestigious incubator like Y Combinator or TechStars helps.
Series A ($2M-$10M): This is where things get tough. Investors used to invest at this stage to create product/market fit but many investors now expect it here. What metrics represent fit are different by industry and even investor, but generally there should be evidence that customers want what you are building and that you can scale into a big company.
Series B ($10M-$20M): Investors will generally expect at least $1M in revenue or #1 or #2 market position, plus a strong, mostly complete executive team. Investors will want high confidence that they can at least get their money back with an acquisition and will push for liquidation preferences toward that.
Series C/D ($20M-$100M): Profitability should be within reach at this point, or there should be a very compelling argument for why investing to the point of continuing losses will build a larger company. Consumer internet startups with defensibility have more leeway for losses vs. enterprise startups that are expected to have real revenue and a scalable, profitable business model.
Mezzanine/IPO ($100M+): Public investors generally look for $100M+ in revenue, market leadership, and profitability or clear evidence of it in the future. Companies like Airbnb, Snapchat, and Uber are delaying their IPO and raising this level of funding from private investors given the new costs and regulations of going public.
Again, these are rough guides but I think directionally right. Hope this helps.
My answer is very general because milestones are very specific for each company. If you could add more details about the industry and the field you are interested in, I could try to be more specific.
Update- I can be more specific on mobile: As Mark mentioned in his answer, the requirements for seed investment are growing with time. I believe that the reasons for this are:
a. It is easier and cheaper to build products today so investors expect startups to build some kind of POC before asking for money.
b. There are countless app startups so investors can set higher bars at early stages.
c. Investors understand better the risks involved in mobile apps. You can have an amazing idea but there is no real way to validate it without getting real feedback from users.
Few additional factors that affect startup’s abillity to get seed funding:
a. Field of your app- There are trends in the “hot fields” investors are looking for. If you were developing a photo sharing app 3 years ago, a good team could easily get a seed funding with a mockup prototype. Today the same team won’t be able to get funding without a significant traction (same for location based services, gamification, payments, etc.). By the way, in my opinion, education and security are few of the interesting fields investors look for today.
b. Team with past experience in that field (preferably with an exit history).
c. Timing - there are times when investors have a lot of cash to pure into new companies and other times when they don’t. Today is a good period but in my opinion this period won’t last for more than 2 years from now at best.
d. Location - It is easier to get funding if you are in the right location for your startup. I think NY is a good place for mobile startups.
Your seed money will be usually used to build a great product and if possible, to develop your app for both iOS and Android (if relevant for you). You would be expected to show good retention rates, a good growth curve and find the best channels for future growth. If you have all those, it means you found your product-market fit and you would probably be able to raise your A round. You will also be expected to have some business model and plan that will allow you to become profitable.
By the way. if your app don’t have the potential to become a $1B company, you will probably won’t be able to raise an A round at all (you have this potential if you have the potential to get 100M users or $100 revenue within 5-7 years).
Best
In a nutshell, it’s:
In other words, no product market fit needed, no prototype needed. Both are obviously a plus, but merely having an interesting idea is good enough.
In other words, you’ve version 1 up and running, and some traction. You might still have a few things to develop, and perhaps you’ll amend the market strategy a bit if it makes sense.
The real goal now is to hire a team and become profitable.
(Alternatively, the goal can be to grow your user base as fast as possible – profits be damned.)
In other words, you could make do without funding: you’re profitable, or you could slow down investments to become so. But with funding, you’ll grow much faster.
(Alternatively, you’ve a huge crapload of users, and you need extra cash to survive until someone like Google opens its wallet, or work out how to become profitable. But this is the exception.)
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