Momentum is a key factor in the success of a startup company. I look at the momentum of a company in a couple of ways depending on if we’ve invested or not.
Momentum during due diligence: During the due diligence process (prior to making the decision to invest), a VC firm will typically meet with the company multiple times over the span of 1-2 months and make all manner of calls on customers, partners, and the like. Jeff Bussgang of Flybridge just wrote a great post on how due diligence works at an early stage VC, and the Startable guys also provide an interesting view of the process (including obligatory boulder picture).
Because there are numerous interactions over a period of time during the due diligence process, it gives me a good opportunity to hear about how the team is moving their business forward without any additional investment. It’s encouraging if a startup hits milestones, does deals, makes sales, or releases product over the course of the due diligence process because it shows that the founding team is laser-focused on moving the ball forward regardless of the outcome of fundraising.
Momentum after investment: Closing that big deal, hiring that key employee, or making a major release of your product are all powerful momentum-generating events at an early stage startup. It is amazing to see how these events tend to act as forcing functions, causing other good things to happen to a company in a short period of time. It seems that successful startups capitalize on these events and leverage them to hit other company goals.
My friend and fellow VC Mark Davis also wrote a post about momentum which focuses on how you should communicate progress to your potential investors. Well worth a read.
Update: ReadWriteWeb just posted about taking advantage of momentum after making a big announcement. Check it out.