Recently we decided to shut down a startup I had invested in. After 20 months in business, ~$200k of recurring revenue, and a substantial monthly burn rate, the management team wasn’t interested in pursuing it further. Some product/market fit was in place but there wasn’t a profitable, repeatable customer acquisition model and the addressable market was challenging to reach.
Why shut it down? Startups that are super sub-scale without a proven model aren’t of any value. No potential acquirer wants the company (perhaps the people in an acqui-hire but not the actual business). Investors might be interested in putting more money in it, but without a committed management team there’s no interest.
In fact, there’s no startup value until reaching $1 million in recurring revenue, or a clear path to shortly achieve $1 million. Here are a few reasons why:
- $1 million makes for a viable, on-going software business (see The $1 Million Annual Recurring Revenue Milestone)
- $1 million means there’s a repeatable customer acquisition process in place (see The Four Stages of a B2B Startup)
- $1 million is the minimum that many venture investors require before considering an investment
When a startup is still figuring things out, has less than $1 million in annual recurring, and isn’t growing fast week over week, there’s no enterprise value. After $1 million is achieved, many opportunities emerge.
What else? What are some more thoughts on no startup value until $1 million in annual recurring revenue?