OCV’s initial $2M funding typically provides around 18 months of runway. Companies should aim to raise a Seed round from new investors with at least 6 months of runway left, and it usually takes 6-8 weeks to close a round from the time you start fundraising.
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Traction is the single most important factor in determining whether, how quickly, and at what terms companies can fundraise. This means you have roughly 9-12 months to show meaningful traction. Without traction, it’ll be difficult to raise additional capital, and the right decision may be to wind down.
“Meaningful traction” is not an exact science at this stage and will vary based on a variety of factors. Annual Recurring Revenue (ARR) will be the most important metric for most companies. As companies mature, a multiple of ARR drives their valuations almost entirely. The earlier the benchmark for growth is revenue-based (as opposed to new users, active users, or downloads), the better. We recommend setting a goal to grow ARR by 20% every two weeks.
<aside> 📈 Recommended Goal: Grow ARR by 20% every two weeks
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Generating revenue may not be immediately achievable, and founders will need to determine which metrics will drive toward revenue. How you demonstrate traction and build revenue is your growth story. This will determine which metrics are most important for you to track. OCV Partners will help you determine the most compelling growth story for your company, and then back into short-term goals that help you achieve it during Office Hours.
Early-stage companies should focus on their growth rate to raise a Seed round. Growth is primarily shown through usage and revenue metrics. Investors want to see there is obvious demand for a commercial product. For an enterprise company, that could be a handful of logos at a few hundred thousand in ARR. Moving on to Series A, almost all that matters is the growth rate of ARR.
Founders will need to determine what their growth story will look like starting on day one and determine which metrics tell that story. This doesn’t mean that it can’t change. However, you should have a clear idea of how you are going to achieve revenue and then set benchmarks that will help you get there. Even if you aren’t generating revenue by the time you fundraise, showing accelerating usage growth via downloads, new users, and user retention are good indicators of traction.
Most companies don’t start generating revenue on day one. You will need to set short-term, bi-weekly goals that will compound towards driving ARR. Bi-weekly goals should be measurable, specific, and ambitious.
When setting goals, ask yourself “What outcome am I trying to drive?” The outcome is always growth and usually revenue. Avoid setting production-based goals like product deliverables or other work products. “Release this feature” or “Write this blog post” are important inputs that help you achieve your goals but are not goals themselves.
A typical first goal is to “get our first paid user.” This is a reasonable first goal but you should hold a high bar for defining a "first customer" or "first user". If somebody downloads the product, does that count? Probably not. A high bar definition can look like "Get your first user...who is deeply engaged with your product." Then, define what it means to be "deeply engaged" and how you will measure that.
It's tempting to set goals that are too long-term or too focused on scalability. Start small, this is the time to do things that don't scale. Just get your first customer.
Setting and meeting company goals builds a culture of accountability. Set an ambitious goal every 2 weeks and aim to achieve at least 70% of the goal. A good starting point is setting a goal of 20% growth every 2 weeks. If goals are consistently achieved, you will be better able to demonstrate significant progress. This is important for future fundraising.
Keep goals simple and clear and avoid adding nuance. Keeping the goal simple without nuances allows the team to explore multiple avenues and employ creative problem-solving.