Venture capitalists are going through their portfolios and categorizing their investments into three buckets:
- Expectant: So badly wounded that it is not worth expending resources to attempt to save them. On the battlefield, these casualties get morphine.
- Priority: Badly injured but rapid and focused attention can save them. These casualties get almost all of the scarce time and medical resources.
- Routine: Walking wounded. These casualties are lightly wounded and there is little cost in delaying treatment until after the battle is over. On the battlefield, these casualties get left alone in a position of cover.
So which category is your company in? If you’re in the “routine” bucket you probably know it. But if you’ve got little or no revenue, your monthly burn is $400K, $500K or even $1MM or more and you have just a few million in the bank, then it’s probably not clear if you’re “expectant” or “priority” from your venture investors’ point of view. And knowing the difference has big implications (morphine or a lifeline).
For venture investors, the first (and probably most important) filter is “runway” (i.e. amount of time existing cash will last assuming conservative revenue projections). If runway is more than 12 months, for the time being you’re in the “routine” bucket (although make sure you are really conservative on your revenue projections).
If your runway is less than 3 months and you don’t have other factors in your favor then you could be in the “expectant” category. My view is that companies with real promise and runway between 3-12 months will get the “priority” classification.
There are obviously a lot of other factors that get considered…I’ll try to address those next.