A comment many founders hear is that their start-up may not be “venture scale.” Ok, but what the hell does that mean?
A simple rule of thumb for what makes an idea venture-scale is having a path to $100 million a year in revenue and hitting $1 billion+ valuation, in 10 years. Essentially, can you get big and profitable fast?
The vast majority of companies cannot and should not grow this way. I met a founder this week who had a $3M a year business that was EBITDA profitable growing 30-40% YoY. Solid business. Not Venture Scale.
What does it take to grow fast enough to be venture scale? Another rule of thumb from the Seed is T2D3, or Tripple, Tripple, Double, Double, Double from a $1M annual revenue base. So…
- Y0, $1M revenue, Raise a $3-$7M Seed round
- Y1, $3M revenue
- Y2, $9M revenue
- Y3, $18M revenue
- Y4, $36M revenue
- Y5, $72M Revenue
- Y6, > $100M Revenue
If you are on the T2D3 track, the later-stage VCs (Series A, B, etc.) will want to invest. If not, they are unlikely because they depend on the T2D3 for their returns as well. VC funds generally have a 10-year life; they must exit their investments within ten years of starting. If they invest in your company in the third year of their fund, they only have seven years to get your company off their balance sheet. As you see, if you are growing slower than T2D3, you are unlikely to reach $100M in revenue with enough time for the VC to exit before their fund ends.
I have a tee-shirt that I sometimes wear at conferences that says “not for everyone.” Venture Capital is not for everyone. The expectations of growth and margins are very high, only achievable by less than 1% of companies. Growing this fast is not a thing many founders have ever experienced. Finding the right VC partner who has helped other founders grow this fast can be magical. I look forward to hearing from you if you have an idea that can grow this fast.
