Today I came across a blog post by Steve Barsh in which he posted his slide deck from a talk he’s gave in SF recently.
Flipping through the deck, I came across one of the most straightforward and insightful presentations of the numbers that a VC is basing investment decisions on, often called “magic ratios.”
If you are trying to raise $2 mil from a VC at a $5 mil valuation, you will need to be able to show a path to a $100 mil exit in 5 yrs to show a 10x return assuming 50% dilution through future rounds.
The implication of this is very clear. It’s easy to talk about raising $2 mil, but you need to be focused on whether there is an exit for your company at $100 mil, and how you are going to get there. That’s what your VC is thinking about.
Check out slide 4 of the slide deck embedded below. Thanks for the insight & clarity Steve.
This is great info.
Word to Market Research. Most folk’s business plans (those that still do the excersize) completely avoid this part, because it’s hard and annihilates most business ideas.