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?
One thought on “No Startup Value Until $1 Million in Recurring Revenue”
Management not pursuing it further (you have to read between the lines) is one of top my signals.
David, over what time period would you consider applying the ‘no value as a startup’ as they grow and or pivot?