Bursts of Color - Lift vs Runway
You may know Keith Rabois as a famous startup exec, investor, and Twitter rabble-rouser. He's also my longtime colleague and friend, to whom I'm grateful for matching me with Jeremy at Yelp way back when.
I ran across this recent interview with Keith and thought the full 30 minutes was great. If you're short on time, watch for a couple minutes starting at 24:25, where he lays out this metaphor of Lift for startups:
"I generally tell founders: don't worry about runway. Worry about lift."
The company is only valuable if you achieve lift. Runway is a tactic for achieving lift. And you may need to extend the runway to get lift. But if you don't actually achieve lift with that extra time, it doesn't help you."
The Best Way to Demonstrate Lift: Fast Revenue Growth
The most definitive way to lift-off is to build a business that can grow fast and efficiently. For many B2B seed stage companies, I think that $5m annualized revenue is a good initial target... because if you can get to $5m in high-margin revenue, it often means you could run the company profitably… and thus control your own destiny.
If you then also have a plan for how more capital enables even faster growth, you have a "just add more fuel" model that is very attractive to future investors.
Side Note: $1m ARR is Not a Series A Target
I understand that my $5m revenue target may sound very aggressive. During the bull market of 2018-21, conventional wisdom held that a SaaS company reaching $1m ARR could comfortably raise >$10m Series A. That was often true then, but I have not seen a transaction like that in several years. These goal posts have moved for a bunch of reasons, and I don't expect them to swing back.
Other Ways to Demonstrate Lift
Of course every company is different, and not all will generate revenue quickly.
In the meantime, companies may be able to show lift with other metrics like:
Social companies with viral coefficient >1
Consumer companies with 100% organic growth
Marketplaces with accelerating GMV in a city or category
B2B companies with ACV > CAC
Any company with a Burn Multiple <1
Deep tech or bio companies with a significant breakthrough
...and/or whatever helps you honestly conclude that "just adding fuel" will get the plane flying up and to the right at an even steeper angle