Determining size and timing of investment rounds using sales traction and key milestones

At each investment round, investors will expect companies to have achieved key milestones, and to demonstrate more sales traction. A hierarchy exists for sales traction, as follows:

  • Sales
  • Field testing and pilot sites
  • Agreement to field test, pilot or use prior to shipment
  • Establishment of a contract to pursue a field test
  • References from customer proxies (used by angel and seed investors mainly)

The higher you find yourself in the hierarchy, the better for fundraising. If you do not have at least a contract to pursue a field test, then you will have difficulty raising money from traditional venture capital firms. You will likely need to provide references from prospective customers or their proxies to attract angel and seed investment.

How to develop a funding roadmap

1. Determine the total amount of capital your business will need

To develop your financing roadmap, first determine the total amount of capital your business will need until its cash flow can break even in your probable financial plan. As not everything will go according to plan, most entrepreneurs show a range of potential capital requirements, adding 10% to 25% to the top end of the range. You can also determine what successful companies have raised in similar situations.

2. Split your investment round

Split the investment amount into desired rounds of financing (usually two to four rounds). Each round of financing should provide enough cash to enable you to fund your probable financial plan through the next major milestone for your business (for example, shipping commercial products to customers, entering phase II clinical trials). Again, it usually makes sense to communicate to prospective investors a range of sizes of target investment rounds.

Factors influencing the amount of investment you raise

There are factors that may affect how much investment you raise versus your target. These include:

  1. How much investment is available to your business?
  2. What are the terms of the investment? If the valuation of your business is lower than your expectation or the terms are onerous, you may choose to raise less money to reach a nearer-term milestone where the valuation may improve due to either different market conditions, or a lower perception of risk or higher perception of sales traction on the part of the investor.
  3. How much investment do your investors think is required to achieve your milestones and necessary level of sales traction? Investors will focus on how to ensure the next round will be at an increased valuation amount and on terms that will appeal to existing shareholders.

Remember to update and adjust your financing roadmap as you achieve milestones and sales traction, as well as when the key assumptions in your financial plan change.

Thinking of raising money? We’ve created a free online course to help you get investment-ready. Check out Introduction to Investment Readiness and learn useful tips, tactics and strategies to prepare for your seed fundraising round.


Kawasaki, G. (2004). The Art of the Start: The Time-Tested, Battle-Hardened Guide for Anyone Starting Anything. Toronto: Penguin Canada.
Golden, K. (2007, March). Fail to Plan: Plan to Fail. Retrieved April 7, 2009. Presentation delivered at MaRS Discovery District, Toronto, Canada.